October 29, 2018
plans to accelerate progress in its strategic growth areas, further
sharpen customer focus, and significantly reduce costs.
"Nokia has made considerable progress in executing on its strategy, with
excellent momentum in providing high-performance end-to-end networks,
targeting new enterprise segments and creating a standalone software
business," said Rajeev Suri, President and CEO. "Our early progress in
5G is extremely strong, we continue to increase our investment in this
critical technology, and our win rate for new deals suggests that we are
in a very good competitive position."
"With the successful Alcatel-Lucent integration and cost-saving program
soon to be behind us, we are taking steps to accelerate the execution of
our strategy and sharpen our customer focus. We will also redouble our
efforts to ensure that Nokia's disciplined operating model remains a
source of competitive advantage for us, and that we maintain our
position as the industry leader in cost management, productivity and
efficiency. We noted earlier this year that we would need to take
further cost actions in order to deliver on our 2020 guidance. Today, we
are quantifying those actions and raising the certainty that we can meet
those commitments," Suri said.
Nokia continues to execute well on its strategy, with a particular focus
on high-performance, end-to-end networks, expansion into new enterprise
segments, building a standalone software business, and generating
significant licensing revenues.
To accelerate this momentum and increase customer focus as the 5G era
begins, Nokia plans to realign parts of its organization, including:
Creating a new Enterprise Business Group that consolidates a range of
existing, fast-growing activities into one focused organization
reporting directly to the President and CEO.
Accelerating Nokia's strong
momentum in 5G by sharpening the focus of the Mobile Networks Business
Group to be on mobile radio products.
Strengthening Nokia's capability
to deliver industry-leading, fully-integrated and tested Cloud Core
solutions by aligning both resources and accountability to the Nokia
Software Business Group.
Kathrin Buvac has been nominated
as President of Enterprise. She is currently the Chief Strategy Officer
for Nokia and has successfully led the company strategy through
significant transformations over the last five years. She will remain on
the Group Leadership Team.
"These planned changes will strengthen our ability to provide
best-in-class mobile radio and Cloud Core solutions to our communication
service provider customers," said Suri. "On the enterprise side, our
strategy has been to target high-growth, high-margin opportunities with
a limited set of companies needing telco-grade networks. Our strong
results to-date have validated this approach and we are taking steps to
build even further on our progress."
These changes, which are planned to come into effect on January 1, 2019,
are subject to consultation with employee representatives where
Nokia is targeting to reduce of its non-IFRS annualized operating
expenses and production overheads by EUR 700m by the end of 2020
compared to the end of 2018, of which EUR 500m is expected from
operating expenses. Nokia plans for these savings to come from a wide
range of areas, including investments in digitalization to drive more
automation and productivity; further process and tool simplification;
significant reductions in central support functions to reach
best-in-class cost levels; prioritization of R&D programs to best create
long-term value; a sharp reduction of R&D in legacy products; driving
efficiency from further application of our best-in-class common software
foundation and innovative software development techniques; the
consolidation of selected cross-company activities; and further
reductions in real estate and other overhead costs.
planned changes are expected to result in a net reduction of employees
globally. Such reductions will be subject to local consultation
requirements with employee representatives, once detailed plans are
developed. It is expected that the one-time costs of implementing these
planned changes is EUR 900m, with an impact on cash flow of
approximately EUR 900m.
"Our industry is one where a constant focus on costs is essential," said
Suri. "The plan we are announcing today is the logical step to take as
the completion of our Alcatel-Lucent-related cost saving program draws
near. Since the acquisition closed, we have been integrating and
capturing synergies and now it is time to focus on optimizing and
ensuring that we are lean in every part of our business.
Even if these actions are right for our business, we do not take them
lightly given the expected impact on our employees. We will strive to do
right for those people affected by the planned changes, acting
transparently and providing transition and support to those who need
Nokia reiterates the guidance issued earlier today in its third-quarter
earnings report for Nokia Group non-IFRS operating margin of 12-16% and
diluted earnings per share guidance of EUR 0.37 - 0.42 in full year
Additional financial information related to Nokia Software and
Enterprise is planned to be provided starting with Q1 2019 results.