Telecommunications giant Nokia (NYSE:NOK) announced on Friday a comprehensive workforce restructuring plan that aims to reduce its global workforce by up to 14,000 jobs. The Finland-based company, which holds a market cap of 17.87B USD according to InvestingPro data, plans to reduce its workforce from 86,000 to between 72,000 and 77,000 as part of an ambitious cost-cutting strategy. The initiative projects savings of €1.2 billion ($1.3 billion) by 2026, including at least €400 million ($421.4 million) in 2024 alone.
The strategic move follows a challenging third quarter for the company, which saw a 15% decline in sales and a significant 19% drop in mobile network sales. These decreases have been attributed to macroeconomic uncertainty, higher interest rates, and a slowed pace of 5G deployment in markets like India. The stock has taken a big hit over the last week, with a 1-week price total return of -8.55%, and is trading near its 52-week low, as per InvestingPro data.
Despite the current economic landscape, Nokia remains committed to optimizing its operations and resource allocation. The company has maintained its 2023 sales outlook of €23.2 billion to €24.6 billion ($24.4 billion to $25.9 billion). This decision underscores Nokia's belief in the mid to long-term attractiveness of its markets. InvestingPro Tips suggests that Nokia is a prominent player in the Communications Equipment industry and holds more cash than debt on its balance sheet, which could be a key factor in navigating these challenging times.
Nokia CEO Pekka Lundmark has pledged support for those affected by the restructuring, emphasizing the need for a compassionate approach during this transition period. The company is also consistently increasing its earnings per share, another InvestingPro Tip that might be of interest to investors.
In addition to the workforce reduction, Nokia's cost-cutting measures include redirecting resources towards boosting research and development, particularly as the company confronts an eroding US market share and struggles in the evolving 5G market. The company's P/E ratio stands at 4.08 and it's trading at a low revenue valuation multiple, indicating that it could be undervalued.
While these measures may pose challenges for employees, they have the potential to elicit a favorable investor response due to their indication of Nokia's commitment to improving financial health. The market reaction to this strategic move and its effect on relationships with existing and potential clients will be closely monitored. For more insights like these, check out the additional 11 tips available on InvestingPro.
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