Nokia, a Finnish telecom company, experienced a significant setback in its second-quarter operating profit. The company reported a 32% drop in operating profit, primarily attributed to weak demand for its 5G equipment. This led to a sharp decline in the firm’s Helsinki-listed stock, with an 8% decrease shortly after the market opened in London. The decline in comparable operating profit to 423 million euros and net sales dropping by 18% to 4.47 billion euros reflect the challenging market conditions that Nokia is currently facing.
Nokia CEO Pekka Lundmark highlighted the impact of the challenging year-ago comparison period, where India accounted for three-quarters of the decline in operating profit. The rapid deployment of 5G technology in India during the same period last year created a peak that was difficult to match this year. Lundmark acknowledged the challenging landscape in the mobile networks sector, as operators remain cautious amidst the uncertain market conditions. Despite the significant decline in profit, Nokia remains optimistic about a stabilizing industry environment and anticipates a significant acceleration in net sales growth in the second half of the year.
In response to the financial challenges, Nokia has implemented strategic measures to mitigate the impact of the weak demand for its products. The company is focusing on cost-cutting programs to streamline its operations and reduce expenses. Following the loss of a major North American contract to Ericsson, Nokia announced plans to eliminate up to 14,000 jobs and lower gross costs by 800 million to 1.2 billion euros by 2026. The company has made significant progress in its cost-saving initiatives, with measures already in place to reduce costs by 400 million euros.
Despite the current challenges faced by Nokia, the company is maintaining its full-year outlook and targeting a performance toward the mid-point of its comparable operating profit guidance for 2021. Nokia remains confident that it is on track to achieve its financial targets for the year, supported by its proactive cost-saving actions. The firm anticipates a gradual recovery in net sales and a more favorable industry environment in the coming months.
Nokia’s recent financial setback underscores the challenges that the company is facing in the telecom industry. With weak demand for its 5G equipment and intense competition from rivals like Ericsson, Nokia is focused on implementing cost-cutting measures and strategic initiatives to navigate through the difficult market conditions. Despite the temporary setbacks, Nokia remains optimistic about its future outlook and is committed to achieving its long-term goals in the telecom sector.