Nokia's new CEO is changing the company's operating model and management team, ahead of expected bigger changes to be announced in the coming months. The announcement comes alongside disappointing third-quarter results and a downgrade in the group's outlook for 2020.
Quarterly revenues of EUR 5.29 billion were down 7 percent year-on-year, or 3 percent lower at constant currency rates. Lower network deployment services at Mobile Access caused the decline, while Nokia Enterprise grew sales by 15 percent. Adjusted operating profit was up 2 percent to EUR 486 million for a 9.2 percent margin, helped by lower travel and staff costs during the pandemic. Net profit more than doubled, to EUR 203 million or EUR 0.04 per share.
Nokia said factory closures due to the Covid-19 pandemic were no longer impacting results in the quarter. Nevertheless, the company sees full-year results coming in at the low end of its previous forecast. This means adjusted EPS at EUR 0.23 plus or minus 3 cents (versus a midpoint of EUR 0.25 previously) and an adjusted operating margin of 9.0 percent plus or minus 1.0 percentage points (previous midpoint 9.5%). Recurring free cash flow is still expected positive, at EUR 600 million plus or minus EUR 250 million.
The company also issued a new forecast for 2021, for an adjusted operating margin of 7-10 percent. Nokia said it will provide more details on the outlook with a strategy announcement on 16 December and at its capital markets day in March 2021.
More change needed
CEO Pekka Lundmark, who started in August, said the company's "good progress" to date was not enough, especially with a challenging 2021 expected, and "more change is needed". "We have lost share at one large North American customer, see some margin pressure in that market, and believe we need to further increase R&D investments to ensure leadership in 5G," he said in a statement. "In fact, we have decided that we will invest whatever it takes to win in 5G." This will mean a "more rigorous approach to capital allocation", he said, suggesting dividends are still not on the cards next year.
The first change is a new organisation structure from January 2021, with four divisions aligned with customer buying behavior. Each with their own P&L responsibility, the business groups are Mobile Networks, IP and Fixed Networks, Cloud and Network Services and Nokia Technologies. Presidents of the respective groups are Tommi Uitto, Federico Guillen, Raghav Sahgal and Jenni Lukander.
A new Customer Experience organization will work to strengthen customer relationships across all the businesses. This unit will include Nokia’s customer teams, region and country management, as well as marketing and be led by Ricky Corker.
Technology leadership
The new divisions are a move away from the 'end-to-end' strategy employed previously towards a more focused appraoch, with each group playing a distinct role in the new strategy. The other tenets of the plan include technology leadership as "the top priority", building on the existing customer base of telcos and enterprises (including webscale companies), and moving into higher-value 'network-as-a-service' business models.
The top management team will otherwise consist of CFO Marco Wiren, Chief Legal Officer Nassib Abou-Khalil, Chief People Officer Stephanie Werner-Dietz and a to-be-named head of Strategy and Technology, responsible for strategic planning, long-term research including Nokia Bell Labs, and IT and digitalization.
