Nokia’s recent troubles are related to chip issue; 350 engineers hired in Finland to up R&D

Lightreading.com published a great article analyzing the recent problems Nokia shared with its shareholders (and public) related to 5G. The main problem is the chipset used in Nokia’s 5G gear.

Nokia decided to use a chip based on field-programmable gate arrays (FPGA), that can be programmed after they are designed. They offer more flexibility, but are costlier to make in comparison to application-specific integrated circuits. That decision was made because of the Alcatel-Lucent acquisition that required a lot of integration efforts, so choosing a more flexible architecture seemed like the right thing to do, considering Nokia had its hands full with overlapping existing products and other merger issues.

As it was made public in the Q3 2019 investor call, the choice of a costlier, but more flexible chip negatively affected Nokia’s network business gross margin (29.1%), while Ericsson improved its networks gross margin to 41.6%. Apart from higher cost, Nokia’s key supplier failed to deliver a low-cost 10-nanometer product, that further set back the company. To catch up, Nokia started increasing investment in R&D and hired 350 new engineers in Finland to help developing the SoC.

On the earnings call, one analyst asked the question in a way that Nokia’s CEO couldn’t deny that Intel was responsible for manufacturing of that chip. It instantly brought back the memories of MeeGo. Intel was late with 4G chips for MeeGo, and that also was one of the key factors why MeeGo was cancelled. Recently, Intel also caused a lot of troubles for Apple, by not being up to the task of developing 5G radio. Apple decided to ditch Qualcomm and enter a global patent war because they thought Intel could supply them 5G radio, but that turned out to be a costly mistake.

The great article at LightReading can be found here.