Initiatives and Analysis: Nokia focuses on data centers as its top growth market
Telco is no longer the top growth market for Nokia. Instead, it’s data centers, said Nokia’s CEO Pekka Lundmark on the company’s Q3 2024 earnings call last week. “”Across Nokia, we are investing to create new growth opportunities outside of our traditional communications service provider market,” he said. “We see a significant opportunity to expand our presence in the data center market and are investing to broaden our product portfolio in IP Networks to better address this.”There will be others as well, but that will be the number one. This is obviously in the very core of our strategy.”
Lundmark said Nokia’s telco total addressable market (TAM) is €84 billion, while its data center total addressable market is currently at €20 billion. “I mean, telco TAM will never be a significant growth market,” he added to no one’s surprise.
Nokia’s recent deal to acquire fiber optics equipment vendor Infinera for $2.3 Billion might help. The Finland based company said the combination with Infinera is expected to accelerate its path to double-digit operating margins in its optical-networks business unit (which was inherited from Alcatel-Lucent) . The transaction (expected to close in the first half of 2025) and the recent sale of submarine networks will reshape Nokia’s Network Infrastructure business to be built around fixed networks, internet-protocol networks and optical networks, the company said. Data centers not only require GPUs, but they also require optical networking to support their AI workloads. Lundmark said the role of optics will increase, not only in connections between data centers, but also inside data centers to connect servers to each other. “Once we get there, that market will be of extremely high volumes,” he said.
Pekka Lundmark, Nokia CEO– Photo: Arno Mikkor
- In September, Nokia announced the availability of its AI era, Event-Driven Automation (EDA) platform. Nokia EDA raises the bar on data center network operations with a modern approach that builds on Kubernetes to bring highly reliable, simplified, and adaptable lifecycle management to data center networks. Aimed at driving human error in network operations to zero, Nokia’s new platform reduces network disruptions and application downtime while also decreasing operational effort up to 40%. Nokia says its new EDA platform helps data center operators reduce errors in network operations. Nokia said it hopes to remove the risk of human error and reduce network disruptions and application downtime.
- A highlight of the recent quarter is a September deal with self proclaimed “AI hyperscalar” CoreWeave [1.] which selected Nokia to deploy its IP routing and optical transport equipment globally as part of its extensive backbone build-out, with immediate roll-out across its data centers in the U.S. and Europe. Raymond James analyst Simon Leopold said the CoreWeave win was good for Nokia to gain some exposure to AI, and he wondered if Nokia had a long-term strategy of evolving customers away from its telco base into more enterprise-like opportunities. “The reason why CoreWeave is so important is that they are now the leading GPU-as-a- service company,” said Lundmark. “And they have now taken pretty much our entire portfolio, both on the IP side and optical side. And as we know, AI is driving new business models, and one of the business models is clearly GPU-as-a-service,” he added.
Note 1. CoreWeave rents graphical processing units (GPUs) to artificial intelligence (AI) developers. A modern, Kubernetes native cloud that’s purpose-built for large scale, GPU-accelerated workloads. Designed with engineers and innovators in mind, CoreWeave claims to offer unparalleled access to a broad range of compute solutions that are up to 35x faster and 80% less expensive than legacy cloud providers.
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Nokia says its IP Interconnection can provide attractive business benefits to data center customers including:
- Improved security – Applications and services can be accessed via private direct connections to the networks of cloud providers collocated in the same facility without traversing the internet.
- Reduced transport costs – Colocated service providers, alternative network providers and carrier neutral network operators offer a wide choice of connections to remote destinations at a lower price.
- Higher performance and lower latency – As connections are direct and are often located closer to the person or thing they are serving, there is a reduction in latency and an increase in reliability as they bypass multiple hops across the public internet.
- More control – Through network automation and via customer portals, cloud service providers can gain more control of their cloud connectivity.
- Greater flexibility – With a wider range of connectivity options, enterprises can distribute application workloads and access cloud applications and services globally to meet business demands and to gain access to new markets.
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Nokia’s Data Center Market Risks:
The uncertainty is whether spending on GPUs and optical network equipment in the data center will produce the traffic growth to justify a decent ROI for Nokia. Also, the major cloud vendors (Amazon, Google, Microsoft and Facebook) design, develop, and install their own fiber optic networks. So it will likely be the new AI Data Center players that Nokia will try to sell to. William Webb, an independent consultant and former executive at Ofcom told Light Reading, “There may be substantially more traffic between data centers as models are trained but this will flow across high-capacity fiber connections which can be expanded easily if needed.” Text-based AI apps like ChatGPT generate “minuscule amounts of traffic,” he said. Video-based AI will merely substitute for the genuinely intelligent form.
References:
https://www.datacenterdynamics.com/en/news/nokia-eyes-data-center-market-growth-as-q3-sales-fall/
https://www.nokia.com/blog/enhance-cloud-services-with-high-capacity-interconnection/
https://www.lightreading.com/5g/telecom-glory-days-are-over-bad-news-for-nokia-worse-for-ericsson