NOKIA on Thursday announced it will launch a sweeping cost-cutting programme to safeguard its profitability.
The Finnish network equipment manufacturer revealed it intends to lower its cost base by 800–1,200 million euros over a three-year period by reducing its global headcount by up to 14,000, a number equalling roughly 16 per cent of its staff of 86,000.
The company has seen its profitability erode primarily due to the market situation: as soaring interest rates have increased the financing costs of its clients, network operators have postponed investments in equipment upgrades. The decline in demand has prompted the company to seek cost savings primarily in mobile networks, cloud and network services, and corporate functions.
In Finland, Nokia intends to terminate 447 of its 6,800 jobs, although the number is subject to change depending on the consultative negotiations with staff representatives. No cost-cutting measures are to be implemented in its research and development functions in the country or its manufacturing operation in Oulu.
The exact scale of the programme will depend on market development and the consequent savings on inflation.
“The most difficult business decisions to make are the ones that impact our people,” stated Pekka Lundmark, the chief executive of Nokia. “We will support everyone affected by this process. Resetting the cost base is a necessary step to adjust to market uncertainty and to secure our long-term profitability and competitiveness.”
Nokia on Thursday reported that its profitability eroded beyond expectations in the third quarter of the year, its revenue contracting by 15 per cent year-on-year to 4.98 billion euros and comparable operating profit by 36 per cent to 424 million euros.
Analysts were expecting the company to post around 5.7 billion euros in revenue and 550 million euros in operating profit. The performance also gnawed away at the financial standing of the company, reducing its net cash position by 36 per cent year-on-year to 2.96 billion euros at the end of September.
Nokia also revealed that it plans to streamline its organisational structure and increase the autonomy of its four business divisions by embedding sales teams into the divisions.
Lundmark argued that the medium and long-term outlook remains bright due to the significant investments that are required in mobile networks to bring about the cloud computing and artificial intelligence revolutions.
“Outside China, only about a quarter of the cell towers in mobile networks have been upgraded to 5G frequencies,” he was quoted saying by YLE.
Because the timing of the market recovery remains uncertain, however, the company is taking decisive action on three levels: accelerating its strategy implementation, streamlining its operating model and resetting its cost base.
“I believe these actions will make us stronger and deliver significant value for our shareholders,” he stated.
Ericsson, the main rival of Nokia, viewed this week that the market will not begin to recover until next year.
Aleksi Teivainen – HT