Nokia’s router revamp could be clouded by slow carrier spending, says Wells Fargo

digital transformation
Wells Fargo said in a research note that although Nokia's new routing platforms could put the company on a growth path, movement may be slower.

Nokia’s move to revamp its router line and offer a new silicon set is clearly intended to raise the bar in terms of capacity and providing network analytics, but slower carrier spending could mean the company won't see an immediate revenue impact.

Wells Fargo said in a research note that although Nokia's new routing platforms could put the company on a growth path, movement may be slower.

“While we believe the announcement could help stabilize and potentially grow IP Networks revenues y/y in 2018, we expect the segment to continue to be pressured near-term with continued y/y declines due to a soft market and product transition,” Wells Fargo said. “While there is engagement and interest from web-scale customers, we believe NOK's broader initiatives in targeting adjacent growth markets could take time to ramp and maintain our Market Perform rating.”

Nokia introduced two new routing solutions—the 7750 SR-s and 7950 XRS-XC—and a new FP4 chipset and redesigned silicon it says are targeting the web-scale and cloud market and data center economics.

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The Nokia 7750 Service Router (SR)-s series provides support for 144 Tbps configuration in a single shelf.

By developing these new options, Nokia says it can help prepare its customers for new traffic demands. Nokia Bell Labs forecasts IP traffic will more than double in the next five years, reaching 330 exabytes a month by 2022 while achieving 25% compound annual growth rates. Peak data rates will grow even faster, at nearly 40% annually.

Slowness in the IP/Optical division was certainly evident in its first-quarter revenues. During the first quarter (PDF), Nokia reported IP Networks and Applications revenues declined slightly on a sequential basis to $1.44 billion.  

Rajeev Suri, CEO of Nokia, said in the first-quarter earnings release that while service provider sales have been slow, the new products will enable his company to better compete for opportunities as service providers rejuvenate their networks.

“In IP/Optical Networks our business is heavily weighted towards communication service providers, and that market is currently quite soft,” Suri said. “We are making good progress in expanding our business to new customers, including large internet companies where growth is strong, and expect that a coming IP product refresh will strengthen our competitive position.”

There were some bright spots in Nokia’s IP/Optical division, however. Reliance Jio Infocomm Limited selected Nokia’s optical core and metro solution to handle the traffic growth on its pan-India 4G LTE network as it builds broadband connectivity for all of India, for example.