In a landscape where telecommunications giants are battling stagnant markets and fierce competition, Nokia, the Finnish powerhouse, has unveiled an audacious plan to elevate its operating profits by approximately €1 billion (US$1.16 billion) by 2028. Under the stewardship of newly appointed CEO Justin Hotard, the company is confronting the persistent underperformance of its mobile networks division, a segment that has lost significant revenue due to forfeited contracts in critical markets like the United States. This ambitious strategy, revealed during the recent Capital Markets Day event in New York, underscores Nokia’s resolve to reassert dominance in the telecom equipment sector. By blending aggressive restructuring, deep cost reductions, and forward-thinking technological alliances, the firm is positioning itself for a dramatic turnaround. However, with a challenging road ahead marked by financial losses, investor skepticism, and delayed innovation rollouts, the stakes for Nokia have never been higher. This pivotal moment raises questions about whether the company can balance immediate fiscal pressures with long-term visionary goals in an industry that offers little room for error.
Strategic Overhaul for Profitability
Mobile Networks Restructuring
Nokia’s mobile networks division, contributing roughly 40% of the company’s revenue in 2024, has emerged as a significant Achilles’ heel, grappling with substantial losses driven by diminished contracts with major US carriers since earlier years. The division reported an operating loss of €64 million (US$74 million) in the first nine months of 2024, a stark indicator of its struggles. To counter this, Nokia has initiated a comprehensive restructuring by integrating the mobile networks business into a newly formed Mobile Infrastructure (MI) group. This supergroup combines the underperforming radio units with more robust core network assets and the lucrative licensing arm, Nokia Technologies. The intent behind this consolidation is to bolster overall margins by offsetting radio losses with stronger segments. However, this approach carries the risk of obscuring the specific financial health of the radio business, potentially masking deeper systemic issues that could resurface if not addressed directly. Transparency concerns linger as stakeholders question whether this structural shift truly solves underlying problems or merely postpones tougher decisions.
Beyond the immediate financial engineering, the restructuring of the mobile networks division into the MI group reflects Nokia’s broader strategy to streamline operations and focus on sustainable profitability. The inclusion of the licensing unit, which has historically provided steady returns through intellectual property, is a calculated move to create a buffer against the volatility of hardware sales. Yet, analysts remain cautious, noting that while this merger may improve reported figures in the short term, it does little to address the competitive pressures and declining demand in the radio access network (RAN) space. Nokia’s leadership must navigate the delicate balance of integrating these disparate units without losing focus on innovation or customer trust. As the company pushes toward its €1 billion profit target by 2028, the success of this reorganization will hinge on whether it can genuinely transform the mobile networks segment into a competitive force rather than a persistent liability.
Financial Targets and Investor Sentiment
Nokia has set an ambitious financial goal to increase its annual operating profits to a range of €2.7 billion to €3.2 billion (US$3.1 billion to US$3.7 billion) by 2028, up from €2 billion in the prior year. This target relies heavily on modest growth projections for its Network Infrastructure (NI) group, which encompasses fixed, IP, and optical units, with expected sales increases of 6% to 8% from the current year through 2028. However, the RAN market, a critical component of Nokia’s revenue stream, is forecasted to remain flat, with addressable revenues pegged at €39 billion (US$45 billion) annually through the same period. This lack of market expansion means that profit growth must come primarily from internal efficiencies and cost reductions rather than robust sales increases. The conservative nature of these forecasts has not gone unnoticed, casting a shadow over investor confidence and highlighting the steep challenge Nokia faces in achieving its lofty objectives.
The reaction from the investment community further underscores the uncertainty surrounding Nokia’s financial roadmap, highlighting a lack of confidence in the company’s future plans. Following the announcement of these targets at the Capital Markets Day event, the company’s share price experienced a notable 7% decline on November 19, reflecting widespread skepticism about the feasibility of the projected gains. Analysts have expressed disappointment over the modest growth outlook for the NI group, expecting more aggressive expansion in a segment seen as a potential bright spot. With the mobile networks division still in flux and no immediate catalysts for revenue growth in sight, investors are left questioning whether Nokia’s reliance on cost-cutting measures will suffice to bridge the gap to a €1 billion profit boost. This sentiment signals a critical need for Nokia to deliver tangible results soon to rebuild trust and demonstrate that its strategic vision can translate into measurable financial success.
