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Nokia sees pick up in margins as turnaround takes shape

Published 03/18/2021, 02:56 AM
Updated 03/18/2021, 09:20 AM
© Reuters. FILE PHOTO: Visitors gather outside the Nokia booth at the Mobile World Congress in Barcelona
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By Supantha Mukherjee and Essi Lehto

STOCKHOLM/HELSINKI (Reuters) - Nokia (NYSE:NOK), which announced thousands of job cuts this week, is forecasting a pick up in profit margins to 10%-13% in 2023 as new Chief Executive Pekka Lundmark charts a course to catch up with rivals in the race to deliver 5G networks.

Nokia, which has lost out to Sweden's Ericsson (BS:ERICAs) and China's Huawei in the battle for work on next generation 5G networks, had last year cut its 2020 operating margin guidance to 9% from 9.5% and forecast 7%-10% for 2021.

Lundmark, who took the helm in August, has introduced a new operating model with four business groups and plans to cut the workforce by 10,000 jobs in the next two years from about 90,000 employees now. He has reduced his leadership team to 11 from 17.

"I want to decentralize decision making and reduce bureaucracy, and really empower those people who are the most competent ones to make a decision," Lundmark told Reuters.

Nokia, which has outlined a plan to compete more strongly in markets where it operates, lost out to Ericsson in China. The Finnish firm failed to win radio contracts there while its Swedish rival secured a double-digit market share.

"The market share we got in the first phase of 5G in China was tiny ... We did not have the right product at the right time," Lundmark said, adding Nokia planned to increase its focus on China as Nokia's 5G product became more competitive.

Nokia also said it expected to grow faster than the market in 2023, in a statement before presentations to investors later on Thursday.

"It is a big company and the timeframe for turning the ship around is short but the new leadership starts off with more credibility than the old one which was constantly behind on the targets it set," OP Bank analyst Kimmo Stenvall said.

Lundmark said the company would consider mergers and acquisitions as a way to expand the business.

The company, which halted its dividend in October 2019, said its board would assess the possibility of a dividend for 2021 after the fourth quarter. 

© Reuters. FILE PHOTO: Visitors gather outside the Nokia booth at the Mobile World Congress in Barcelona

Nokia shares were down about 2% in afternoon trading.

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