When Nokia cut its outlook and halted the dividend last week — wiping out a quarter of its market value — analysts blamed the company’s under-investment in research and development, execution challenges and exposure to a US phone carrier that had paused spending. Add internal politics to the list.
Employees in Finland are frustrated because they believe that management at the telecoms equipment maker has been distracted by disagreements over priorities and staffing since Nokia’s US$18-billion takeover of Franco-American rival Alcatel-Lucent in 2016, according to Lasse Laurikainen, a worker representative for senior salaried staff at the company’s Espoo headquarters.
“Execution needs to be sharper,” Laurikainen said by phone. “It’s pure politics. And some are favouring their nationals and rejecting common ways of working.”
The profit warning showed Nokia is struggling to keep up with Sweden’s Ericsson and China’s Huawei Technologies — its main rivals — on 5G, the next generation of mobile technology that equipment makers need to spur growth. Nokia’s expectations for higher profits from 5G have now been pushed further out, and the Finnish company plans to plow more money into research and development to try to catch up.
CEO Rajeev Suri said that integrating Alcatel-Lucent has been complicated, in an interview after the 24 October announcement, because Nokia had to deal with product overlap and migration.
A representative for Nokia declined to comment, when asked to respond to the worker concerns about internal politics.
‘Frequent management changes’
Nokia’s workforce roughly doubled with the Alcatel-Lucent acquisition, and was about 103 000 last year. About 85% of its European staff are located outside Finland.
“The entire idea of the merger was for the whole to be bigger than the sum of its parts,” said Mikael Rautanen, an analyst at Inderes. The “strategic logic” doesn’t look like it’s worked out at the moment, he said, pointing out that Nokia’s frequent management changes in its mobile networks unit show there have been problems. “Management isn’t changed if everything is okay and developing well.”
The mobile network business has had three managers in as many years, with Tommi Uitto being the most recent appointment in November 2018. His predecessors, Samih Elhage and Marc Rouanne, have both left the company.
Nokia will need to ensure “stable senior management during this period, given the turnover of senior management that we have seen over the past year or so”, Liberum analysts Janardan Menon and Olivia Honychurch wrote in a research note this week. Executives are taking the right steps by boosting R&D spending, the analysts said. — Reported by Kati Pohjanpalo, with assistance from Niclas Rolander, (c) 2019 Bloomberg LP