Nokia Corporation
Stock Exchange Release
October 29, 2020, at 08:00 (CET +1)
Nokia announces first phase of its new strategy, changes to operating model and Group Leadership Team
New company strategy to be shared in three phases, starting today; new operating model to be effective January 1, 2021, designed to better position company for changing markets and align with customer needs.
- New model to include four P&L-responsible business groups aligned with customer buying behavior
- New business groups are Mobile Networks, IP and Fixed Networks, Cloud and Network Services and Nokia Technologies
- New Customer Experience organization to strengthen customer relationships across all businesses
- Optimizes model for better accountability and transparency, increased simplicity and improved cost-efficiency
- New structure effective January 1, 2021
- Nokia will announce its new strategy in three phases; more information to be shared on December 16, 2020, and at Capital Markets Day on March 18, 2021
Espoo, Finland – Nokia today announces high-level strategic principles and a new operating model that will be effective on January 1, 2021.
"Our industry is undergoing profound changes. Industrial automation and digitalization are increasing customer demand for high-performance networks, with a trend towards open interfaces, virtualization, and cloud native software. This will revolutionize how we design, deploy, manage and sell our products and solutions," said Pekka Lundmark, President and CEO.
"As we work to renew our strategy, we will ensure we are well positioned to leverage these trends, improve our performance and position the company for long-term value creation."
At this point, Nokia's strategy review has reached four conclusions. First, that technology leadership will be the top priority; second, that the company's current customer base, consisting of telco operators and enterprises (including webscale companies), provides a solid platform for value creation; third, that there is a longer-term opportunity to move into higher-value "network-as-a-service" business models; and fourth, that end-to-end as a core strategic idea will be replaced with a more focused approach, with each of the company's new business groups having a distinct role in the overall strategy.
Nokia will have four P&L-responsible business groups structured around unique customer offerings, with ownership for becoming one of the market leaders in their respective sector. They will also need to demonstrate a clear route for delivering shareholder value with return on capital employed as a key metric.
"Our goal is to better align with the needs of our customers, and through that increase accountability, reduce complexity and improve cost-efficiency. Going forward, we will have a more rigorous approach to capital allocation and will invest to win in those segments where we choose to compete," said Pekka Lundmark.
The new business groups are:
- Mobile Networks, which will include mobile network products, network deployment and technical support services, and related network management. This business group will offer the full portfolio for customers wanting to buy mobile access networks. It will target leadership in key technologies such as 5G, ORAN and vRAN. The net sales of Mobile Networks in the last four quarters were approximately €10 billion. Tommi Uitto has been appointed as President of this business group.
- IP and Fixed Networks, which will include IP Routing, Optical Networks and Fixed Networks, as well as Alcatel Submarine Networks business, currently reported under "Group Common." This business group will respond to the ever-increasing demand for higher capacity, greater reliability, faster speeds and lower costs. The net sales of IP and Fixed Networks in the last four quarters were approximately €7 billion. Federico Guillén has been appointed as President of this business group.
- Cloud and Network Services, which will include the existing Nokia Software business (excluding Mobile Networks network management), Nokia's enterprise solutions, core network solutions including both voice and packet core, and managed and advanced services from its current Global Services unit. This unit will also act as a delivery channel of certain products from other business groups to enterprise customers. Cloud and Network Services will target growth by leveraging the industry transition to cloud-based delivery, network-as-a-service business models, and software-led value creation. The net sales of Cloud and Network Services in the last four quarters were approximately €3 billion. Raghav Sahgal has been appointed as President of this business group.
- Nokia Technologies, which will remain largely unchanged. The net sales of this business group in the last four quarters were approximately €1.4 billion. Jenni Lukander continues as President of this business group.
In addition to these four business groups, there will be a Customer Experience organization that will provide a common interface with customers and will act as the voice of the customer across all business groups. This unit will include Nokia's customer teams, region and country management, as well as marketing. The organization will be led by Ricky Corker.
"Our focused business groups will ensure that we shorten the distance between customers and product development. Our new Customer Experience organization is designed to build on our deep customer relationships. We already have world-class teams and fully intend to keep this as a key strength going forward," said Lundmark.
Additionally, there will be four corporate functions:
- Finance, which will also include cross-company shared services, and which will be led by Chief Financial Officer Marco Wirén.
- Legal and Compliance, which will be led by Chief Legal Officer Nassib Abou-Khalil.
- People, which will include human resources functions, operating model management and real estate. This function will be led by Chief People Officer Stephanie Werner-Dietz.
- Strategy and Technology, which will include strategic planning, long-term research including Nokia Bell Labs, and IT and digitalization. The leader for this function will be named at a later stage.
