Nokia Targets 1,330 Job Cuts in Europe

Nokia plans to cut around 1,330 jobs across operations in Finland, France and Germany as it tries to reduce annual costs by another €700 million ($797 million) over the next two years. (See Nokia Warns of Job Cuts in €700M Shake-Up.)

The Finnish equipment maker had already warned this week that around 350 jobs in Finland would disappear under its latest cost-cutting plans. It has now indicated that an additional 520 positions in Germany and 460 in France are also on the line. (See Nokia to Slash 350 Finnish Jobs in Savings Drive.)

Nokia Corp. (NYSE: NOK) currently employs around 6,000 people in Finland and 3,500 in Germany but has not disclosed details of headcount in France. It had roughly 103,000 employees on its books worldwide at the end of 2017.

The headcount reductions are aimed at boosting profitability after a previous cost-cutting initiative, designed to eliminate about €1.2 billion ($1.4 billion) in annual expenses between 2015 and 2018, failed to deliver sufficient improvements.

Nokia is targeting an operating margin at its main networks business of between 9% and 12% in 2020, but the actual figure had shrunk to just 2.6% for the first nine months of 2018, from 7.2% a year earlier.

Planned job cuts in Germany will affect all business groups, functions and locations, said the vendor in a statement.

While layoffs will similarly hit nearly all business groups and central functions in France, Nokia has ring-fenced its R&D activities in the country from the latest round of cutbacks. It also said the redundancy program would not affect its three Nokia France affiliate companies -- Radio Frequency Systems, Nokia Bell Labs France and Alcatel Submarine Networks.

The decision to protect the R&D part of the business is not surprising as operators start to invest in next-generation 5G networks. Nokia has been under growing pressure in recent years from Chinese equipment giant Huawei, which is investing between $15 billion and $20 billion in R&D expenses annually, according to Ren Zhengfei, the company's founder. (See Huawei Founder Fails to Put Minds at Rest.)

That level of spending dwarfs what European vendors can manage, but Sweden's Ericsson AB (Nasdaq: ERIC) has also put the squeeze on Nokia by increasing its R&D spend: During the first nine months of 2018, Ericsson pumped 28.2 billion Swedish kronor ($3.12 billion) into R&D, up from SEK27.9 billion ($3.09 billion) in the same part of 2017. (See Ericsson's R&D Workout Piles 5G Pressure Onto Rivals.)

R&D spending at Nokia's networks business shrank to around €2.7 billion ($3.08 billion) in the first nine months of 2018, from roughly €2.8 billion ($3.19 billion) a year earlier.

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Like Nokia, Ericsson has also been cutting employee numbers to boost profits, slashing as many as 17,000 jobs since the beginning of 2017. The Swedish company employed about 94,500 people internationally at the end of September last year.

More jobs may be under threat at Nokia given the size of its workforce and the sheer amount it hopes to save in the next two years.

Mounting problems for Huawei Technologies Co. Ltd. could translate into a bigger opportunity for both European vendors this year. Apparently worried that Chinese authorities could use Huawei equipment for spying, several countries have excluded it from their 5G markets. In Canada, meanwhile, Huawei's CFO Meng Wanzhou is under house arrest awaiting extradition to the US to face fraud charges: She is accused by US prosecutors of covering up links between Huawei and Skycom, an equipment vendor that sold gear to Iran in breach of trade sanctions. (See Huawei Controlled Firm That Sold to Iran – Reuters and Huawei CFO Posts Bail in Canada.)

Despite the backlash against the firm, most operators have maintained their relationships with Huawei, which recently claimed to have shipped 25,000 5G basestations and signed 30 5G deals, up from 22 in November.

— Iain Morris, International Editor, Light Reading