Nokia to cut more jobs as it struggles to boost profits

Nokia announced an expanded cost-cutting program that will lead to further job losses as it targets an annual cost savings of $797 million by the end of 2020. The telecom infrastructure vendor is already in the midst of a $1.36 billion cost savings initiative following its 2016 acquisition of Alcatel-Lucent.

"The plan we are announcing today is the logical step to take as the completion of our Alcatel-Lucent-related cost saving program draws near," CEO Rajeev Suri said in a prepared statement. "Since the acquisition closed, we have been integrating and capturing synergies and now it is time to focus on optimizing and ensuring that we are lean in every part of our business."

Nokia ended 2017 with almost 103,000 employees. The company declined to say how many jobs will be cut as it aims to lift its operating margin and boost profitability, but the majority of savings will be derived from consolidated business activities and cuts to central support functions. Nokia also plans to increase investment in digital tools and accelerate the automation of business operations where it’s feasible.

“Even if these actions are right for our business, we do not take them lightly given the expected impact on our employees. We will strive to do right for those people affected by the planned changes, acting transparently and providing transition and support to those who need it,” Suri said.

The Finnish company reported a 27% year-over-year decline in profit and a 1% slide in net sales during the same period. It banked $554 million in profit on $6.2 billion in sales during the quarter. “We are making progress but still have more work to do get our network margins where we would like them to be,” Suri said during a call with analysts.

Nokia’s wireless networks business increased 2% year-over-year to $1.85 billion during the quarter, and the company is projecting growth as 5G network deployments increase. Customer demand for 5G should begin to take root near the end of 2018, and market conditions will see particular improvement in the fourth quarter in North America, following weakness during the first half of the year, according to Nokia. The company also inked a $3.5 billion deal in July to supply T-Mobile with 5G network gear.

During the third quarter of 2018, North America accounted for 31% of Nokia’s networks business by net sales. Indeed, North America is the fastest growing and largest contributor throughout Nokia’s business. Net sales jumped 16% in North America to $1.81 billion, accounting for 29% of all sales during the quarter.

According to research firm Dell’Oro Group, Nokia was the leading North American RAN vendor in 2016, but the company lost that position to Ericsson during the course of last year. Further, Dell’Oro said that Ericsson’s North American RAN lead widened by about 3 percentage points during the first six months of 2018 relatively to the full year 2017. Dell’Oro said in August that the four leading equipment vendors in the North American market in ranking order are Ericsson, Nokia, Samsung and Huawei. 

Meanwhile, Nokia’s patent business continues to shine as the company announced an extension of its patent license agreement with Samsung. Terms of the multiyear agreement, which would have expired at the end of 2018, remain confidential, but Samsung will continue making payments to Nokia for the foreseeable future.