Nokia Siemens, maker of telecoms equipment, has announced that it is cutting 17,000 jobs in order to reduce its operational costs. The cuts amount to 23% of its total workforce being made redundant, a devastating blow to families across Europe.
However, shares in Nokia Siemens rose over 2% after the layoffs announcement.
The joint venture, owned by Finland’s Nokia and Germany’s Siemens, has been incurring losses due to tough competition from rivals such as Ericsson and Huawei. It says that the 23% shave of its 74,000-strong workforce will cut costs by around 1 billion euros (£860 million).
The cost cutting is absolutely necessary for the next step in the firm’s trajectory, as the owners are considering putting Nokia Siemens up as a separate company. This would mean an Initial Public Offering (IPO), which would raise enough money on the stock market to float the company.
Though this has not been confirmed, analysts say the move is too big for a smaller outcome. Dumping its current structure and operation models means that Nokia Siemens is ready for a big change that an IPO can bring.
The layoffs were “regrettable but necessary,” according to Nokia Siemens chief executive Rajeev Suri.
He said that the company was forced to take action “to improve our profitability and cash generation.”
Analysts, such as Sami Sarkamies of Nordea Bank, said that the changes are not surprising for those who have been following the Nokia Siemens saga. Sarkamies said that the company suggested that it would be taking on “strategy updates” in the future as soon as a new chairman was appointed earlier in the year.
He also said that cuts of this magnitude will be carried out in phases, and that they are likely to positively influence the company’s shares price. Sarkamies said that since the layoffs will be saving a billion euros, Nokia Siemens could be looking at a ten percent earnings improvement per share.
This is extremely important for the future of the company, as traders use “earnings per share” as a way to measure the value of companies listed on the stock exchange.