Nokia (NOKIA.HE) has announced plans to trim its workforce by up to 14,000 employees in a bid to curb costs.
The move comes as the company grapples with a 20% decline in third-quarter sales due to weakened demand for 5G equipment.
Shares in Nokia, a Finnish telecom network equipment manufacturer, dipped by 2% at 0900 GMT following this announcement.
The company’s struggle to maintain its foothold in the United States, home to major players like Verizon (VZ.N) and AT&T (T.N), has forced Nokia and its competitor Ericsson (ERICb.ST) to seek growth in other regions such as India.
However, even the promising Indian market is expected to stabilize after an impressive 2022 performance.
Nokia’s CEO, Pekka Lundmark, expressed the challenging market conditions, particularly in North America, where the company’s net sales plummeted by 40% in Q3.
In response, Nokia is targeting cost savings of €800 million to €1.2 billion by 2026, aiming to reduce its workforce from 86,000 to between 72,000 and 77,000 employees.
Lundmark emphasized the company’s commitment to protecting research and development.
Nokia anticipates achieving at least €400 million in savings by 2024, with an additional €300 million in 2025. Ericsson, experiencing similar challenges, also foresees ongoing uncertainty affecting its business through 2024.
Despite the uncertainties, Nokia expects a more typical seasonal improvement in its network businesses in the fourth quarter and has maintained its full-year outlook.
Lundmark stressed their long-term belief in the market but acknowledged the uncertainty surrounding its recovery, saying, “We simply don’t know when it will recover.”
While 5G was initially anticipated to herald an era of automation and driverless cars, its adoption has been slower than expected.
Telecom operators, facing sluggish growth, have embarked on their own cost-cutting measures. Earlier this year, BT Group (BT.L) in the UK announced plans to cut 55,000 jobs, and Vodafone plans to cut 11,000 positions.
Kester Mann, an analyst at CCS Insight, noted the industry’s underperformance despite high demand for its services, raising questions about operators’ relevance and long-term prospects.
To spur market recovery, Lundmark suggested increased investment in faster mid-band equipment to handle the growing data traffic.
Currently, only 25% of 5G base stations outside China use mid-band technology, which offers higher speeds compared to the cheaper low-band gear initially adopted by many telecom operators.
While there are hints of potential demand recovery, Lundmark emphasized that it’s too early to declare a widespread trend.
Nokia’s quarterly comparable net sales dropped from €6.24 billion to €4.98 billion year-on-year, falling short of the estimated €5.67 billion, according to an LSEG poll.