The new structure and any resulting new appointments will take effect on January 1, 2021, at which point the roles mentioned above will form Nokia's new Group Leadership Team led by President and CEO Pekka Lundmark. These leaders will start developing business plans for their respective units immediately.
Nokia plans to share more information about strategy, market dynamics and more details about its new business groups on December 16, 2020. A Capital Markets Day is planned for March 18, 2021, for deep dives into the company's business groups, focusing on strategy, targets, and operational plans. Nokia also plans to adapt its external reporting in line with the new model to help investors assess the value of the different parts of its business.
Nokia's Q3 2020 results analyst webcast will begin on October 29, 2020, at 3 p.m. EET. A link to the webcast will be available at www.nokia.com/financials. Media representatives can listen in via the link, or alternatively call +1 412 717 9224.
Note: Proposed organizational changes referenced in this release may be subject to consultation with employee representatives in certain jurisdictions and are not considered final until such processes are completed.
Media inquiries:
Nokia Communications
Tel.: +358 10 448 4900
Email: press.services@nokia.com
Katja Antila, Global Head of Media Relations
Investor inquiries:
Nokia Investor Relations
Tel.: +358 40 803 4080
Email: investor.relations@nokia.com
About Nokia
We create the technology to connect the world. Only Nokia offers a comprehensive portfolio of network equipment, software, services and licensing opportunities across the globe. With our commitment to innovation, driven by the award-winning Nokia Bell Labs, we are a leader in the development and deployment of 5G networks.
Our communication service provider customers support more than 6.4 billion subscriptions with our radio networks, and our enterprise customers have deployed over 1,300 industrial networks worldwide. Adhering to the highest ethical standards, we transform how people live, work and communicate. For our latest updates, please visit us online at www.nokia.com and follow us on Twitter at @nokia.
FORWARD-LOOKING STATEMENTS
It should be noted that Nokia and its businesses are exposed to various risks and uncertainties and certain statements herein that are not historical facts are forward-looking statements. These forward-looking statements reflect Nokia's current expectations and views of future developments and include statements regarding: A) expectations, plans or benefits related to our strategies, growth management and operational key performance indicators; B) expectations, plans or benefits related to future performance of our businesses (including the expected impact, timing and duration of that impact of COVID-19 on our businesses, our supply chain and our customers' businesses) and any future dividends including timing and qualitative and quantitative thresholds associated therewith; C) expectations and targets regarding financial performance, cash generation, results, the timing of receivables, operating expenses, taxes, currency exchange rates, hedging, cost savings, product cost reductions and competitiveness, as well as results of operations including targeted synergies, better commercial management and those results related to market share, prices, net sales, income and margins; D) expectations, plans or benefits related to changes in organizational and operational structure; E) expectations regarding competition within our market, market developments, general economic conditions and structural and legal change globally and in national and regional markets, such as China; F) our ability to integrate acquired businesses into our operations and achieve the targeted business plans and benefits, including targeted benefits, synergies, cost savings and efficiencies; G) expectations, plans or benefits related to any future collaboration or to business collaboration agreements or patent license agreements or arbitration awards, including income to be received under any collaboration or partnership, agreement or award; H) timing of the deliveries of our products and services, including our short term and longer term expectations around the rollout of 5G, investment requirements with such rollout, and our ability to capitalize on such rollout; I) expectations and targets regarding collaboration and partnering arrangements, joint ventures or the creation of joint ventures, and the related administrative, legal, regulatory and other conditions, as well as our expected customer reach; J) outcome of pending and threatened litigation, arbitration, disputes, regulatory proceedings or investigations by authorities; K) expectations regarding restructurings, investments, capital structure optimization efforts, uses of proceeds from transactions, acquisitions and divestments and our ability to achieve the financial and operational targets set in connection with any such restructurings, investments, capital structure optimization efforts, divestments and acquisitions, including our current cost savings program; L) expectations, plans or benefits related to future capital expenditures, reduction of support function costs, temporary incremental expenditures or other R&D expenditures to develop or rollout software and other new products, including 5G, ReefShark and increased digitalization; M) expectations regarding our customers' future actions, including our customers' capital expenditure constraints and our ability to satisfy customer's needs and retain their business; and N) statements preceded by or including "believe", "expect", "expectations", "deliver", "maintain", "strengthen", "target", "estimate", "plan", "intend", "assumption", "focus", "continue", "should", "will" or similar expressions. