In response to a 20% decline in third-quarter sales and sluggish demand for 5G equipment, Nokia (NOKIA.HE) is set to cut up to 14,000 jobs as part of a strategic move to streamline operations and reduce costs. The Finnish telecom giant revealed this decision on Thursday, cautioning that a market recovery isn’t anticipated in the near term.
Drop in Sales
The company, which manufactures equipment for telecom networks, experienced a 40% drop in net sales in its crucial North American market during Q3. CEO Pekka Lundmark acknowledged the challenging market conditions, emphasizing the need for significant adjustments to adapt to the evolving landscape.
To achieve savings ranging between 800 million euros ($842 million) and 1.2 billion euros by 2026, Nokia aims to trim its employee base from 86,000 to between 72,000 and 77,000, representing approximately 16% job cuts at the upper limit. Lundmark stressed the importance of preserving research and development efforts amid these workforce reductions.
The Restructuring Plan
While providing limited details, Lundmark suggested that the company would consult with employee representatives before finalizing the restructuring plans. Nokia anticipates savings of at least 400 million euros in 2024 and an additional 300 million euros in 2025.
The situation is reflective of broader challenges in the telecom industry, where companies like Ericsson (ERICb.ST) have also implemented significant layoffs. Ericsson recently indicated that uncertainties affecting its business would extend into 2024.
Despite the grim outlook, Nokia remains optimistic about a more normal seasonal upturn in its network businesses in the fourth quarter and did not revise its full-year outlook. Lundmark expressed confidence in the mid-to-long-term market but emphasized the need for proactive measures instead of waiting for an uncertain market recovery.
State of the Telecom Operators
The 5G industry, once anticipated to usher in the era of automation and driverless cars, has faced slower-than-expected adoption by businesses. Telecom operators globally, struggling with investment constraints, have initiated their own cost-cutting measures.
Lundmark proposed that the industry should invest in faster mid-band equipment to accommodate the surge in data traffic for market recovery. Currently, only 25% of 5G base stations outside of China utilize mid-band equipment. He acknowledged early signs of demand recovery but cautioned that it is too early to declare it a widespread trend.
In the midst of these challenges, the telecom industry finds itself at a crossroads, with questions arising about operators’ relevance and long-term future, according to CCS Insight analyst Kester Mann. As Nokia takes bold steps to navigate this uncertain terrain, the company remains committed to adapting to market dynamics and ensuring its continued competitiveness in the evolving telecommunications landscape.