Nokia Oyj (HE:NOKIA), the Finnish telecommunications giant, announced on Thursday a substantial workforce reduction plan, in response to sluggish global sales of their 5G equipment and a significant Q3 sales drop in North America. The company aims to cut up to 14,000 jobs, transitioning its workforce from its current 86,000 to a more efficient range of 72,000-77,000. This move comes as part of an aggressive cost-cutting strategy and transformation initiative that Nokia (NYSE:NOK) has unveiled.
The company's decision also comes in response to diminished 5G investments from US and European operators which is causing a ripple effect across the industry. This situation mirrors the struggles of Ericsson (BS:ERICAs) AB, another 5G equipment producer predicting ongoing market weakness.
Nokia's Q3 adjusted operating profit was €424 million ($467 million), falling short of analyst estimates of €545.2 million. The company also anticipates a 9% market decline by 2023 due to slower 5G deployment in India and North America.
According to InvestingPro data, Nokia holds a market cap of $17.98 billion and a P/E ratio of 4.15, indicating a potentially undervalued stock. The company's revenue growth for the last twelve months (LTM2023.Q2) was 9.67%, despite a quarterly drop of -2.78%. The gross profit for the same period was $11,093.41 million, with a margin of 40.25%.
Despite these challenges, CEO Pekka Lundmark remains optimistic about the company's future. He asserts that Nokia is on track to achieve its sales target and hit the midpoint of its comparable operating margin range for the year. Lundmark's optimism is backed by InvestingPro Tips, noting the company's consistent increase in earnings per share and the fact that it holds more cash than debt on its balance sheet. It's also worth mentioning that Nokia is a prominent player in the Communications Equipment industry.
The Finnish firm expects this workforce reduction to result in savings of €400 million ($421 million) in 2022 and an additional €300 million by 2025. The long-term goal is to reach an operating margin of at least 14% by the year 2026 and projected savings ranging from €800 million ($842 million) to €1.2 billion. Swift implementation is planned, with savings anticipation of €400 million for 2024 and an extra €300 million in 2025.
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