Nokia Is Cutting Up To 10,000 Jobs to Boost 5G Investment

Nokia has unveiled plans to axe up to 10,000 jobs as part of a €600 million cost-cutting program aimed at boosting investment in 5G.

The telecom-equipment maker said resetting its cost base would allow it to invest in research and development and long-term growth areas, including 5G, cloud technologies and digital infrastructure.

The stock, which has been a favourite among retail investors and Reddit users in recent months, edged 0.5% higher in premarket trading, while the Finnish-listed shares rose 0.6% on Tuesday.

The company said it expects to lower its cost base by around €600 million by the end of 2023. As part of the restructuring, Nokia said its global workforce would be reduced from 90,000 to between 80,000 and 85,000 employees over the next two years. The company maintained its 2021 outlook.

The U.S.-listed shares are up 10% year-to-date but that doesn’t tell the whole story. The shares climbed 55% in the space of three days at the end of January, prompting the company to release a statement saying it could not explain the rally. The stock has since retreated 52%.

Aside from the volatility, Nokia’s fourth-quarter earnings were stronger-than-expected, driven by 5G margin expansion. Nokia and its Nordic rival Ericsson have benefited from a number of western countries banning China’s Huawei from 5G networks on national security grounds.

However, the Finnish company said its rate of converting its 4G footprint into 5G in 2020 was affected by shortfalls in China and North America. It also lost out to Samsung on a $6.6 billion deal with Verizon. Revenue is expected to fall for a second consecutive year in 2021, Nokia said, citing market share loss and price erosion in North America.

Looking ahead. When Chief Executive Pekka Lundmark, who took charge in August last year, unveiled a new strategy in October, he promised to do “whatever it takes” to lead in 5G. The company’s restructuring plan is evidence of that. After falling behind, Nokia needs to start picking up market share to challenge the likes of Ericsson and Huawei.

Nokia’s capital markets day on Thursday will be the next major event for investors to closely monitor, as Lundmark sets out his long-term strategy and financial outlook. JPMorgan Cazenove analysts said Nokia was likely to come across as confident of turnaround potential. But they said the company was unlikely to “raise the bar significantly” with mid-to-long-term guidance, leaving upside potential if the turnaround proceeds better than expectations.

They rated the stock ‘neutral’ with a target price of $4.30. “We see no reason to turn bullish ahead of the day as we think the turnaround is going to take time,” they said.

Lundmark’s words again were clear on Tuesday as he said “in those areas where we choose to compete, we will play to win.” Words are one thing, it’s now time for action.

Chip makers are fighting to assure investors that the artificial-intelligence boom is racing forward. Wall Street might not believe it until Nvidia’s NVDA -0.98%decrease; down pointing triangle Jensen Huang says so.

When Huang steps up to the mic for his company’s earnings call Wednesday, he will have the world’s attention. What he says about Nvidia’s present will preview the future of AI, dictate the path forward for a tech-crazed stock market and influence an American economy increasingly tethered to hopes that the boom won’t go bust.

The $5 trillion chip maker has provided the key building blocks for AI since the launch of ChatGPT in 2022 set off a race for dominance among OpenAI, Anthropic and established Silicon Valley giants. Now, as Nvidia backstops sprawling data-center projects and an exotic money pipeline to boost chip demand, the company’s influence is arguably bigger than ever.

But there are signs of trouble ahead. Political pushback to AI is growing. A bond selloff propelled borrowing costs to their highest levels in years. The hyperscalers that include some of Nvidia’s key customers—once cash-printing machines—are relying more on debt. OpenAI recently told investors its revenue rose by a tepid 18% in the second quarter while its losses deepened.

Nvidia is increasingly stepping in to shore up potential weak points across the market. Earlier this month, the company teamed up with six of Wall Street’s biggest firms on a $500 billion AI-financing plan, pledging to backstop lending to customers that can’t afford its chips otherwise. The chip maker last week also took a stake in Cloverleaf Infrastructure, which arranges power for data centers, and struck a $6 billion deal with startup Poolside aimed at developing a powerful open-weight AI model.

After watching shares in other chip makers and the so-called Magnificent Seven tech companies swing wildly in recent months, Wall Street is hoping Nvidia can beat expectations—again. The countdown is on.

“It’s kind of becoming more and more like the World Cup final than the Super Bowl at this point,” said Brian Mulberry, chief market strategist at Zacks Investment Management. “It’s just gotten to be that big.”

The company has smashed analysts’ earnings estimates for each of the 14 quarters since the AI boom kicked into high gear. Nvidia posted 210% annual growth in net income in its last three-month period, according to FactSet, making Wall Street’s 126% projection look pedestrian.

Expectations for a blowout second quarter have risen rapidly over the course of this year. All Nvidia will have to do to beat this target: outrun 95% annual earnings growth to more than $51.5 billion. Analysts project the chip maker will report record sales of $92 billion for the period, up from a forecast of $78 billion at the start of this year.

In July, big-tech earnings sparked volatility. Concerns about runaway capital spending spread across the sector after Alphabet’s and Tesla’s results, driving a $890 billion wipeout that contributed to the unwind of hedge fund Situational Awareness. Microsoft posted the largest one-day gain in market capitalization by any company, ever, after a quarter proving that it could still show investors the money. SpaceX rocketed higher after a record-breaking initial public offering, only to see $1 trillion in value evaporate.

Surging memory prices and borrowing costs have fueled fears that those and other companies will be unable to keep plowing more money into supplies including Nvidia chips. Shaia Hosseinzadeh, founder of OnyxPoint Global Management, has recently bought dips in AI-infrastructure stocks when Wall Street has strained to absorb massive debt issued by Silicon Valley.

“The macro data is really quite robust,” he said. “Of course, there’s a level at which everything breaks.”

Investors have kept pumping money into the AI trade despite concerns around chip consumers—and to the benefit of chip producers. That is why Nvidia’s outlook for semiconductor demand could send ripples through counterparts such as Micron Technology and Sandisk, developers of the data centers in which their chips reside, and a supply chain of power producers, contractors and other specialists that underpin the globe-spanning AI build-out.

“We joke internally that we’re all Nvidia analysts now,” said David Lefkowitz, head of U.S. equities at UBS Global Wealth Management.

The irony is that investors have tended to sell Nvidia stock immediately after blockbuster earnings, with shares falling each trading session after its four past quarterly reports. Some are betting that will be the case this time around, too.

The options market is pricing in a 5.3% swing, higher or lower, in Nvidia shares during the session following earnings, according to Option Research & Technology Services. That is higher than the 4.8% average move in Nvidia’s stock over the last 12 months after the company reports quarterly results.

In recent days, some of the most actively traded Nvidia options have been put contracts tied to the stock falling from its Friday value of $214.75 to $205 and $210 apiece, according to Cboe Global Markets data. Put options give the right to sell a stock by a set price and typically represent a bearish wager.

Many analysts remain optimistic. Frank Lee, global head of tech hardware and semiconductor research at HSBC Global Investment Research, recently raised his price target for Nvidia shares to $360 from $325, citing, among other things, Nvidia’s strategic partnerships with suppliers and its role as a top contributor to open-source AI.

Nokia Is Cutting Up To 10,000 Jobs to Boost 5G Investment

The stock, which has been a favourite among retail investors in recent months.

Nvidia’s earnings will test Wall Street’s confidence in the AI boom.