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Finnish telecommunications equipment giant Nokia (NOKIA.HE) has announced a significant workforce reduction of up to 14,000 jobs in a bid to curtail costs and navigate through challenging market conditions. The decision came on the heels of a disheartening 20% decline in third-quarter sales, primarily attributed to weaker demand for 5G infrastructure.
As of Thursday, Nokia’s shares were observed to be down 2% at 0900 GMT, reflecting concerns about the company’s financial outlook. This decision was necessitated by a pronounced slowdown in the United States, home to major telecom players such as Verizon (VZ.N.) and AT&T (T.N.), traditionally profitable markets for both Nokia and Ericsson (ERICb.ST). The two companies have been actively seeking growth in alternate regions, notably India, although the Indian market is now also showing signs of normalization after a prosperous 2022.
Pekka Lundmark, Nokia’s CEO, indicated that he would be withholding specific details regarding the job cuts pending consultations with employee representatives. Nevertheless, he emphasized the company’s commitment to safeguarding research and development initiatives.
Nokia aims to achieve at least 400 million euros in savings by 2024, with an additional 300 million euros in savings projected for 2025. This strategic move aligns with the broader industry trend of cost reduction to counteract sluggish growth.
In a similar vein, Ericsson, Nokia’s competitor, recently announced its own layoffs, noting that the uncertainties affecting their business would persist into 2024. However, Nokia offered a contrasting perspective, expressing expectations of a more typical seasonal upturn in its network business during the fourth quarter and opting not to revise its full-year outlook.
“We continue to believe in the mid-to-long-term market, but we are not going to sit and wait and pray that the market will recover anytime soon,” Lundmark stated. “We simply don’t know when it will recover.”
The 5G sector was initially hailed as the catalyst for an era of automation and driverless cars. Still, its adoption has been slower than anticipated, impacting the revenue and growth prospects of companies in the telecommunications infrastructure space. Consequently, telecom operators worldwide have faced budget constraints and implemented cost-cutting measures. Earlier in the year, the UK’s BT Group (BT.L) unveiled plans to reduce its workforce by 55,000 employees, while Vodafone announced its intention to cut 11,000 positions.
Kester Mann, an analyst at CCS Insight, commented on the industry’s struggles: “This should be an industry that’s flying high, buoyed by unrelenting demand for its services… Instead, countless questions continue to be posed around operators’ relevance and long-term future.”
For a resurgence in the market, Lundmark suggested that the industry should invest in faster mid-band equipment to accommodate the exponential growth in data traffic. He pointed out that only 25% of 5G base stations globally, excluding China, are currently equipped with mid-band technology. Mid-band equipment offers higher 5G speeds, although many telecom operators initially deployed cheaper low-band gear with slower speeds.
While there are indications of potential demand recovery, Lundmark stressed that it was too early to define it as a broad-based trend. Nokia’s quarterly comparable net sales slumped to 4.98 billion euros from 6.24 billion euros the previous year, significantly missing an estimate of 5.67 billion euros, according to a poll conducted by the London Stock Exchange Group (LSEG).
Nokia’s decision to reduce its workforce underscores the challenging environment facing the telecommunications industry as it grapples with uncertain market conditions and evolving customer demands in the era of 5G technology.