Technological Innovation and Risks
AI-RAN Partnership with Nvidia
At the heart of Nokia’s technological reinvention lies a transformative $1 billion partnership with Nvidia, a collaboration designed to redefine the future of 5G and 6G products. This alliance involves leveraging Nvidia’s graphics processing units (GPUs) instead of traditional custom silicon, marking a significant departure from legacy hardware models toward software-centric solutions. CEO Justin Hotard has emphasized that this shift will reduce research and development costs associated with hardware, allowing Nokia to redirect resources into software innovation. The long-term vision is to provide customers with cost-effective service enhancements without the need for frequent hardware upgrades. However, the commercial rollout of these AI-RAN products is not anticipated until at least 2027, creating a substantial gap during which Nokia remains exposed to competitive pressures in a market that demands immediate solutions for cost and energy efficiency.
The delayed timeline for the AI-RAN initiative introduces a layer of risk that Nokia cannot afford to ignore, especially as it navigates a competitive landscape where timing is critical. While the partnership with Nvidia positions the company at the forefront of industry innovation, the interim period leaves it vulnerable to rivals who may offer more immediate alternatives. Telcos, Nokia’s primary customer base, are increasingly focused on reducing operational expenses and energy consumption, areas where GPU-based solutions promise benefits but lack proven results at scale. The uncertainty around customer adoption adds another dimension of concern, as the success of this venture hinges on convincing operators of the long-term value of software-driven infrastructure. If Nokia fails to bridge this credibility gap before 2027, it risks losing ground in a sector where timing and trust are paramount, potentially undermining the very innovation meant to secure its future.
Industry Trends and Challenges
Nokia’s pivot to software-driven solutions through general-purpose hardware aligns with a broader industry trend among telecom vendors seeking scalability and cost efficiency, reflecting a strategic move to stay competitive. The shift away from proprietary hardware mirrors a growing consensus that the high costs and limited growth of the RAN market make custom solutions unsustainable. By partnering with a tech giant like Nvidia, Nokia taps into economies of scale that could position it as a leader in the next wave of network technology. This strategic alignment is seen as a necessary evolution, especially as competitors similarly explore partnerships and open architectures to reduce overhead. However, the transition is not without hurdles, as it requires a fundamental shift in how telecom equipment is designed, sold, and supported, testing Nokia’s adaptability in an already constrained market environment.
Despite the forward-thinking nature of this shift, significant challenges remain, particularly around customer reception to GPU-based RAN systems. Major telcos have shown limited enthusiasm for such solutions, citing concerns over upfront costs and energy efficiency compared to existing technologies. This hesitation poses a critical barrier to Nokia’s plans, as widespread adoption is essential for validating the investment in AI-RAN products. The discrepancy between industry direction and customer priorities highlights a potential misalignment that could stall progress. Nokia must address these concerns through robust demonstrations of value and efficiency, ensuring that its technological bets resonate with the practical needs of operators. Failure to do so could jeopardize its standing in a competitive landscape where innovation must be matched by immediate applicability.
Cost-Cutting Measures
Workforce Reductions
Nokia’s pursuit of financial stability has led to a series of tough decisions, chief among them a sweeping reduction in its workforce, as part of a broader strategy to address declining revenues. Building on a plan initiated in 2023, the company has committed to cutting a total of 14,000 jobs by 2026, with 5,000 of these reductions still pending as only a fraction of affected employees have been notified to date. This drastic downsizing has already reduced Nokia’s headcount to 75,600 by the end of 2024, a sharp decline from over 103,000 in 2018. The layoffs are a cornerstone of the strategy to achieve the targeted €1 billion profit increase by 2028, aimed at trimming operational costs in response to declining revenues in key segments. However, such extensive cuts carry inherent risks, including potential disruptions to ongoing projects and the loss of critical expertise that could hinder future growth.
