Inside information: Nokia provides an update on group strategy, 2026 comparable operating margin target and preliminary assumptions for 2024

Nokia CorporationInside information12 December 2023 at 8:00 EET

Inside information: Nokia provides an update on group strategy, 2026 comparable operating margin target and preliminary assumptions for 2024

Espoo, Finland - Today, Nokia will host an investor and analyst event to provide an update on its execution against its group strategy, initial planning assumptions for 2024 and a revised comparable operating margin target for 2026. It will also outline its strategy to give more autonomy to its four business groups. The Presidents of Nokia’s Mobile Networks and Cloud and Network Services business groups will also present their strategies and future opportunities.

Group strategy update – increased autonomy for business groups to accelerate value creation

In 2021, Nokia significantly streamlined its operating model, moving from a matrix organization and creating four P&L-responsible business groups structured around unique customer offerings. Since then, its business groups have increased investments in R&D and made significant progress in strengthening technology leadership.

During its third quarter update, the company announced increased operational autonomy for its four business groups by embedding dedicated sales and go-to-market teams with each one. Moving forward, the business groups will have increased strategic autonomy to pursue investment that supports growth, portfolio management, and deeper strategic partnerships.

Nokia’s lean corporate center will act as a strategic architect, providing oversight in key areas, including target setting and performance management, portfolio development, and compliance. The company will continue its commitment to long-term research through Nokia Bell Labs, as evidenced by its recent announcement of a new venture studio and venture partnerships to unleash the full commercial potential of Nokia Bell Labs technologies outside of Nokia’s strategic perimeters.

Accompanying the move towards more autonomous business groups and to provide investors with greater transparency in assessing their financial performance, Nokia will begin reporting cash flow and regional sales at the business group level in 2024.

Tommi Uitto, President of Mobile Networks (MN), will today present on how MN is revamping its strategy. It has begun to re-baseline its operations for resilience and profitability while maintaining its commitment to technology leadership and protecting its R&D output. These combined actions, to be completed by 2026, will enable MN to achieve a double-digit operating margin at net sales level of approximately EUR 10 billion, compared to the approximately EUR 11.5 billion threshold level that would be required today. In addition to serving CSP customers, MN will accelerate its offerings to faster growing segments, including Enterprise, Cloud RAN, O-RAN, and the defense sector.

Raghav Sahgal, President of Cloud and Network Services (CNS), will present the business group’s journey as it positions itself to lead the networking software revolution towards cloud and as-a-service deployment models. Raghav will outline next steps in the CNS strategy, including expansion in the enterprise connectivity segment, and maturing its business model with SaaS and Network as Code at the core. During his presentation, Raghav will focus on the five growth segments outlined for CNS, including private wireless, AI and analytics, security, digital operations and 5G Core.

Pekka Lundmark, President and CEO of Nokia said: “Today marks another step forward in the strategic journey we started in 2021. When I arrived at Nokia, we took the decision that end-to-end as a core strategic idea would be replaced with one where we have financially accountable business groups, each driving market-leading technology. Each Nokia business group is distinct, with different customers, R&D requirements, market cyclicality, cash flow profiles and target margins. Therefore, this October, we announced actions to give the business groups more autonomy and greater agility to pursue opportunities in their respective markets. We are also revamping the strategy for our Mobile Networks business to capture mid to long-term value opportunities. Across our other business groups we are seeing positive results. Network Infrastructure is seeing improving order intake across its business, and CNS, following a robust performance so far in 2023, has continued to make solid progress in 5G Core, Enterprise and network monetization. We want to provide better value for customers’ network investments and ultimately create more value for our shareholders.”

2026 comparable operating margin target revised to at least 13%

As a conclusion to Nokia’s long-range planning process, the company has decided to lower its comparable operating margin target to be achieved by 2026 from the prior at least 14% to at least 13%. Nokia still sees a path to achieving the at least 14% comparable operating margin target but considering the current market conditions in Mobile Networks, this is deemed a prudent change. Nokia sees further opportunities to increase margins beyond 2026 and believes this 14% target remains achievable over the longer term. Nokia targets for both NI and CNS to grow faster than the market through 2026 while Mobile Networks will face challenges in 2024 and 2025 before returning to grow faster than the market in 2026. Nokia’s other targets remain unchanged.

