At its Capital Markets Day in March, Nokia provided new details surrounding its aggressive restructuring plan, originally announced last October. Based on its update, the restructuring will rely on headcount reductions, doubling down on R&D, and a long tail of 5G business from enterprises.
In March, Nokia announced it intends to “reset its cost base” in part by reducing overall headcount from 90,000 today to 80,000-85,000 in the next 18-24 months. The cuts appear to be largely focused on administrative personnel and multiple layers of management as the company looks to simplify its operations.
However, the company’s predictions of current and future headcount obscure the actual impact on current employees: Nokia appears likely to hire new staff focused on R&D, meaning the actual number of current employees impacted could be bigger than the headline figures might imply.
Why Nokia finds it difficult to compete
Nokia doubled down on its plan to invest aggressively in areas it considers strategic, most notably 5G. Nokia has more work to do here; cost inefficiencies caused by strategic missteps in its 5G radio portfolio have made it difficult for Nokia to compete with key competitors Huawei and Ericsson in the past few years.
While the company is working its way through those challenges, it has made the decision that it needs to do more than just catch up.
That decision is in due in part to what Nokia sees as a long tail of opportunity from 5G, one that will last significantly longer than with 4G/LTE. That’s because it sees a large, largely untapped opportunity in the enterprise segment.
Nokia has had some modest success here in recent years, having amassed over 260 enterprise customers for private cellular networks in the energy, mining, transportation, ports, manufacturing, and public safety industries.
Nokia currently generates just 8% of its revenue from enterprise customers, but it sees a massive growth opportunity enabling a host of ‘as-a-service’ offerings related to edge cloud, security, precision asset tracking, drone surveillance, and digital twin services.
Eventually, Nokia believes it will be able to generate higher margins in its enterprise initiatives than it does with its traditional network operator customers by being able to drive outcomes and not merely connectivity.
The company expects that after a ‘Reset’ and ‘Accelerate’ phase it will be ready for the business to reach its ‘Scale’ phase beyond 2023, with a return to modest revenue growth and double-digit operating margins. But clearly the ‘reset’ will be painful, and the ‘scale’ version of Nokia will look significantly different than it does now.