The human toll of these workforce reductions cannot be overlooked, as they raise significant questions about the impact on employee morale and the company’s long-term innovation capacity. With each round of layoffs, Nokia risks eroding the internal culture and institutional knowledge that have historically fueled its technological advancements. While the immediate financial relief from reduced payroll expenses is undeniable, the broader implications for product development and customer service could manifest over time, especially in a sector where talent is a competitive differentiator. Nokia must tread carefully to balance cost savings with the preservation of core capabilities, ensuring that these cuts do not compromise its ability to execute on ambitious technological initiatives or maintain strong relationships with clients in a highly technical field.
Divestitures of Non-Core Units
In parallel with workforce reductions, Nokia is streamlining its portfolio by offloading unprofitable business units grouped under a “portfolio businesses” segment, which generates annual revenues of about €900 million (US$1.04 billion) but incurs operating losses of €100 million (US$115 million). This segment includes operations such as fixed wireless equipment and enterprise campus edge solutions, which have failed to deliver acceptable returns. The decision to seek buyers for these units is a pragmatic step to focus resources on core competencies and eliminate financial drags. By shedding these loss-making ventures, Nokia aims to sharpen its operational focus and redirect capital toward high-potential areas like mobile infrastructure and network innovation, aligning with its broader profitability goals.
Finding suitable buyers for these non-core units presents a formidable challenge in a market where demand for such assets may be limited, especially as the telecom equipment sector grapples with its own set of economic pressures that could dampen interest from potential acquirers. Nokia must navigate this process strategically, ensuring that divestitures do not result in prolonged losses or damage to its reputation. Moreover, the successful execution of this strategy will depend on the company’s ability to reinvest the proceeds into growth-oriented initiatives that can drive sustainable revenue. If managed effectively, this pruning of underperforming assets could provide the financial breathing room needed to support Nokia’s turnaround efforts, but missteps in timing or valuation could undermine the intended benefits of this restructuring move.
Market Opportunities and Geopolitical Factors
Emerging Defense and Policy Opportunities
Amidst internal restructuring, Nokia is also exploring new avenues for growth, notably through the establishment of Nokia Defense, a dedicated unit targeting military and NATO markets. This venture represents a strategic diversification into a sector with unique demands for secure, reliable communications infrastructure. Additionally, the company stands to potentially gain from a tougher European stance against Chinese vendors, an opportunity estimated to be worth up to €2.5 billion (US$2.9 billion) in additional business. Such geopolitical shifts could open doors for Nokia to fill gaps left by restricted competitors, particularly in the RAN market. However, CEO Justin Hotard has adopted a measured approach, prioritizing internal transformation over reliance on unconfirmed policy changes, reflecting a pragmatic stance on these speculative opportunities.
While these emerging prospects offer a glimmer of hope, they come with inherent uncertainties that Nokia must carefully navigate to ensure sustained growth and stability in a competitive market. The defense sector, while promising, requires specialized expertise and long sales cycles that could delay revenue realization. Similarly, the potential benefits from European policies against Chinese competitors depend on regulatory outcomes that remain fluid and unpredictable. Nokia’s cautious outlook on these fronts suggests a focus on building a robust foundation through cost efficiencies and innovation rather than relying on external windfalls. This balanced perspective ensures that while the company remains open to capitalizing on favorable developments, its core strategy is not derailed by factors beyond its control, maintaining stability in a volatile global landscape.
Market Dynamics and Constraints
The broader market dynamics facing Nokia paint a challenging picture, with the RAN market projected to remain flat through 2028, offering annual addressable revenues of around €39 billion (US$45 billion). This stagnation means that Nokia cannot rely on organic market expansion to fuel its €1 billion profit target, placing greater emphasis on internal efficiencies and strategic execution. The lack of growth in this critical segment heightens the urgency of restructuring efforts and cost reductions, as any misstep could result in further erosion of market share to competitors who adapt more swiftly. Nokia’s ability to maintain its position in this static environment will depend heavily on differentiating its offerings through innovation and operational excellence.
Compounding these market constraints are the competitive pressures that continue to squeeze margins across the telecom equipment industry. Nokia faces rivals who are equally focused on streamlining operations and capturing limited growth opportunities, making differentiation a critical factor for success. The flat RAN market also limits the potential impact of new product launches, forcing Nokia to extract maximum value from existing customer relationships and contracts. Addressing these dynamics requires a laser focus on delivering cost-effective, energy-efficient solutions that resonate with telecom priorities. Without significant progress in these areas, Nokia risks being outpaced in a sector where agility and relevance are non-negotiable, underscoring the high stakes of its current transformation journey.
