Communications equipment company Nokia has announced plans to reduce its workforce by up to 14,000 jobs in a cost-cutting move. This decision comes in response to a significant drop in demand for 5G equipment during the third quarter, leading to a 20% decrease in sales. Nokia’s shares declined by 5% in early trading, reflecting the challenging market conditions.
While facing decreased demand, Nokia and its competitor Ericsson have attempted to offset these challenges by boosting sales in India, a market with lower profit margins.
The North American market, a vital one for Nokia, experienced a sharp decline, with net sales down by 40% in Q3, as revealed by Chief Executive Pekka Lundmark.
Nokia’s cost-cutting measures aim to achieve savings ranging from 800 million euros ($842 million) to 1.2 billion euros by 2026. These efforts will result in a reduction of the employee base from 86,000 to between 72,000 and 77,000, implying around a 16% job cut at the higher end. Further details will be worked out in consultation with employee representatives, with an emphasis on safeguarding research and development.
Nokia anticipates achieving savings of at least 400 million euros in 2024, with an additional 300 million euros in 2025. Ericsson, which has also undergone layoffs this year, predicts ongoing uncertainty in its business until 2024.
Despite acknowledging the uncertainty in the market, Nokia anticipates a more regular seasonal improvement in its network business in the fourth quarter and maintains its full-year outlook.
Nokia’s CEO, Lundmark, stressed the need for the industry to invest in faster mid-band equipment to accommodate the growth in data traffic. Currently, only 25% of 5G base stations outside of China have mid-band technology, which offers higher speeds.
Quarterly comparable net sales for Nokia fell to 4.98 billion euros from 6.24 billion euros in the previous year, falling short of expectations based on an LSEG poll, which estimated sales at 5.67 billion euros.