By now, you’ve probably heard the news that Nokia (NYSE:NOK) is cutting up to 10,000 jobs from its global workforce over the next two years and reinvesting the expected savings of 600 million euros ($715 million) in 5G and other areas of potential growth. NOK stock barely budged on the news.
For investors interested in betting on Nokia’s stock, is this news the stuff dreams are made of? Or is it merely an exercise in cost-cutting?
Nokia’s Future Plans
We’ll know more about its plans on Mar. 18, when all of the company’s business groups are expected to provide updates on their business strategies, financial outlook, etc.
In my most recent article about Nokia in February, I was adamant that its stock wouldn’t be revisiting its Reddit-fueled high anytime soon. Since then, it’s gone sideways.
CEO Pekka Lundmark might talk a good game, but unless the reinvestment of the funds saved by cutting 10,000 jobs is spot on, it will all be for naught, keeping Nokia stock stuck in single digits.
From where I sit, the opportunity cost of waiting 12 to 24 months to determine if the company’s on the right path seems much too high.
True Growth Comes With Jobs
There are four companies listed on U.S. stock exchanges with market capitalizations of $1 trillion or greater. By order of market cap, they are Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL).
Below is a table illustrating how many jobs each of the companies have added or cut over the past decade.
Jobs Added or Cut Over the Past Decade
|Company||# of Jobs -2010||# of Jobs -2020||CAGR %|
You don’t have to be a rocket scientist to understand what this table is telling you. That Nokia hasn’t been a job creator for some time. Job creation equals innovation. By cutting 10,000 employees, Lundmark might as well come out and tell the world Nokia’s innovation days have long since left the building.
I think it’s fair to say that Ericsson (NYSE:ERIC) is Nokia’s biggest rival, if only for the fact they’re Scandinavian neighbors. Over the past decade, Ericsson added approximately 10,563 jobs, growing the number of employees worldwide by 1.1% compounded annually, from 90,261 in 2010 to 100,824 today.
It’s no coincidence that Ericsson is winning the 5G fight with its Finnish neighbor. That said, InvestorPlace’s Joel Baglole recently stated that Ericsson has also been slow to deliver on the 5G front. Maybe not as slow as Nokia, but nowhere near expectations.
Until Nokia shows me it’s capable of growth, I will continue to favor Ericsson over NOK stock.
At What Price Would I Buy NOK Stock?
Nokia announced a partnership with Microsoft on Mar. 15 that sees its Cloud RAN technology integrated into Microsoft’s Azure cloud platform. The key to the announcement is that the partnership between the two companies could be expanded if this initial phase proves successful.
Admittedly, the fact that Microsoft continues to work with Nokia is a positive. As the second-largest public company in the U.S., it wouldn’t sacrifice its position without a certain comfort level working with Nokia.
Here’s the deal.
Investors knew cuts were coming after Lundmark said the company wouldn’t tolerate divisions that weren’t profitable or contributing to profits in a meaningful way. He also moved 14,000 employees from the head office central functions into its operating units to be closer to the customers.
These moves, along with the job cuts, are better than no moves at all. That said, if investors get the feeling that these moves are too little, too late, you can be sure that the stock won’t continue to trade in the $4s.
If I were forced to buy NOK stock, I’d wait for it to drop into the low $3s or even the high $2s, where it traded this time last year.
Cutting rarely gets the job done.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.