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control, which could cause our actual results to differ materially from such statements. These statements are based on management's best assumptions and beliefs in light of the information currently available to them. These forward-looking statements are only predictions based upon our current expectations and views of future events and developments and are subject to risks and uncertainties that are difficult to predict because they relate to events and depend on circumstances that will occur in the future. Factors, including risks and uncertainties that could cause these differences include, but are not limited to: 1) our strategy is subject to various risks and uncertainties and we may be unable to successfully implement our strategic plans, sustain or improve the operational and financial performance of our business groups, correctly identify or successfully pursue business opportunities or otherwise grow our business; 2) general economic and market conditions, general public health conditions (including its impact on our supply chains) and other developments in the economies where we operate, including the timeline for the deployment of 5G and our ability to successfully capitalize on that deployment; 3) competition and our ability to effectively and profitably invest in existing and new high-quality products, services, upgrades and technologies and bring them to market in a timely manner; 4) our dependence on the development of the industries in which we operate, including the cyclicality and variability of the information technology and telecommunications industries and our own R&D capabilities and investments; 5) our dependence on a limited number of customers and large multi-year agreements, as well as external events impacting our customers including mergers and acquisitions and the possibility of our customers awarding business to our competitors; 6) our ability to maintain our existing sources of intellectual property-related revenue through our intellectual property, including through licensing, establishing new sources of revenue and protecting our intellectual property from infringement; 7) our ability to manage and improve our financial and operating performance, cost savings, competitiveness and synergies generally, expectations and timing around our ability to recognize any net sales and our ability to implement changes to our organizational and operational structure efficiently; 8) our global business and exposure to regulatory, political or other developments in various countries or regions, including emerging markets and the associated risks in relation to tax matters and exchange controls, among others; 9) our ability to achieve the anticipated benefits, synergies, cost savings and efficiencies of acquisitions; 10) exchange rate fluctuations, as well as hedging activities; 11) our ability to successfully realize the expectations, plans or benefits related to any future collaboration or business collaboration agreements and patent license agreements or arbitration awards, including income to be received under any collaboration, partnership, agreement or arbitration award; 12) Nokia Technologies' ability to protect its IPR and to maintain and establish new sources of patent, brand and technology licensing income and IPR-related revenues, particularly in the smartphone market, which may not materialize as planned, 13) our dependence on IPR technologies, including those that we have developed and those that are licensed to us, and the risk of associated IPR-related legal claims, licensing costs and restrictions on use; 14) our exposure to direct and indirect regulation, including economic or trade policies, and the reliability of our governance, internal controls and compliance processes to prevent regulatory penalties in our business or in our joint ventures; 15) our reliance on third-party solutions for data storage and service distribution, which expose us to risks relating to security, regulation and cybersecurity breaches; 16) inefficiencies, breaches, malfunctions or disruptions of information technology systems, or our customers' security concerns; 17) our exposure to various legal frameworks regulating corruption, fraud, trade policies, and other risk areas, and the possibility of proceedings or investigations that result in fines, penalties or sanctions; 18) adverse developments with respect to customer financing or extended payment terms we provide to customers; 19) the potential complex tax issues, tax disputes and tax obligations we may face in various jurisdictions, including the risk of obligations to pay additional taxes; 20) our actual or anticipated performance, among other factors, which could reduce our ability to utilize deferred tax assets; 21) our ability to retain, motivate, develop and recruit appropriately skilled employees; 22) disruptions to our manufacturing, service creation, delivery, logistics and supply chain processes, and the risks related to our production sites; 23) the impact of litigation, arbitration, agreement-related disputes or product liability allegations associated with our business; 24) our ability to re-establish investment grade rating or maintain our credit ratings; 25) our ability to achieve targeted benefits from, or successfully implement planned transactions, as well as the liabilities related thereto; 26) our involvement in joint ventures and jointly-managed companies; 27) the carrying amount of our goodwill may not be recoverable; 28) uncertainty related to the amount of dividends and equity return (if any) we are able to distribute to shareholders for each financial period; 29) pension costs, employee fund-related costs, and healthcare costs; 30) our ability to successfully complete and capitalize on our order backlogs and continue converting our sales pipeline into net sales; 31) risks related to undersea infrastructure; and 32) the scope and duration of the COVID-19 impact on the global economy and financial markets as well as our customers, supply chain, product development, service delivery, other operations and our financial, tax, pension and other assets, and the shape of the economic recovery following the pandemic as well as the risk factors specified in our 2019 annual report on Form 20-F published on March 5, 2020 under "Operating and financial review and prospects-Risk factors" as supplemented by the form 6-K published on April 30, 2020 under the header "Risk Factors" and in our other filings or documents furnished with the U.S. Securities and Exchange Commission. Other unknown or unpredictable factors or underlying assumptions subsequently proven to be incorrect could cause actual results to differ materially from those in the forward-looking statements. We do not undertake any obligation to publicly update or revise forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent legally required.
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