Mounting Profit Pressure Forces Nokia to Consider Strategic Options

The earnings of the Finnish network equipment manufacturer Nokia Oyj has come under severe pressure because of fierce competition in the industry which has forced the company to explore strategic options, said a report published by Bloomberg quoting citing information form sources with knowledge of the matter.

A range of alternatives are being explored by the company in consultation with advisers that range from possible sale of assets to mergers, sources reportedly said. The report said that some of the other strategic options that the company is considering include shifting of investments and making adjustments to its balance-sheet.

Sources however said that the deliberations are currently ongoing and nothing is certain about the outcome of the considerations. There was no comment available from the Espoo, Finland-based Nokia.

Over the past year and till such time that the news of the deliberations was out in the public, Nokia had lost about one third of its stock value. However there was a 13 per cent rise in the company’s American depositary receipts after the news was reported in the media. At the end of Wednesday, the market value of the Finnish company was at $23.5 billion.

In October this year, Nokia announced the suspension of its dividends and cutting down of its forecast because the company did not expect any significant recovery in profits till 2021. That was one of the major factors that the company’s Chief Executive Officer Rajeev Suri has been forced to think of more drastic measures.

Reports said that merging with a competitor like Ericsson AB or striking up partnerships with rivals in some specific business segments was one of the possibilities that Nokia could also consider. However, even such as move is likely to face significant opposition with possible political pressure on the company to preserve jobs as well as close anti-trust scrutiny.

There were no comments available from Nokia on this issue.

Analysts also noted that Nokia might have to look to companies for partnership in further afield areas because of the limited number of direct rivals of company. They said that companies from areas such as technology or wireless operations might need to be considered by Nokia if it was looking for a full sale.

There were speculations of a deep restructuring in the company that were stoked by a December announcement by the company hat its Chairman Risto Siilasmaa would step down. Currently, there are three major companies that are poised to take advantage of the huge investments that phone carriers are making in setting up of the next-generation mobile networks – 5G, with Ericsson and China’s Huawei Technologies Co. providing fierce rivalry for Nokia.

“Nokia’s return to sustained growth and profitability has been delayed by its struggle to transition to a cost-competitive 5G hardware design, impeding its ability to compete, in our view. The 5G spending cycle is ramping up as commercial launches gain momentum, putting Nokia at risk of losing early awards,” said John Butler and Boyoung Kim, telecom analysts at Bloomberg Intelligence.

The Attorney General of the United States William Barr said earlier this month that the country should be “actively considering” making investments into Nokia or Ericsson so that the country could set up viable alternatives for the dominance of the Chinese firm Huawei, in the 5G telecom equipment industry.

(Adapted from Bloomberg.com)

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