Nokia's revenue

Like a lot of people my age, I got a mobile young. I remember starting secondary school and being handed a Nokia, great times... anyway, the company is facing revenue challenges so I decided to read about it (article 1 / article 2)

Nokia has appointed Justin Hotard, a senior executive from Intel, as its new Chief Executive, replacing Pekka Lundmark from April 1. The decision comes amid ongoing struggles to boost revenue and share price despite restructuring efforts and cost-cutting measures. Lundmark, who has been in charge since 2020, helped stabilise Nokia but failed to achieve significant growth. Shareholders and insiders have expressed frustration over the company’s stagnation, particularly after the €15.6bn acquisition of Alcatel-Lucent in 2016.

Nokia has faced challenges competing with Ericsson and Huawei, particularly in the 5G market, despite Huawei’s restrictions in Western markets. A sluggish telecoms spending environment and a high-profile contract loss to Ericsson further impacted performance. The company is also looking for a new Chair as Sari Baldauf nears retirement. Nokia has reported a decline in revenue and profit in recent years but has seen some improvement in its network gear division. The leadership change is expected to drive renewed growth, particularly in AI, data centres, and private wireless networks.

6 Key Takeaways

1. Leadership Change for Growth – Nokia has appointed Justin Hotard as the new CEO to address its stagnating revenue and share price, replacing Pekka Lundmark from April 1.

2. Struggles Post-Alcatel-Lucent Acquisition – Revenues remain lower than in 2016 following the €15.6bn acquisition of Alcatel-Lucent, despite restructuring and cost-cutting efforts.

3. Competitive Challenges – Nokia has struggled against Ericsson and Huawei in the telecoms equipment market, even after Huawei was restricted in Western markets.

4. Market Weakness and Cost-Cutting – Declining sales and profit led to a 14,000-job reduction in October 2023 as part of a cost-cutting strategy.

5. Shift Towards AI and Data Centres – Nokia aims to focus on AI, data centres, and private wireless networks for future growth under the new leadership.

6. Board-Level Changes Expected – Nokia is also searching for a new Chair, as current Chair Sari Baldauf nears retirement, signalling further leadership shifts.

What does it tell us about their cash management / allocation?

Cost-Cutting Measures and Workforce Reduction: Nokia announced up to 14,000 job cuts in October 2023, representing 16% of its workforce, as a way to reduce costsamid declining sales. This suggests that the company is focused on preserving cash flow and improving profitability in response to weak market demand.

Struggles with Revenue Growth and Profitability: Despite previous investments, Nokia's revenues remain lower than in 2016, and the company has faced an 18% drop in sales and a 32% decline in operating profit (as of Q2 2023). This indicates that previous cash allocations, such as the €15.6bn acquisition of Alcatel-Lucent, have not delivered the expected return on investment.

Shift in Capital Allocation Priorities: Under its new leadership, Nokia is looking to reallocate capital towards AI, data centres, and private wireless networks, areas identified as critical for future growth. This suggests a shift in investment strategy, moving away from traditional telecom infrastructure towards higher-growth, technology-driven sectors.

Missed Revenue Opportunities: The company lost a $14bn contract with AT&T to rival Ericsson, which suggests that cash flow and revenue projections were further impacted by competitive weaknesses. This highlights the importance of strategic cash allocation in securing long-term contracts and maintaining market position.

Cash Flow Pressure from Market Weakness: Nokia has struggled with sluggish spending from telecom operators, particularly after the initial wave of 5G investments slowed down. This suggests that the company may have over-allocated cash towards telecom infrastructure, misjudging the long-term demand cycle.

Leadership Change as a Cash Allocation Strategy: By hiring Justin Hotard, who has expertise in AI and data centres, Nokia is making a strategic decision that could influence future capital investments. His background suggests Nokia may direct more cash towards high-growth technology markets instead of traditional telecom infrastructure.