Chapter 3
Small Stumble
This isn’t to say Nokia hasn’t had any problems. Aside from the lack of transparency from the management, the company temporarily faltered in the 5G base station market… Just like Xilinx, the transition from using field-programmable gate arrays (FPGAs) to Application-Specific Integrated Circuits (ASICs) was rough.
Just as a quick reminder, FPGAs are often used in new technologies that may see some technical standards change. That’s because, as the name suggests, you can reprogram these chips after they’ve been deployed. This makes them more flexible than ASICs, which cannot be reprogrammed.
If Nokia had purchased ASIC chips for its 5G base stations and the standards changed, those chips would become worthless.
But FPGAs are more expensive to purchase and continuously power. So when the 5G standards were finalized in October of last year, enterprises switched to the more efficient ASICs in their base stations.
Nokia knew this move was going to happen. It thought it was prepared. But its mistake was trusting Intel to be ready to produce these ASICs. This was, again, a failure of the old management team.
The plan was to manufacture chips using Intel’s 10 nanometer (nm) technology. But Intel delayed this manufacturing node over two years… while the rest of the industry was already moving to 7 nm and 5 nm technology. And this left Nokia with no ASIC base station offering.
Being stuck with only an expensive FPGA offering caused profit margins to shrink…[color=red][/color] and ultimately cost the previous management leaders their jobs.
Nokia has since diversified its suppliers to include Marvell and Broadcom. These are much better operators than Intel. The management and product teams at Nokia learned a very hard lesson… one that I doubt they’ll repeat.
The bottom line is that this small stumble is behind Nokia.
This year, Nokia released its ASIC-powered base station. Its 5G platform is called “ReefShark.” And it is this new product from Nokia that is central to our new investment thesis.
5G Networks Need Intelligence
ReefShark is the silicon solution, the semiconductor, that powers Nokia’s 5G base stations.
The ReefShark chipset is smaller, decreasing the antenna size by half, which makes these base stations less bulky and obtrusive.
It also helps enable a 50–60% reduction in energy use compared to previous chips. This lowers the total cost of ownership for wireless providers… a great selling point.
Nokia accomplished this by embedding artificial intelligence (AI) into the chips. This AI will help boost beamforming capabilities with the radio. And it will use deep learning to best route the traffic to optimize data transmission and overall performance.
AI-driven wireless network architecture is necessary for 5G networks.
These networks are becoming very complex as more people and devices use 5G. One feature of 5G networks is called “network slicing.”
Wireless providers will slice up parts of the wireless spectrum into thousands of different parts. This will enable carriers to give dedicated bandwidth to companies.
One of the keys to this is to virtualize the network – or move the hardware supporting the dedicated bandwidth services to the cloud.
Cloud-based software services are the biggest trend in the software industry over the last decade. Software is deployed in a data center and made accessible using a standard internet connection.
How will this be used in cellular communications?
Let’s say Tesla wanted to establish a real-time network of every Tesla vehicle driven around the world. It can get a virtual dedicated network built in the cloud with data fed to it from wireless towers around the world.
Or a virtual wireless carrier could build a wireless communications network across Europe. I use the word virtual because the carrier would not have to build its own wireless infrastructure. It would simply “rent” bandwidth from a wireless carrier in every European country and host its virtual wireless network in the cloud.
This kind of service is called a Mobile Virtual Network Operator (MVNO). In the U.S., an example of an MVNO is Boost Mobile. But there are more than a thousand of these businesses around the world.
5G will increase the possibilities for wireless service beyond MVNOs. Transformative services – like a shared autonomous vehicle service, mobile medical applications, online gaming, virtual and augmented reality over wireless networks, social media-only service plans (imagine Facebook launching its own wireless service), and real-time home security systems – will become the new normal.
It’s going to take complex software and hardware to run these networks autonomously. And according to research firm Analysys Mason, Nokia is the biggest player in this space. It says global telecom software and services was a $66.9 billion market in 2019. Nokia’s share was $4.5 billion.
Here's the critical thing to know: This is a very important market, and Nokia is making moves to become the undisputed leader. And thanks to the AI-powered ReefShark, Nokia now has the technology to accommodate this looming demand.
The AI-enabled ReefShark helps maximize the amount of data throughput for each base station. Nokia calls its 5G base station line “AirScale.” And each base station is made up of system modules.
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AI
