Nokia Network Infrastructure: the capillaries of connectivity
You might have heard the expression: “if you want to go fast, go alone; if you want to go far, go together”. Nokia’s Network Infrastructure business group is well placed to do both because our four complementary business divisions are able to share best practice and collaborate on technology and operations while maintaining a specialized and highly customer-centric approach.
In doing that, we strive to be the world’s most trusted systems partner for the world’s most critical networks.
These networks support consumers, enterprises and webscales. They provide applications and services to established telecoms operators and new players. They are enabling the new wave of industrial digitalization. Spanning the globe, both on land and under the sea, our networks are the capillaries of connectivity.
To fulfil this role, we invest in our people: aiming to attract the best and brightest talent and to drive customer-focused innovation faster and further.
As we stand, Network Infrastructure is a respectable ~ seven-billion-euro business, with a respectable seven percent operating profit.
But we’re not really interested in growth and margins that are merely respectable. We have committed to our investors that we will deliver an operating margin of between nine percent and 12 percent in 2023.
How do we intend to achieve that? Well, to summarize:
- We have great products and an ambitious R&D program to continue driving our technology leadership;
- We have the right relationships, approach, scale and products to meet the needs of our customers in our existing markets;
- We have the ambition, strategy and portfolio to help us continue accelerating in our growing adjacent markets.
Let’s take a look at these three areas in more detail, starting with portfolio innovation.
We recognize that innovation is our raw material. This is how we help our customers get ahead and stay ahead. So each of our divisions has ambitious plans in this area.
In IP Networks, our success has been based on driving innovation. We will continue to focus on innovation in our core technologies – including our in-house developed IP routing silicon and broad range of systems that allow us to deliver the right cost and performance to the right place in the network. Our commitment to software excellence will also continue. This is a differentiator for us, acknowledged by customers. It’s also one of our paths into the data center switching market, in which we made an entry in 2020 and where we have ambitious plans for expansion.
In our Optical Networks division, we will continue to scale the business. We will do that partly by delivering next generation DSPs to increase capacity; and by increasing our investment in silicon photonics, photonic switching, and network automation tools to help improve the total cost of ownership in optical networks. Our next generation PSE-V DSP will be our fifth generation of coherent optical technology and will enable service providers to combine higher spectral efficiency with the lowest power consumption in the industry.
In Fixed Networks, we will build on our leading position in 10G and 25G PON and invest in driving and increasing our technology leadership with in-house silicon and optical modules development. We’ll complement that with continued cost optimization to ensure that our products remain highly competitive. We will also continue to drive the adoption of cloud-native software by our customer installed base and to capitalize on customer demand for 5G fixed wireless access.
Finally, Alcatel Submarine Networks is benefitting from our leading position in the growth phase of the market cycle. We will build on this situation and smooth out the business cycle by consolidating our leadership position in turnkey subsea cables, while we update our fleet and convert a strong backlog of orders into revenue.
Our portfolio innovation is strong partly because we take a relentlessly customer-focused approach, ensuring that we keep the needs and opportunities of our CSP and non-CSP customers front of mind.
For example, we continue to focus on the evolving requirements of our biggest customer group - CSPs. We are building the right core technologies - including custom routing, optical and access silicon - to address their needs for performance and service delivery. As a result, we are aiming to expand our share in this customer segment.
While the CSP segment represents our biggest customer group, we also have specific strategies to address growth opportunities in the non-CSP segment, by leveraging the same core technologies that differentiate us in the service space into verticals that highly value our approach. And we are making specific investments in solutions designed particularly for webscale companies and cloud builders.
The result of this portfolio innovation and customer-focused approach is that we are targeting net sales substantially higher than the estimated two percent CAGR growth in our total addressable market.
Achieving these results and maintaining a technology leadership position will require increased investment in R&D, as well as in sales engagement models. At the same time, we have committed ourselves to maintaining overall costs relatively flat as a percentage of sales, while even streamlining our sales, general and administrative costs somewhat. That is, we want to do more with the same and we will achieve this partly by leveraging Nokia’s new operating model - which is designed to cut out duplication and make our processes more efficient.
Network Infrastructure has an ambition: to go far and to travel fast. We will support this ambition by making the most of Nokia’s new operating model; investing in our people to drive innovation and customer focus; and finding new ways to enable Nokia to “create technology that helps the world act together”.