In response to a challenging market environment and a 15% decline in net sales in the third quarter, Nokia President Pekka Lundmark has unveiled a strategic shift and cost reduction program.
Nokia aims to lower its cost base by between EUR 800 million and EUR 1.2 billion by the end of 2026 compared to 2023, while retaining its commitment to technology leadership.
“Our third-quarter performance demonstrated resilience in our operating margin despite the impact of the weaker environment on our net sales. In the last three years, we have invested heavily to strengthen our technology leadership across the business, giving us a firm foundation to weather this period of market weakness,” said Lundmark.
The cost reduction program is expected to result in a reduction in Nokia’s workforce, with the organization shrinking from its current 86,000 employees to between 72,000 and 77,000. The program focuses on both strategic and operational changes to ensure the company’s long-term profitability.
Lundmark outlined the key steps of Nokia’s strategy, saying, “First, we are accelerating our strategy execution by giving business groups more operational autonomy. Second, we are streamlining our operating model by embedding sales teams into the business groups, and third, we are resetting our cost base to protect profitability. These actions keep us on track to deliver our long-term target comparable operating margin of at least 14% by 2026.”
In the third quarter, Nokia faced challenges from macroeconomic factors affecting operator spending, leading to a 15% net sales decline compared to the previous year. Network Infrastructure declined 14%, mainly due to weaker spending on IP Networks, while Fixed Networks was impacted by customer inventory digestion. Mobile Networks saw a 19% decline as 5G deployment in India slowed, and Cloud and Network Services reported a 2% decline.
Despite the net sales decline, Nokia’s comparable operating margin remained at 8.5%, showing resilience due to the company’s cost discipline and some additional operating income. The company is optimistic about a more normal seasonal improvement in its network businesses in the fourth quarter.
Nokia Technologies, the company’s intellectual property arm, expects to return to a net sales annual run-rate of EUR 1.4-1.5 billion, partly driven by smartphone license renewals and expansion into new areas.
Lundmark also highlighted significant product launches during the quarter, emphasizing Nokia’s commitment to technology leadership. Notable releases included the FPcx routing silicon in IP Networks and the Network as Code platform in Cloud and Network Services.
In addition to these operational changes, Nokia also announced shareholder distribution plans. The Board of Directors has authorized a distribution of EUR 0.12 per share for the financial year 2022, with an initial dividend of EUR 0.03 per share to be paid on November 2, 2023.
Nokia’s outlook for full-year 2023 net sales ranges from EUR 23.2 billion to EUR 24.6 billion, with a comparable operating margin of 11.5% to 13.0%. The company remains confident about its long-term targets, including net sales growth exceeding market growth and a comparable operating margin of at least 14%.