Nokia has announced plans for another EUR 700 million in cost reductions, in order to meet its goal of raising the adjusted operating margin to 12-16 percent by 2020. The announcement came alongside third-quarter results showing a 1 percent fall in revenues and a drop in the margin to 8.9 percent.
Nokia said that despite the significant cost savings realised from the merger with Alcatel-Lucent, it still needed to work on ensuring it was "lean in every part of the business". The savings are expected to come from an unspecified number of job losses, as well as more automation and simplification of processes, reductions in central support functions, greater prioritization in R&D, more efficiency from common software, the consolidation of selected cross-company activities and further reductions in real estate and other overhead costs.
The company also announced certain strategic changes, including the creation of a new Enterprise Business Group to group existing activities in this area. The enterprise group will be led by chief strategy officer Kathrin Buvac and report directly to the President and CEO.
At the Mobile Networks division, Nokia plans to narrow its focus to mobile radio products. This should support the momentum in the emerging 5G business, the company said. It is also moving the Cloud Core activities to the Nokia Software business group. The changes will take effect from the start of 2019.
The cost savings are expected to be realised by the end of 2020 and compare to the end of 2018. One-time costs and cash outflow for the restructuring is estimated at EUR 900 million. The plans are in addition to the estimated EUR 1.2 billion in cost savings to be realised by the end of 2018.
Targets maintained
For 2018, Nokia still expects to reach its target of an adjusted operating margin of 9-11 percent. In the first nine months of the year, the result was down to 6.7 percent from 9.6 percent in the year-earlier period. Adjusted EPS is estimated at EUR 0.23-0.27 in the full year, after halving to EUR 0.10 in the first nine months.
The outlook for the main Networks division remains the same: an operating margin of 6-9 percent this year and 9-12 percent in 2020. In the third quarter, revenues rose 1 percent, or 3 percent on a constant currency basis, to EUR 4.9 billion, while operating profit was down 26 percent to EUR 246 million, giving a margin of 5.0 percent.
The company said it finished the period with a strong order backlog at Networks, and commercial 5G network deployments are expected to begin near the end of 2018. It was also making progress on the strategy to target attractive adjacent markets, with growth in sales to large enterprise vertical and webscale customers.
At the group level, Nokia's quarterly sales fell 1 percent to EUR 5.5 billion due to lower revenues from licensing. The net result was a loss of EUR 0.02 per share, slightly less than a loss of EUR 0.03 a year ago thanks to lower restructuring and other one-time charges. Operating cash flow was a negative EUR 82 million.
