Nokia takes big axe to mobile jobs but grows footprint outside AT&TNokia takes big axe to mobile jobs but grows footprint outside AT&T

As the sales outlook dims, Nokia reveals it has cut 6,000 jobs company-wide since September, mainly at its mobile networks business group.

Iain Morris, International Editor

July 18, 2024

6 Min Read
Anechoic chamber at Nokia's research facility in Oulu
Not a robot doing bench presses but an 'anechoic' chamber at Nokia's research facility in Oulu.(Source: Iain Morris/Light Reading)

"Home of Radio," proclaims a welcome sign at Nokia's research facility in Oulu, where the July sun dips fully below the horizon for just four hours a day. But the last year has been a gloomy one for the Finnish pioneer of mobile telecom, which has cut thousands of jobs since September.

After big telcos slashed investment in 5G, spending on radio access network (RAN) products across the market fell 11% in 2023, according to Omdia, a Light Reading sister company. In December, AT&T said it would terminate its RAN deal with Nokia and replace it with Ericsson, its other supplier. India, after an explosion of 5G activity, has cratered. 

These various mobile factors partly explain why today's financial update shows an 18% year-over-year fall in group sales, to about €4.5 billion (US$4.9 billion), for the recent second quarter. Still Nokia's largest business group, responsible for roughly 44% of total revenues, mobile suffered a 25% contraction in sales, to less than €2 billion ($2.2 billion), compared with the year-earlier quarter. But other units are also struggling. Network infrastructure, the second biggest, saw an 11% drop in revenues, to around €1.5 billion ($1.6 billion). At the smaller cloud and network services group, sales were down 7%, to €615 million ($672 million).

The hope is that 2024 will mark a nadir. The comparison with 2023 is unflattering mainly because of the 5G boom that year in India, where telcos raced to build networks and now have their feet up. Outside that market, order intake – especially in network infrastructure – has recently improved, said CEO Pekka Lundmark on a call today with reporters. That should flow through into a sales recovery later this year, with Nokia "solidly on track" to achieve its financial targets, he insisted.

A slimmer workforce, but an AT&T boost

But Nokia has taken a heavy axe to annual costs. Lundmark's goal is to make cuts of between €800 million ($875 million) and €1.2 billion ($1.3 billion) by 2026, reducing the size of the workforce from about 86,000 employees when the program was first announced to between 72,000 and 77,000. So far, Nokia has been able to achieve "run-rate" savings of about €400 million ($437 million), it revealed in today's report.

Key profitability measures, then, look much better than headline sales. On a comparable basis, Nokia's gross margin was up 4.5 percentage points, to 44.7%. And while the group's net profit dropped a fifth, to €328 million ($359 million), the operating margin at mobile networks ticked up 0.8 percentage points, to 8.7%. Yet the mobile sales outlook is worse than it was in the first quarter. Back then, Nokia was expecting a full-year decline of 10% to 15%. It is now guiding for a drop of 14% to 19%.

Despite this, Nokia is also guiding for an operating margin at mobile networks of between 4% and 7%, up from the 1% to 4% range it cited in the first quarter. "We have executed really fast on cost reductions in mobile networks," said Lundmark, when asked by Light Reading about the divergence. Across the company, about 6,000 jobs, 7% of the total, have been scrapped in less than ten months. "We have gone from at the end of the third quarter last year around 86,000 to below 80,000 and most of that decline has been in mobile networks."

This is not, however, the only moving part in mobile. After negotiations, Nokia was able to secure payments from AT&T due under its original contract. In the second quarter, that translated into an additional €150 million ($164 million) in revenues. And that now means sales to AT&T will be stable this year before halving in 2025. "This year will be a bit higher and next year a bit lower and that of course also supports the mobile networks margin forecast," said Lundmark.

A concern for some investors will be that mobile layoffs hurt Nokia's RAN competitiveness, which suffered under previous management in the early days of 5G. But research and development (R&D) spending across the whole company looks to have been well shielded from recent cuts. On a comparable basis, R&D expenses rose 2% in the first half, to more than €2.1 billion ($2.3 billion), and 5% in the second quarter alone, to nearly €1.2 billion ($1.3 billion).

Expanding footprint

What's also encouraging, for those worried about Nokia's plight in mobile, is evidence of deal wins outside AT&T. The most notable is a 5G contract with Portugal's MEO, which is reportedly switching from Huawei. "After the AT&T decision, we have continued to have great tendering activity and we have won a significant number of new deals," said Lundmark.

"I mentioned one, which was MEO in Portugal, but in addition to that there are several customers where we have increased our market share," he added. Data from Omdia shows that Nokia's global RAN market share, including China, rose 1.7 percentage points last year, to 19.5%, making it the only one of the "big three" – Huawei, Ericsson and Nokia – to manage gains.

Lundmark is, nevertheless, still unsure if Germany's decision last week to impose restrictions on Chinese vendors will translate into an opportunity for Nokia. "We are still studying and trying to understand what the German decision means in practice," he said. "We want, in particular, to understand how that relates to the EU toolbox that has been published, how Germany intends to apply that toolbox. Before we get that additional clarity, it a little bit difficult to draw concrete conclusions."

Besides ordering telcos to remove Chinese products from the "core," the control center of the network, by the end of 2026, German authorities said Chinese vendors would not be allowed to provide the management software for RAN and transport networks after 2029. Deutsche Telekom says it is working on its own software to manage Huawei's RAN, which is used across one third of the incumbent telco's footprint. Telefónica and Vodafone, Germany's two other big mobile operators, are also heavily reliant on Huawei's RAN.

But sources say combining one company's management software with another's RAN is difficult. Meanwhile, under its "5G toolbox" recommendations, the European Union has recently been urging member states to remove Huawei and ZTE from both core and RAN infrastructure. Its views on Germany's latest move are currently unknown.

Infrastructure rebound

Nokia's share price sank 8% today in Helsinki after it published results, a drop that reflects investor concern about its prospects in a shrinking market. Yet the outlook for network infrastructure is brighter. Nokia has guided for sales growth this year of 1% at the midpoint of its forecast range, implying there will be a rebound in the second half. And a just-announced $2.3 billion deal to acquire Infinera, an optical equipment maker, could position Nokia for business with data centers, which are rolling out high-speed networks to support the demands of artificial intelligence.

Like Ericsson, Nokia is also promoting a platform that would let software developers tap into advanced 5G features through network APIs (application programming interfaces). Success could be transformative for the cloud and network services group housing that activity. And it could generate new revenue streams for telcos. Without those, the operators of 5G networks will remain in little mood to spend.

Update: This story has been modified since it was first published to include details of R&D spending at Nokia.

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About the Author

Iain Morris

International Editor, Light Reading

Iain Morris joined Light Reading as News Editor at the start of 2015 -- and we mean, right at the start. His friends and family were still singing Auld Lang Syne as Iain started sourcing New Year's Eve UK mobile network congestion statistics. Prior to boosting Light Reading's UK-based editorial team numbers (he is based in London, south of the river), Iain was a successful freelance writer and editor who had been covering the telecoms sector for the past 15 years. His work has appeared in publications including The Economist (classy!) and The Observer, besides a variety of trade and business journals. He was previously the lead telecoms analyst for the Economist Intelligence Unit, and before that worked as a features editor at Telecommunications magazine. Iain started out in telecoms as an editor at consulting and market-research company Analysys (now Analysys Mason).

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