According to Light Reading, Nokia’s latest annual report shows that after nearly 5,000 jobs disappeared in 2019, more than 6,000 jobs for the Finnish equipment manufacturer will disappear in 2020.
In 2020, Nokia’s average number of employees is 92,039, which is 11044 fewer than 103,083 in 2018. This means that Nokia’s total number of employees has dropped by 11% in just two years. Regional analysis shows that Nokia’s number of employees across the world has declined, but China has experienced the largest decline. In 2020, the number of Nokia’s employees in China has dropped by 12% to 13,749, a decrease of nearly 3,500 since 2018.
This may not be surprising. Around this time last year, Nokia withdrew from the Chinese 5G radio access network (RAN) product market because it failed to reach any contracts with Chinese operators. In the Chinese market, local suppliers Huawei and China have undertaken most of the network work for a long time. In terms of 5G, the remaining 12% of the business is entirely owned by Ericsson.
The question now is whether the Swedish government’s recent decision to ban Huawei from entering the country’s 5G market will give Nokia an opportunity. Beijing has threatened to retaliate against Sweden. Fearing such consequences, Ericsson CEO Ekholm accidentally became Huawei’s ally in Sweden and criticized his government for ignoring normal free trade principles. Ericsson warned in its latest financial report: “The decision of the Swedish telecom regulator to exclude Chinese suppliers from the 5G network may bring risks to our business in China.” Nokia may hope that Finland will not follow Sweden’s footsteps.
Nokia’s number of employees in the Americas has also dropped significantly, with a 9% reduction in 2020 and a reduction of more than 2,800 positions since 2018. Failure to finalize a large 5G contract with Verizon seems unlikely to have much impact-in September last year, the operator chose Samsung. Despite this, a large number of Nokia jobs in North and South America have disappeared.
Nokia made no mention of layoffs in the report. The only true statement is that “in recent years, our number of employees has fluctuated because we are making strategic adjustments to achieve our business goals.” The good news for investors is that despite a 6% drop in revenue, Nokia’s operating profit margin in 2020 has almost doubled to 4% (to 21.9 billion euros).
This is not good enough for shareholders, especially since the net loss in the past three years totaled more than 3 billion euros. After its own reduction plan and the sale of some assets, Ericsson’s operating profit margin in 2020 will reach 12%, higher than 4.6% in 2019. Huawei has not yet released its annual report, and its profit margin for 2019 is 9.1%. Due to poor performance, Nokia’s goal this year is 7-10%.
The most worrying thing is that Nokia’s last saving plan resulted in a significant drop in R&D expenditures. After investing about 4.5 billion euros in research and development funds in 2019, Nokia cut its budget by nearly 450 million euros in 2020, which is less than the nearly 4.8 billion euros in 2018. After making mistakes in the 5G market, shareholders are worried that they will lose their competitiveness, and reducing the budget does not look good. After all, the mobile business is the source of nearly half of Nokia’s revenue.
Nokia’s new CEO, Pekka Lundmark, promised to revive the mobile phone business no matter what the cost. In February of this year, in a conference call with reporters, he expressed “willing to sacrifice profit margins to increase R&D investment.” He decided to put the mobile access business in a separate business unit to increase transparency and help investors better evaluate its performance. Unlike the predecessor Rajeev Suri, Lundmark does not believe that customers want to buy “end-to-end (purchase all products from one supplier at once).”
Various signs indicate that under the leadership of Lundmark, Nokia will further cut expenses. He has streamlined Nokia’s bloated global leadership team from 17 managers to 11 managers. The reorganization plan means that 14,000 employees will be distributed to new business units such as mobile, network infrastructure, cloud services and licensing (Nokia technology). Coupled with this year’s profit target, this seems bound to mean layoffs.