Can Nokia Revive Its 5G Business With Marvell Partnership?

Nokia (HE:NOKIA) Corporation (NYSE:NOK) recently announced that it has teamed up with Marvell Technology Group Ltd. (NASDAQ:MRVL) to develop customized 5G radio access system-on-chip (SoC) leveraging its ReefShark technology. The alliance underscores Nokia’s commitment to deliver cost-effective and automated 5G network operations, especially at a time when it is aiming to walk the extra mile to revive its faltering 5G business.

Headquartered in Santa Clara, CA, Marvell Technology is a fabless designer, developer and marketer of analog and digital signal processing integrated circuits. The global semiconductor company specializes in highly integrated SoC and System-in-a-Package devices, based primarily on ARM designs, which are sold to both businesses and consumers. With more than 10,000 patents worldwide, it operates in China, Germany, Bermuda, Taiwan, Japan, Korea, the United Kingdom and the United States.

Talisman Deal?

Per the deal, the semiconductor company will be providing its industry-leading multi-core Radio Access Technology applications that will be incorporated in Nokia’s AirScale RAN product line with its 5G-backed ReefShark portfolio. Equipped with customized ARM-architecture-based processor chips, this breakthrough innovation aims to deliver best-in-class customer experience with reduced power consumption, and enhanced performance and capacity.

Notably, Nokia has long struggled to undertake additional investments related to its 5G powered ReefShark SoCs. These SoCs are best known to leverage a single computer chip to operate an entire system. Unfortunately, its inability to develop ReefShark portfolio has hindered its cost-efficiency feature, compromising its profitability to rivals like Ericsson (NASDAQ:ERIC) , which spends hefty amounts on R&D. Dearth of resources and geared up 5G spending cycle have also put Nokia at the risk of losing out on upcoming commercial launches.

The latest collaboration comes as a savior for the Finnish company to cater new vertical markets especially in the face of burgeoning network traffic and dynamic 5G plans. Dubbed as a key partnership, it is expected to reduce Nokia’s technical disparities and address the complex requirements of 5G NSA, SA, NR standards for future network deployments.

Current Scenario

Shares of Nokia have declined 36.7% compared with industry’s gain of 9.2% in the past year. This abysmal performance is primarily attributable to rising costs, operational inefficiencies, organizational dysfunctionalities and intense competition from Huawei, along with its inefficacy to meet the technological advancements in the 5G era.

Its financial performance in the past year took a backseat as its gross margin was negatively impacted by a high cost level associated with its first generation 5G products, product mix and profitability challenges in China. Despite a 4.2% rise in revenues in third-quarter 2019, the performance was marred by pricing pressure in early 5G deals and temporary capital expenditure constraints in North America related to the proposed merger of T-Mobile US, Inc. (NASDAQ:TMUS) and Sprint. This was followed by its decision to suspend dividend payments and slash guidance for 2020. The company has also decided to retrench about 180 employees in order to trim operating costs.

Amid all these adversities, the Zacks Rank #3 (Hold) stock is considered to be the only vendor with a globally available end-to-end product portfolio that covers all 5G network elements. This includes radio, core, cloud and transport as well as management, automation and security. It has been working consistently to build a robust scalable software business and expand it to structurally attractive enterprise adjacencies. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

It remains to be seen whether Nokia will be able to script a turnaround amid a challenging macroeconomic environment and geopolitical uncertainties.

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