Finnish networking equipment maker Nokia said late on Tuesday it would cut 148 jobs in Finland in 2020, excluding its 5G development business.
In January, Nokia said it would cut 180 jobs in Finland, but that number has dropped due to statutory negotiations with employees.
The company announced earlier this week that it had hired former executive Pekka Lundmark from energy group Fortum to replace Rajeev Suri as chief executive to revive its faltering 5G business.
Shares in Nokia have fallen 35.4 percent over the past year under CEO Rajeev Suri. Therefore, the Finnish company decided to replace the current CEO with Pekka Lundmark. There is no doubt that Nokia will spare no effort to restore its position on the global stage, especially in the era of fierce 5G competition.
Nokia’s sticking point
In 2019, the telecom equipment maker had an astonishing performance, largely due to rising costs of sales, operational inefficiencies, intense competition, and inefficiencies to keep up with the rapid technological advancements of the 5G era. Also, its stock price fell sharply in October 2019 due to disappointing third-quarter 2019 earnings. Subsequently, the company decided to suspend its dividend and cut its forecast guidance for 2020.
The company’s chairman Risto Siilasmaa’s decision to step down after a long period of misorganization has sparked speculation about a possible change in overall management. Risto will reportedly be replaced by Sari Baldauf in April 2020. The move is not surprising, as Suri warned that any further investments that impact 5G competition could affect its future profitability. All of these issues, combined with Huawei’s strong presence in the European telecom market, sent Nokia’s shares lower.
Nokia’s financial performance over the past year also regressed as its gross margin was negatively impacted by high cost levels associated with first-generation 5G products, product mix, and profitability challenges in China. Although revenue increased 4.2% in the third quarter of 2019, due to price pressure from early 5G deals and North America’s partnership with T-Mobile US, Inc. The performance was hurt by temporary capex restrictions related to the merger of TMUS and Sprint Corporation S.
The troubled company is facing escalating 5G product costs in the networking space as well as higher levels of deployment service costs. Notably, its cost-effectiveness has also been greatly affected by the inability to make additional investments related to its 5G system development. Plus, with the accelerated 5G spending cycle and lack of resources, Nokia faces more than just a lack of demand due to geopolitical uncertainty and a challenging macroeconomic environment.
Uncertainty about Nokia’s future
In response to the dire situation, Nokia is reportedly planning to explore strategic opportunities such as investment transfers, asset sales or a potential merger with Ericsson. The merger is expected to help the two companies not only challenge Huawei, but also help it become a dominant player in next-generation smartphone technology.
The main reason cited for a potential merger is that Huawei poses a threat to the Nordic company. As a result, there are reports that the Trump administration is considering backing Nokia to block Huawei’s operations in the European market. This can be accomplished either through direct financing or through a consortium of U.S. private and conglomerate businesses, backed by more than $1 billion from the government. In fact, the UK government’s decision to impose a 35% cap on Huawei also seems to prove beneficial to Nokia as Nokia expands its market share in Europe.
Despite many efforts to try to stand out, Nokia’s management appears to be suffering from mismanagement as its 5G strategy fails to return shareholders with a healthy ROI.
Source: Cable Network
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