In looking to forge ahead in the 5G era, Nokia has turned to its past.

New chief executive Pekka Lundmark, who took over this month, and new chair Sari Baldauf last worked together at the Finnish group in 2000 in its networks business. Then it was riding high as a celebrated national champion and the world’s biggest maker of mobile phones, with a peak market capitalisation of close to €300bn.

The Nokia Mr Lundmark has returned to is very different. It messed up the start of 5G, failing to capitalise on the geopolitical importance of the next generation of telecoms networks.

That strategic mis-step, according to investors, bankers and former executives, has left it vulnerable to attack from activists or an outright takeover target. Its market value today is just €24bn, while its share price is at the same level it was in 2013.

“There’s a big question: what will be the future of Nokia?” said Juha Varis, senior portfolio manager at Finnish asset manager FIM, which is a long-term shareholder. “US investors want fast changes. It’s time for management to show what they can offer. They need some radical thinking.”

Line chart of Market cap (€bn) showing Decline of Nokia leaves it vulnerable to attack

Mr Lundmark, who has spent the past five years as chief executive of Finnish utility Fortum, is wasting little time. A strategic review is under way, according to insiders, and changes in its portfolio of businesses — which stretch from mobile and fixed networks to software, digital services, patents, IP routing and optical networks — are widely expected.

Mr Lundmark told the Financial Times: “When a new CEO comes in it’s perfectly natural that we look at the world around us. It’s constantly changing. Our strategy constantly needs to develop too.”

Finns are desperate for the new trio at the top — including incoming finance director, Marco Wiren — to succeed after a disappointing year in which Nokia’s sales growth has been outpaced by Swedish arch-rival Ericsson as well industry leader Huawei, even as the US, UK and others look to boost competitors to the Chinese group due to security concerns.

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“I’m dumbstruck by how slow they have been to monetise this. The US government have intimated to Ericsson and Nokia: we will buy everything you have. How can you not make money out of this?” asked Charly Salonius-Pasternak, senior research fellow at the Finnish Institute of International Affairs.

Many in Finland blame the mis-steps of former chief executive Rajeev Suri and ex-chairman Risto Siilasmaa. Mr Suri conceded last month that Nokia had been slow at the start of 5G network rollouts in 2019, as it was still digesting its €15.6bn acquisition of Alcatel-Lucent. As one insider put it: “5G came a year too soon for us.”

Column chart of Revenues (€bn) showing Analysts expect a dramatic shake up at Nokia

Mr Suri argued the consolidation had made the entire industry healthier and that Nokia’s performance had improved markedly this year.

However, Mr Varis expressed a belief that Mr Suri, who has run Nokia since 2014, had been in charge for too long and added: “In 2019, the board was clearly not aware what was happening at the company. Risto has a big responsibility for that. As an investor I was really disappointed that they were talking about 5G five years ago but the outcome really disappointed.”

People close to Nokia insist both Messrs Siilasmaa and Suri left as part of succession plans after lengthy stints at the top, having revived the company after the sale of its mobile phones business in 2013. But others hint at rising dissatisfaction from directors and shareholders.

“Risto was not tough enough. The shareholders and the board wanted him to leave,” said a well-connected Finnish business executive. Mr Siilasmaa declined to comment.

Former CEO Rajeev Suri. He has acknowledged that Nokia was too slow at the beginning of 5G rollouts last year © Bloomberg

Ms Baldauf, a former head of Nokia’s networks business as well as its then deputy chair and chair of Fortum, got the nod as his replacement and took over in late May. She had recruited Mr Lundmark to be chief executive of Fortum in 2015 and did so again at Nokia this spring.

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Mr Lundmark, who worked at Nokia between 1990 and 2000, admitted that he was returning to “a very different company”. But he added: “Personally for me, this is not only a dream job, it’s a homecoming.”

Analysts and investors expect him to shake up Nokia, which also stumbled due to problems from the high cost of its 5G chipset. It has spent much of the last year trying to rectify that, with some success as it upgraded its profits and cash-flow guidance at the end of the second quarter.

But many worry about the wider industry backdrop — consolidation among telecoms operators in the US and Europe could rob them of customers, while the large 5G market in China has been particularly hard for Nokia to crack.

Advisers differ over the direction Mr Lundmark should take the company in but most agree he needs to clarify its focus. “A complaint from investors is that Nokia is spread too thinly,” one said, adding the group could consider concentrating on software and abandon manufacturing.

Another is pushing for Nokia to bulk up its enterprise unit, the growing business of selling private networks directly to companies, that currently accounts for about 6 per cent of Nokia’s revenues.

Nokia Technologies, which licenses its patents and other intellectual property, is seen by some investors as a possible candidate for sale. The strategy review will look at all Nokia’s assets and assess whether they fit or not, insiders say.

Selling assets from the five companies who largely make up its networks business — Nokia, Siemens, Alcatel, Lucent, and Motorola — would not be straightforward. Mr Varis pointed to the difficulty in selling Alcatel’s submarine networks, something Nokia has attempted several times in recent years, given it is unclear who would be interested in them.

Meanwhile Nokia’s employee numbers have stayed stable at around 100,000 in recent years and some investors would like to see cuts.

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The well-regarded Mr Lundmark is playing his cards close to his chest, saying he hopes to update investors on strategy before the end of the year. He describes his mood as one of “cautious optimism”.

Mr Varis said of Mr Lundmark’s record at Fortum and before that Kone Cranes: “Pekka is good at looking at the big picture and seeing the future and deciding what to do.”

Column chart of Revenues by customer (€bn) showing Consolidation among telecoms operators could hit Nokia sales

He cannot afford to dither. Nokia’s position as one of the three big 5G equipment makers in the world belies its vulnerability with some insiders arguing it is an attractive target for an activist, just as Sweden’s Cevian Capital has become one of Ericsson’s biggest shareholders. Others think it has the potential to be taken over entirely by the likes of a US private equity group.

US attorney-general William Barr stated in February that the US, either directly or through American companies, should consider taking stakes in Nokia or Ericsson to help build a stronger international competitor to Huawei.

Although no expressions of interest have been made publicly the idea was taken seriously in Finnish circles. A former minister said several local executives had discussed mounting a rescue bid should Nokia come under attack. One of the executives, however, said: “There’s no serious talk of a [Finnish] consortium. But technically it would be possible for somebody to buy a 10 per cent stake in Nokia — it’s a highly liquid stock with very diverse ownership.”

As Mr Lundmark talks to Nokia’s customers, workers, and investors in his opening weeks, the magnitude of the challenge facing the 56-year-old will become apparent. In typical Finnish fashion he has insisted that people should be direct with him.

“If I had to sum up my management style, it would be openness and transparency. I want an extremely open and transparent two-way discussion. Everybody should be as honest as possible, no politics,” he added.

Additional reporting by Arash Massoudi and Nic Fildes

Via Financial Times