Nokia (NYSE:NOK) looks set to end 2020 very near where it started. Shares of Nokia stock were due to open for trade Nov. 23 at about $3.95. They started the year at – $3.95.
Between then and now, millions of words have been written about whether Nokia would survive the onslaught of Huawei. Would policymakers kick the Chinese company to the curb, letting Nokia (and rival Ericsson (NASDAQ:ERIC)) take carriers’ 5G business? Would that make Nokia stock a buy?
The answers turn out to be yes and no. Yes, Huawei has been kicked to the curb on some contracts. No, that doesn’t make Nokia stock a buy.
5G Beyond Carriers
There’s an assumption that the 5G market is all about carriers. That was the case with 3G and 4G. The big contracts came from outfitting carriers to take on more capacity. The carriers encouraged this line and advertised the new tech heavily. They’re doing that with 5G, too.
But 5G isn’t just about carriers. It’s about the cloud as well. AT&T (NYSE:T) recently signed a deal with Nokia to push private networks on new 5G frequencies. So did Verizon (NYSE:VZ).
But notice the partner Verizon is bringing to the table. It’s Microsoft (NASDAQ:MSFT). This is really a Microsoft service, aimed at carriers, with Nokia gear on the back end.
It turns out 5G is less about carriers than it is about data centers. It’s about connecting clouds to new kinds of clients – factories, hospital equipment, warehouses. Remember, as I wrote a year ago, the machine internet will bring any device reliant on data under centralized internet control. Decisions previously made on the factory floor will be made by software. Supply chains and distribution will be controlled centrally, in a granular way.
Nokia and the Machine Internet
This brings opportunities to Nokia, but it also brings challenges.
It means Nokia can now compete against companies like Cisco Systems (NASDAQ:CSCO), Arista Networks (NYSE:ANET) and Juniper Systems (NYSE:JNPR) in the fiber world. But it also means the fiber world can compete with Nokia in the wireless world.
While Nokia is pushing its radio access networks (RAN) for 5G, claiming to support open standards while taking proprietary profits, open source is pushing back. The aim is to remove those proprietary profits through open RAN standards. This recently got a $750 million endorsement from Congress.
More important is that the Open RAN Policy Coalition has the support of the cloud czars. Facebook (NASDAQ:FB) is the loudest supporter, but all the czars mean to take advantage of open radio standards to reduce costs. That’s what clouds do. They kill proprietary advantage with open standards and mass market hardware. All the major cloud players (except Apple (NASDAQ:AAPL) are members of open RAN. So, for that matter, is Nokia. It sees open RAN as a wedge it can use to beat Ericsson, which isn’t in the group.
The Bottom Line on Nokia Stock
The 2020s will be defined by the cloud, not the carriers.
The cloud world is built on open source and virtualization. Hardware is becoming software.
Network equipment vendors like Cisco and Nokia, and storage companies like Dell Technologies (NYSE:DELL) and HP Enterprise (NYSE:HPE), face increased pressure from this trend. The trend is only going to accelerate, as the cloud czars make their own chips.
It’s a slow, grinding pressure, like water on rock. But over time water wins. Nokia’s patents, trademarks and copyrights won’t hold out forever against the open-source pressure. Its support of open RAN is an acknowledgement of this.
Nokia stock can ride for a few years on carrier largesse. But the company must compete in an open source, cloud-based world to have a long-term future. I’m not convinced that it can.
At the time of publication, Dana Blankenhorn had long positions in AAPL, MSFT and T.
Dana Blankenhorn has been a financial and technology journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Write him at email@example.com or follow him on Twitter at @danablankenhorn.