Finnish telecommunications giant Nokia has announced a significant workforce reduction, with plans to slash between 9,000 and 14,000 jobs by the end of 2026 in a bid to control costs. This decision comes on the heels of Nokia’s report of a 20% drop in sales for the third quarter, spanning from July to September.
As of now, Nokia employs approximately 86,000 individuals globally. However, the company has been steadily reducing its workforce since 2015, aligning with its ongoing restructuring efforts to adapt to market changes. Nokia’s history is marked by its dominance in the mobile handset industry, holding the title of the world’s largest handset manufacturer at one point. However, it struggled to anticipate the rising demand for internet-enabled touchscreen phones, exemplified by Apple’s iPhone and Samsung’s Galaxy, which eventually overtook Nokia in the market.
Following the sale of its handset business to Microsoft, Nokia pivoted to focus on telecommunications equipment. In 2020, the company experienced significant growth by becoming a primary equipment provider to BT, capitalizing on Huawei’s exclusion from the UK’s 5G networks. Despite these successes, the global 5G equipment sector has been grappling with declining investments by US and European operators, resulting in reduced sales for key players.
In fact, earlier in the week, Nokia’s Swedish rival, Ericsson, also reported a decrease in sales. Ericsson expressed concerns about the persistent uncertainties affecting its mobile networks business, extending into the following year. This ongoing turbulence in the telecommunications sector has raised alarm bells for major industry players like Nokia, prompting the cost-cutting measures and job reductions announced recently.
Slow 5G Demand Part of Nokia Woes
Simultaneously, Nokia disclosed its third-quarter earnings, which fell short of expectations. The adjusted operating profit for the period was reported at €424 million ($467 million), falling below the average analyst estimate of €545.2 million, according to a Bloomberg survey. Similarly, the adjusted earnings per share came in at 5 cents, trailing the estimated 7 cents, as predicted by analysts.
The primary reason cited for this downturn is the sluggish demand for 5G equipment, particularly in the North American market. In light of these developments, Nokia’s CEO, Pekka Lundmark, remarked, “We are tracking towards the lower end of our net sales range for 2023 and towards the mid-point of our comparable operating margin range.” This follows Nokia’s prior guidance downgrade for the full year in July, which lowered the anticipated sales range to €23.2 billion to €24.6 billion, with a comparable operating margin expected to fall between 11.5% and 13%. The top end of this margin range was previously forecasted at 14%.
Nokia’s challenges are emblematic of the broader struggle facing 5G equipment manufacturers, as US and EU operators curb capital expenditures and adjust their inventory strategies. Ericsson’s recent pronouncements echo these concerns, emphasizing the need for telecom giants to navigate through this period of market instability and adapt to changing dynamics to secure their futures.
Nokia is also the latest tech company to announce job cuts after LinkedIn signalled a slash in workforce numbers earlier this week.