In a strategic maneuver to recalibrate their market stance, Nokia, the esteemed Finnish telecom equipment giant, has announced plans to trim their workforce by up to 14,000 employees. This decision comes on the heels of a staggering 20% drop in third-quarter sales, primarily attributed to a sluggish demand for next-generation 5G equipment. Let’s delve into this transformative narrative and its implications.
Nokia, in tandem with its rival Ericsson, finds itself navigating challenging waters in the global telecom industry. The much-anticipated 5G wave that was supposed to propel sales to new heights has faltered, particularly in the United States. However, Nokia has been resilient, striving to counterbalance this setback by boosting sales in the low-margin market of India.
With a resolute gaze on the horizon, Nokia has set ambitious savings targets. They aim to achieve a substantial reduction in expenditures, ranging from 800 million euros to a robust 1.2 billion euros by the year 2026. Their ultimate goal is to secure a long-term comparable operating margin of at least 14% by that time.
The primary means to achieve these targets? Workforce reduction. Nokia anticipates restructuring will result in an organization employing 72,000 to 77,000 personnel, a significant drop from the current 86,000-strong team.
Nokia isn’t planning to drag its feet. They are determined to act promptly, with an eye-popping 400 million euros of in-year savings expected in 2024, followed by another 300 million euros in 2025. This proactive approach showcases their commitment to staying agile in a rapidly evolving industry.
Ericsson, Nokia’s competitor, hasn’t been immune to these industry challenges either. They’ve also initiated massive layoffs this year, and the cloud of uncertainty looms over their future, extending into 2024.
Pekka Lundmark, Nokia’s Chief Executive, offered some insights: “While our third-quarter net sales were impacted by the ongoing uncertainty, we expect to see a more normal seasonal improvement in our network businesses in the fourth quarter.”
The quarterly numbers tell a tale of adversity. Comparable net sales for the third quarter plunged from 6.24 billion euros to 4.98 billion euros compared to the previous year, missing the LSEG poll estimate of 5.67 billion euros.
In a bid to bolster their strategic focus and safeguard their research and development investments, Nokia is streamlining its corporate center. This shift will grant more operational autonomy to various business units within the company.
As Lundmark eloquently puts it, “Resetting the cost base is a necessary step to adjust to market uncertainty and to secure our long-term profitability and competitiveness.”
In the ever-evolving realm of telecommunications, Nokia’s bold move may be just the wind of change they need to steer into more promising horizons.
