Nokia, the Finnish tech titan, has announced a massive reshaping of its operations via downsizing its workforce by up to 14,000 jobs in order to lower expenses.
The technology market, particularly 5G equipment sales, is currently in a difficult state and the company doesn’t anticipate an immediate upturn following a 20% Q3 sales decline.
The US market, known to be a profitable hub for Nokia and its competitor Ericsson, has faced a slowdown, causing a shift of focus to alternative regions like India. However, it’s anticipated that India’s impressive performance in 2022 will normalize eventually.
The North American market, a significant contributor to Nokia’s revenues, has witnessed a 40% drop in net sales in Q3, underscoring the intensifying challenges.
Thus, driving Nokia to set a cost savings target of between 800 million Euros and 1.2 billion Euros by 2026, hoping to cut its workforce to a range of 72,000 to 77,000 from the current 86,000.
Research and Development Commitments
In a bid to keep the restructuring plan under wraps, the company expressed the need for consultations with employee representatives further elaboration. Interestingly, amidst this overhaul, the company is keen on preserving its research and development sector, which implies strategic value in the company’s future projects.
The organization expects a savings accumulation of at least 400 million Euros in 2024, and a even more in 2025, projected at 300 million Euros. In comparison, Ericsson has released thousands of employees this year and warned about the existing uncertainty extending into 2024. Despite the shared sentiments, Nokia predicts a routine seasonal uplift in its network businesses during Q4.
The Unfulfilled Promise of 5G
The era of 5G was predicted to usher in technological advancements in automation and self-driving vehicles, but corporations have shown reluctance in embracing this new paradigm. This slow pace of adoption and stunted growth has forced telecommunication service providers to realign their financial strategies, particularly scaling down their investment budgets, leading to downsizing at a larger scale. Earlier this year, several major companies announced massive layoff plans.
According to CCS Insight analyst Kester Mann, the telecom industry is riddled with skepticism regarding its long-term role and relevance. Despite its necessity, the industry is grappling with questions about its continued existence rather than basking in the constant demand for its services.
The Need for Speed: Mid-band Equipment
In terms of recovering the market, the industry needs to focus on technological advancements like faster mid-band equipment to handle the ever-growing data traffic. The challenge remains that only 25% of 5G base stations outside of China are equipped with mid-band. Even though mid-band offers superior 5G speeds, it is pricier than the lower-speed low-band gear. Telecom operators, to reduce costs, initiated their 5G deployments with this economical equipment. This inconsistent fielding of technologies isn’t helping the demand for services, keeping the industry in a precarious position.
The Future: An Uncertain but Hopeful Outlook
Although the market environment is tough and full of unpredictability, Nokia remains hopeful, stating that there are sporadic signs of an eventual pick up in demand. However, it’s too soon to claim this as a resolute trend. With the Q3 net sales plummeting to 4.98 billion Euros from last year’s 6.24 billion, there’s a long road to recovery. Regardless, Nokia and the broader telecom industry continues to adapt and evolve in this fluid situation, focusing on strategic decisions and technological growth to navigate the oncoming challenges.