Leadership Vision and Execution Risks
Hotard’s Ambitious Roadmap
Under the guidance of CEO Justin Hotard, Nokia is charting a bold course to position itself as a frontrunner in what he describes as the “AI supercycle,” drawing parallels to Cisco’s pivotal role during the internet boom. This vision encompasses a dual focus on immediate financial restructuring and long-term technological leadership, with initiatives like the AI-RAN partnership and mobile infrastructure consolidation at the forefront. Hotard’s strategy seeks to transform Nokia into a company that not only survives the current industry headwinds but also shapes the future of telecom through software-driven innovation. This ambitious roadmap sets a high benchmark, aiming to redefine how network infrastructure is perceived and deployed in an era increasingly dominated by artificial intelligence and digital transformation.
However, translating this vision into reality presents significant execution risks, particularly in a slow-growth, highly competitive industry. The complexity of integrating diverse business units under the MI group, coupled with the delayed rollout of AI-RAN products, creates potential bottlenecks that could derail progress. Hotard must also contend with maintaining investor confidence amidst conservative growth forecasts and a skeptical market response. The success of this roadmap will depend on meticulous planning and flawless implementation, as even minor setbacks could amplify doubts about Nokia’s direction. Balancing short-term profitability with the long-term gamble on emerging technologies remains a tightrope walk, testing the leadership’s ability to adapt and inspire across all levels of the organization.
Navigating a Competitive Landscape
As Nokia pursues Hotard’s transformative agenda, the competitive landscape of the telecom equipment sector looms as a formidable obstacle, with rivals similarly pivoting toward software solutions and cost efficiencies, intensifying the race to capture limited market opportunities. Nokia’s reliance on partnerships like the one with Nvidia, while innovative, must yield tangible results to maintain a competitive edge, especially as other vendors explore alternative strategies to address telecom needs. The pressure to deliver unique value propositions is unrelenting, particularly in a market where customer loyalty can shift swiftly based on price, performance, and reliability. Nokia’s leadership must remain vigilant to ensure that its strategic moves resonate with industry demands and outpace competitor offerings.
Beyond direct competition, Nokia faces the broader risk of technological disruption and evolving customer expectations that could render current strategies obsolete if not continuously updated. The slow adoption of GPU-based RAN solutions by major telecom companies serves as a reminder that innovation must align with practical utility to gain traction. Hotard’s team will need to foster agility within the organization, enabling rapid responses to market shifts and customer feedback. Without this adaptability, Nokia risks falling behind in a sector where timing is critical, potentially undermining the ambitious profit goals set for 2028. The path forward demands a keen understanding of both technological trends and competitive dynamics, ensuring that Nokia’s vision remains both aspirational and achievable amidst uncertainty.
Reflecting on a Bold Transformation
Looking back, Nokia embarked on a daring journey under Justin Hotard’s leadership, setting out to achieve a €1 billion profit boost by 2028 through a multifaceted strategy of restructuring, innovation, and cost reduction, while addressing key challenges head-on. The company tackled the persistent challenges of its mobile networks division with a comprehensive overhaul, while forging a groundbreaking partnership with Nvidia to pioneer AI-driven network solutions. Aggressive workforce cuts and divestitures of unprofitable units underscored the tough choices made to stabilize finances, even as investor skepticism reflected the uncertainty of these bold moves. As Nokia navigated a flat RAN market and explored nascent opportunities in defense and geopolitical shifts, the balance between immediate fiscal discipline and long-term technological bets defined its transformative efforts. Moving forward, the focus should center on accelerating the adoption of software-centric products by demonstrating clear cost and efficiency gains to telcos. Strengthening customer trust through pilot programs and transparent reporting of restructuring outcomes will be crucial. Additionally, Nokia must remain agile, ready to pivot if market dynamics or competitive pressures demand a recalibration of its approach, ensuring that this historic pivot lays a sustainable foundation for future growth in an ever-evolving industry.
