Huawei's Legal Nightmare In The West Piques Nokia's Interest

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Thanks to the U.S., various countries have decided not to procure 5G equipment from Huawei because of possible security threats. While this is obviously bad news for the Chinese company, other firms might benefit from a ban on Huawei. One of the possible beneficiaries could be Nokia and the company's Chairman Risto Siilasmaa said today it is closely following the developments surrounding the ordeal.  The Finnish company will report its fourth-quarter earnings today and market watchers are closely monitoring it to see how Huawei's misfortunes would benefit the company.

Although replacing one equipment vendor with another is not as simple as it sounds, there aren't many viable alternatives to Huawei and Nokia has already started benefiting from the setbacks encountered by the Chinese manufacturer. Of particular interest is Canada, as that's where Huawei's CFO Meng Wanzhou was arrested at the request of the U.S. government for allegedly defrauding various financial institutions for nefarious purposes. Since Canada is now entwined in a dispute with China, the country is considering Nokia and Sweden's Ericsson to help its telecom companies, including Telus and BCE, to help it deploy 5G networks. In fact, the federal government of Canada already entered a $40 million deal with Nokia already to carry out research on the next generation of wireless technology within its borders.

As international markets are gearing up for the 5G upgrade, the best possible alternatives to Huawei seem to be Ericsson and Nokia at the moment. Shares of both Nordic companies have already gone up in anticipation of that benefit. Since the arrest of Wanzhou in December, Nokia's and Ericsson's share price have gained 16.3 percent and 4.7 percent respectively.

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However, it's worth mentioning that Huawei's exclusion from the key markets might not necessarily benefit Ericsson and Nokia. The ban doesn't really come as a surprise and markets had already factored that possibility in. Although the two Nordic companies are now gobbling up deals that would have gone to Huawei otherwise, the global transition to 5G might not be as swift as it seems and it could take a rather long time; years, in fact. Moreover, Huawei's 5G equipment is considered superior to that of its rivals in some respects, particularly cost-effectiveness, and some European carriers, including UK's Vodafone Group and Germany's Deutsche Telekom, are apparently planning to plead Huawei's case with their respective governments in the hopes of revoking the ban.

Nonetheless, Huawei remains the world's largest telecom equipment maker. The R&D budget of other companies pales in comparison to that of the Chinese giant. Huawei is a valuable supplier and can be credited for fueling competition in the industry that's largely uncompetitive. Past bigwigs, including Siemens, Alcatel-Lucent, and Nortel are either just not that good any longer or disappeared because of consolidation. ZTE Corp., another Chinese company facing the same fate as Huawei, might not be able to recover anytime soon. Give the situation, the dominance of Ericsson and Nokia could result in a duopoly and might restrict global market growth, some industry watchers claim.

There is also a possibility of China retaliating on behalf of Huawei by shutting out Ericsson and Nokia, which would significantly reduce the revenues of the two companies as China is a large market. And then there is also the looming Brexit to worry about, as it might send Europe into recession and lengthen the 5G deployment process. While nothing is certain at the moment, it is safe to say that replacing Huawei is not going to be that straightforward, even though the company largely brought its latest troubles upon itself.

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