Nokia to Cut Thousands of Jobs Amidst Downturn in Telecom Spending
Nokia is set to reduce its workforce by up to 16% as it aims to save €1.2 billion ($1.26 billion) due to a significant decline in spending by telecom operators. The Finnish telecommunications company is facing weakening demand in its network-infrastructure and mobile-networks divisions, primarily because customers are grappling with a challenging macroeconomic environment characterized by high inflation and rising interest rates. Furthermore, operators are currently dealing with excessive stockpiles of inventory acquired during previous periods of supply scarcity.
Similar to its Swedish competitor Ericsson, Nokia finds itself in a predicament as it experiences a shift in its business mix from higher-margin 5G projects in early-adopting markets like North America to lower-margin developing markets like India. Nevertheless, the rapid deployment of 5G infrastructure in India is starting to plateau, resulting in a slowdown.
Pekka Lundmark, the CEO of Nokia, acknowledged the situation, stating, "We observed a slowdown in the pace of 5G deployment in India, which meant that growth there was no longer sufficient to offset the deceleration in North America."
In the quarter, sales for Nokia's network infrastructure business fell by 14%, primarily due to reduced customer spending. Additionally, mobile networks sales dropped by 19% due to the decelerating 5G deployments in India.
Nokia Takes Steps to Weather Market Weakness
Nokia, the telecommunications giant, remains optimistic about the future potential of its markets despite the current market weaknesses. The company acknowledges that the progress of cloud computing and artificial intelligence revolutions heavily depend on substantial investments in advanced networks. However, due to the uncertain timing of the market recovery, Nokia is implementing measures to navigate through this challenging period.
Cost-Saving Targets and Workforce Reduction
To ensure its long-term success, Nokia aims to achieve cost savings of EUR800 million to EUR1.2 billion by 2026. This strategy will enable the company to meet its target of a comparable operating margin of at least 14% by the same year. As part of its cost-saving efforts, Nokia plans to reduce its workforce by 9,000 to 14,000 employees from its current total workforce of 86,000. The final number of job cuts will be based on the evolution of market demand.
Affirmation of Sales and Operating Margin Targets
While Nokia maintains its sales and comparable operating margin targets, it expects its sales to align more towards the lower end of the projected range. Similarly, it anticipates its operating margin to fall within the midpoint of the projected range. The company aims for full-year sales between EUR23.2 billion and EUR24.6 billion, accompanied by an operating margin spanning from 11.5% to 13.0%.
In Decline: Third-Quarter Performance
In the third quarter, Nokia witnessed a significant decline in comparable net profit, which reached EUR304 million, reflecting a 45% drop. The company attributed this decrease to a 20% fall in sales, totaling EUR4.98 billion. Analysts surveyed by FactSet had projected a comparable net profit of EUR399 million on sales reaching EUR5.67 billion.
Nokia's steadfast commitment to adapting to market challenges positions it for future success. With its strategic cost-saving initiatives and dedication to meeting long-term targets, the company remains a key player in the telecommunications industry.
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