Finnish telecom giant Nokia (NYSE:NOK) announced on Thursday its plan to cut up to 14,000 jobs due to reduced demand for its 5G equipment in North America. The move is an extension of a workforce reduction plan initiated in 2021, in response to market weakness and uncertain recovery timing.
CEO Pekka Lundmark highlighted the resilience of the company's third quarter performance, despite the weaker environment's impact on net sales. He cited strategic, operational, and cost actions including substantial network investments as key efforts to strengthen technology leadership. Lundmark expressed confidence in the crucial role of networks in the revolutions of Cloud Computing and AI, and emphasized a commitment to deliver significant value for shareholders despite the challenging circumstances.
According to InvestingPro data, Nokia holds a market cap of $19.11 billion and a low P/E ratio of 4.08, which makes it a prominent player in the Communications Equipment industry. The company has been consistent in increasing its earnings per share, with the Basic EPS (Cont. Ops) for LTM2023.Q2 at $0.81. Despite the current challenges, Nokia has maintained a healthy financial position with more cash than debt on its balance sheet.
The job cuts are part of a larger savings program aimed at reducing costs by up to €1.2 billion ($1.14 billion) by 2026 and reducing staff numbers to around 72,000. The program targets areas like Mobile Networks, Cloud and Network Services, and corporate functions.
Lundmark pinpointed macroeconomic issues in Q3 as a major cause for the company's declining profits. Despite a year-on-year drop of 69% in Q3 profits to €133 million ($126 million), Nokia anticipates business improvement in Q4. InvestingPro data shows that Nokia's revenue growth for LTM2023.Q2 was 9.67%, indicating a potential for recovery.
InvestingPro Tips suggest that the company's stock generally trades with low price volatility, and it is currently trading at a low revenue valuation multiple. Seven analysts have revised their earnings downwards for the upcoming period, which may be a result of the competitive 5G market with Ericsson (BS:ERICAs) and Huawei, which led to a 20% sales drop for Nokia in Q3 of 2023.
The company's hopes of offsetting the North American slowdown with its 5G rollout in India were dashed by slower deployment. Despite these setbacks, Nokia remains committed to its long-term strategy and its efforts to deliver value to shareholders while navigating an increasingly competitive market landscape.
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