Nokia to cut up to 14,000 jobs in dire warning about market

Chill winds are blowing over the Nordic countries and their network-equipment-making giants. Just two days after Sweden's Ericsson published a gloomy set of results, Finland's Nokia served up further misery for investors and staff. "Pretty serious," was how CEO Pekka Lundmark described the current frostiness on a call with reporters, downplaying hopes of a big improvement next year. In response, he has announced swingeing cuts that will claim up to 14,000 jobs.

Over the next three years, his latest target is to reduce annual costs by between €800 million (US$843 million) and €1.2 billion ($1.3 billion). It's a move that will reduce Nokia's headcount by at least 9,000 roles from its current level of roughly 86,000. And at the upper end of the range, it will see an exodus of 14,000 employees, more than 16% of the total. Nokia was at its biggest in 2018, less than two years after completing its Alcatel-Lucent takeover, when it had a workforce of nearly 104,000 people. By 2026, under the latest plans, more than 30% of those jobs could have disappeared.

"You saw our main mobile networks competitor present similar or even worse figures for North America," Lundmark commented on Ericsson when challenged about the need for such extreme cuts. "We are simply not able to judge at the moment when exactly the market will start to recover, so that's why we cannot sit and wait. We have to take action to take care of our profitability."

Nokia's research-and-development activities will be shielded from any of the cuts, but Lundmark declined to provide further details on where the axe would fall while consultations with staff representatives are ongoing. What he could reveal is that his latest restructuring plans will move salespeople out of larger teams serving multiple units and embed them within specific business groups.

"We will have dedicated sales teams with strong product and customer connections that will enable the business groups to better seize growth opportunities and diversify into enterprise, webscale and government sectors," he said. "As a result, customers will work with highly empowered Nokia teams that are able to make quicker decisions based on their needs."

Indian winter

Headline figures are certainly not pretty for the recently ended third quarter. Sales dropped by a fifth (although 15% on a constant-currency basis), to about €4.9 billion ($5.2 billion), compared with the year-earlier quarter, and reported profits were down 69%, to just €133 million ($140 million). On a comparable basis, Nokia's operating margin shrank from 10.5% for the third quarter of 2022 to 8.5%.

The mobile business in North America, where Nokia and Ericsson generate a sizeable chunk of their profits, is evidently the biggest problem. In Nokia's case, sales for both the second and third quarters were 40% lower than in the year-earlier periods as big telcos slashed capital expenditure and made do with existing supplies. A major 5G rollout in India had helped to compensate earlier in the year, but even this now seems to be slowing down.

"There we have seen a significant peak when both Reliance Jio and Bharti Airtel have built their 5G networks and we have said all along that this is a peak that will then normalize and that is what we are starting to see now, so India is not able any more to compensate fully for what we are losing in North America," Lundmark told Light Reading.

Revenues at Nokia's mobile business fell 24%, to less than €2.2 billion ($2.3 billion), and its operating profit tumbled 64%, to just €99 million ($104 million). Nokia also made a huge downward revision to its outlook for the addressable mobile market this year. Having expected a 2% decline when it published its second-quarter results, it is now anticipating a 9% drop.

But other parts of the business also fared badly during the third quarter, with not a single unit reporting year-on-year growth. And the fiber boom that buoyed Nokia last year appears to be over. Revenues generated by its network infrastructure division – which pools Internet Protocol, optical, fixed and submarine networks – fell 18%, to about €1.8 billion ($1.9 billion). At cloud and network services, Nokia's other product unit, sales dropped 7%, to €742 million ($782 million), although operating profits were up 125%, to €36 million ($38 million).

No quick recovery

Despite the various difficulties, Lundmark maintained Nokia's full-year guidance, anticipating sales for 2023 of between €23.2 billion ($24.5 billion) and €24.6 billion ($25.9 billion) and an operating margin of 11.5% to 13%. But he would not be drawn on when the market might improve. "It is very difficult to say when the market will start to recover," he told reporters. "It has to do with the overall macroeconomic development, with interest rate development, the competitive situation in various countries and so on."

Much like Börje Ekholm, his counterpart at Ericsson, he remains confident there will be a recovery, simply because data traffic on the world's networks continues to grow by 20% to 30% each year, according to Lundmark's estimate. Ultimately, operators will be forced to reopen their wallets as the gigabytes pile up.

"There is this massive explosion of cloud computing and there then there is this significant expectation of what AI is able to do for the world, but there is a third pillar that is needed to make all that work, and that is a network that will need significantly improved capabilities," he said. "Without those investments, the world will not be able to reap the benefits of cloud or AI."

Yet flat sales and mounting costs have left big telcos in no mood to spend. Until their own fortunes brighten, the Nordic vendors may simply have to bear it.