Nokia Redirects Its 5G Business with System-on-Chip Tech

Nokia Corp. stumbled in its 5G business when it invested in an expensive computer chip; customers instead gravitated to Ericsson’s and Huawei Technologies’ less expensive processors. In 2018, the company began a two-year restructuring program, bringing in Tommi Uitto as the new head of its wireless equipment unit. He doubled the R&D staff and added two more chip suppliers, in an attempt to make more affordable chips. Now, a new president and chief executive, Pekka Lundmark, is about to take over the helm at Nokia from Rajeev Suri.

The Wall Street Journal reports that, “Nokia is scrambling to make up market share lost to those competitors in the wake of the chip mistake.” Suri’s strategy was to position Nokia to sell “the entire spectrum of equipment that wireless carriers and landline cable-and-Internet providers need to build 5G networks,” with the idea of capturing some of Huawei’s market share.

When the Trump administration warned its allies against using Chinese-made 5G equipment, Nokia was in a good position to benefit. But due to “betting on the wrong chip,” Nokia lost more ground to Huawei, which, according to Dell’Oro Group, “increased its global share of the telecom gear market to 28.3 percent, from 27.5 percent in 2018.” Ericsson also “boosted its share to 13.9 percent from 13.7 percent,” and Nokia “fell to 16.2 percent from 16.9 percent.”

The 100x speed of 5G over 4G is because “its antennas can focus wireless signals like spotlights … [and] each antenna can concentrate multiple spotlights on one device, or simultaneously on several different devices, such as a cellphone, a driverless car or a factory component.” The chips in the antennas are crucial to making the 5G technology work.

According to Uitto, “Nokia selected the type of chip it thought would work best before an important technical debate had been settled.” Its two options were “system-on-chip” (SoC) or field-programmable gate array (FPGA). The former is “power efficient and cheap to make” but difficult to reprogram, and the latter is flexible, able to be reprogrammed after installation in an antenna.

Nokia picked FPGAs, with the idea that “wireless carriers could reprogram them to suit whatever 5G standards would be adopted later.”

But when 5G standards emerged in 2018, “Nokia realized it had too many FPGA chips and not enough of the cheaper ones that Huawei and Ericsson had bet on.” As Nokia head of mobile marketing Sandro Tavares put it, the FPGA was similar to “buying a car with a lot of features that you don’t use … [whereas the SoC] has exactly what you need, so you’re not spending that much money there.”

The result, said one European telecom executive, was that “certain Nokia equipment was double that of products by Huawei and Ericsson using the SoC chips.” Nokia stated that, “the price difference for high-volume products was typically between 5 percent to 15 percent.” Uitto reported that, “35 percent of Nokia’s shipments this year will have SoC chips, a number that will be 100 percent by 2022.”