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Is Nokia's "Reset" Bad News for Investors?

By Anders Bylund - Mar 17, 2021 at 8:11AM

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The company will lay off 10,000 employees over the next couple of years. Here's what that means for the company and its investors.

Telecom equipment and services giant Nokia (NOK 3.28%) is cutting between 5,000 and 10,000 names of its payroll over the next two years. The Finnish company calls it a "reset" of Nokia's cost structure. This sounds like a big deal, maybe even a panic-tinged act of crisis management but Nokia's stock barely moved on the news. Let me show you how Nokia's "reset" actually is a fairly standard and quite calm strategy shift.

What's going on?

Nokia will bring its employee count down by as much as 10,000 names over the next 18 to 24 months, starting from roughly 90,000 employees. The company expects to save more than $700 million per year by the end of this restructuring, but the savings won't go toward boosting Nokia's bottom line. Instead, the company will increase its R&D spending and infrastructure investments in a targeted manner. It's all about 5G networking, cloud computing, and digital infrastructure from this point on. All told, the restructuring charges should match the cost savings almost exactly.

We're not talking about a flurry of pink slips. Nokia will reduce its headcount in a slow and steady manner, largely by restricting new hires outside the chosen target areas. A few non-core operations will be closed along the way, but that's a small piece of the planned strategy shift.

A hand rolls over dice with letters and numbers, changing the word they form from 4G to 5G.

Image source: Getty Images.

That's not really news

In many ways, Nokia simply provided some financial and operational data points for a strategy shift that was announced in October 2020. You might recall that the stock plunged 20% in a single day after reporting results for the third quarter. Management announced a sweeping strategy shift as part of that report, sending many nervous investors toward the exits.

I opened a Nokia position of my own two weeks later, because I liked the company's willingness to double down on its highest-growth target markets. In my view, Nokia is a proven winner and a leader in the explosive 5G infrastructure industry. Some traders saw a problem where I see opportunity and the stock fell when it should have been rising.

Management will offer a more detailed explanation on Thursday, as part of a long-planned investor day. Stay tuned for that, but don't expect any spectacular fireworks. That happened in October and Nokia's stock is still on fire sale.

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