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Nokia Is on Track to Save $2.2 Billion in Five Years

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New cost-cutting plan unveiled

Nokia (NOK) recently unveiled a new cost-savings plan that could result in an ~$800.0 million reduction in its annual costs by 2020. To achieve this new cost-cutting goal, Nokia intends to shrink its workforce and reduce its research and development spending on certain products. The company employed ~102,761 people globally at the end of 2017, and it’s planning to eliminate thousands of jobs in the next two years.

In 2016, Nokia set out to save ~$1.4 billion in annual costs by the end of 2018. Nokia is on pace to save $2.2 billion in annual costs in five years.

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Improving profitability

Nokia (NOK) is focused on improving its profitability, which explains the cost-saving efforts. The company plans to deliver an operating margin in the range of 6.0%–9.0% in 2018. Nokia’s third-quarter revenues declined 1.0% year-over-year to $6.3 billion. However, the company narrowed its losses to $144.5 million from $216.2 million in the third quarter of 2017.

Shortly after Nokia released its third-quarter results, its CEO, Rajeev Suri, noted during an interview with CNBC that players that win in Nokia’s sector are those with lean operations and low cost structures.

Driving top-line growth

Beyond its cost-cutting initiatives, Nokia (NOK) is looking at increasing sales to support its profitability. The company is banking on telecom operators investing in 5G systems to drive its top-line growth. In July, Nokia inked a $3.5 billion multiyear 5G-related contract with T-Mobile (TMUS). It signed a $1.2 billion agreement with China Mobile (CHL), one of the operators working to develop 5G networks.

In addition to selling network gear, Nokia is also looking to drive its revenue growth by licensing its patents. Nokia, Ericsson (ERIC), and Qualcomm (QCOM) are racing to license their patents to manufacturers of 5G phones. Nokia is planning to charge as much as $3.50 per device for its 5G patents. Ericsson and Qualcomm have capped their 5G patent rates at $5.00 and $16.25 per device, respectively.

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