Nokia CorporationNOK recently announced that it plans to lay off about 500 employees by the end of 2018 in the Chicago area as part of its corporate objective to lower operating costs and improve profitability. The strategic move was largely fuelled by a massive industry consolidation, owing to which Nokia ended up with a huge pool of assets and human capital due to a series of acquisitions over the years.
The wireless equipment business of Motorola Solutions, Inc. MSI was sold to Nokia-Siemens joint venture in 2011 for $975 million. Nokia purchased the joint venture stake of Siemens in 2013 and became the sole owner of this business. Later in 2016, the company acquired Alcatel-Lucent and absorbed its 1,800-employee base in Naperville.
In order to reduce excess workforce, Nokia terminated 250 employees in Naperville early this month and disclosed plans to lay off another 250 staff by the end of the year. The legacy employee base was a huge burden on the company's coffers and escalated operating costs, shrinking margins amid a cut-throat competitive market.
Earnings estimates of the company have declined 10.3% in the past three months to 26 cents per share at present, representing bearish sentiments. In the past year, Nokia shares have recorded an average loss of 11.4% while the industry has gained 28.4%. The company's top line in second-quarter 2018 was adversely impacted by foreign currency fluctuations and soft market conditions in North America. The continued below-par performance of the Networks business also remains a cause for concern.
Nokia has considerable operations in geographies outside the United States. Its significant international presence exposes it to political and economic disruptions, all of which can directly impact its profits. Presently, when the economy in Europe is highly unpredictable post the Brexit referendum, it becomes difficult for the company to increase revenues and reduce costs. In addition, Nokia is likely to be stifled by the renegotiated deals and restrictions imposed on trade with other European Union members. Brexit could further result in higher tariff and non-tariff barriers to trade between the U.K. and the European Union, lowering productivity of the company.
In the view of such circumstances, the decision to lower costs by eliminating excess workforce seems to be prudent.
Nokia currently has a Zacks Rank #4 (Sell). Some better-ranked stocks in the industry are Clearfield, Inc. CLFD and QUALCOMM Incorporated QCOM , both carrying a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .
Clearfield delivered an average positive earnings surprise of 52.8% in the trailing four quarters.
Qualcomm has a long-term earnings growth expectation of 10.9%. It delivered an average positive earnings surprise of 19.8% in the trailing four quarters.
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