The comparable operating margin target for Nokia Group is built on the following assumptions by business group for 2026:

Initial planning assumptions for 2024

Nokia will provide a group financial outlook for the financial year 2024 with its fourth quarter results on 25 January 2024. Considering the market conditions and to help investors understand how Nokia expects to navigate some of the obstacles it faces, the company is providing the following high level and preliminary planning assumptions across its business groups. The market environment for Mobile Networks remains challenging, but the rest of the business groups continue to make good progress towards their long-term targets.

Investor Update event details

The online webcast of the event can be accessed from the Nokia Investor Relations website (https://www.nokia.com/about-us/investors/investor-relations-events/) with the presentation starting at 14:00 EET / 12:00 GMT / 07:00 EST.

About Nokia

At Nokia, we create technology that helps the world act together.

As a B2B technology innovation leader, we are pioneering networks that sense, think and act by leveraging our work across mobile, fixed and cloud networks. In addition, we create value with intellectual property and long-term research, led by the award-winning Nokia Bell Labs.

Service providers, enterprises and partners worldwide trust Nokia to deliver secure, reliable and sustainable networks today – and work with us to create the digital services and applications of the future.

Inquiries:

Nokia CommunicationsPhone: +358 10 448 4900Email: press.services@nokia.comKaisa Antikainen, Communications Manager

NokiaInvestor RelationsPhone: +358 40 803 4080Email: investor.relations@nokia.com

Forward-looking statements

Certain statements herein that are not historical facts are forward-looking statements. These forward-looking statements reflect Nokia's current expectations and views of future developments and include statements regarding: A) expectations, plans, benefits or outlook related to our strategies, product launches, growth management, licenses, sustainability and other ESG targets, operational key performance indicators and decisions on market exits; B) expectations, plans or benefits related to future performance of our businesses (including the expected impact, timing and duration of potential global pandemics and the general or regional macroeconomic conditions on our businesses, our supply chain and our customers’ businesses) and any future dividends and other distributions of profit; C) expectations and targets regarding financial performance and results of operations, including market share, prices, net sales, income, margins, cash flows, the timing of receivables, operating expenses, provisions, impairments, taxes, currency exchange rates, hedging, investment funds, inflation, product cost reductions, competitiveness, revenue generation in any specific region, and licensing income and payments; D) ability to execute, expectations, plans or benefits related to changes in organizational structure and operating model; E) impact on revenue with respect to litigation/renewal discussions; and F) any statements preceded by or including "continue", “believe”, “commit”, “estimate”, “expect”, “aim”, “influence”, "will”, “target”, “likely”, “intend”, “may”, “could”, “would” or similar expressions. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control, which could cause our actual results to differ materially from such statements. These statements are based on management’s best assumptions and beliefs in light of the information currently available to them. These forward-looking statements are only predictions based upon our current expectations and views of future events and developments and are subject to risks and uncertainties that are difficult to predict because they relate to events and depend on circumstances that will occur in the future. Factors, including risks and uncertainties that could cause these differences, include those risks and uncertainties specified in our 2022 annual report on Form 20-F published on 2 March 2023 under Operating and financial review and prospects – Risk factors.

Federal Paperwork Hours Consume The Equivalent Of 14,883 Human Lifetimes Annually

The White House Office of Management and Budget has this year issued catch-up editions of Information Collection Budget of the United States Government, a task in keeping with longstanding belated and reluctant bipartisan fulfillment of compliance with the 1980 Paperwork Reduction Act and other regulatory oversight laws.

That compliance in part entails “minimiz[ing] the paperwork burden for individuals; small businesses; educational and nonprofit institutions; Federal contractors” and others.

Since 1999, the ICB has been published online. Usually, the calendar year boldly appearing on the cover signified a survey of the just-passed fiscal year.

That “clockwork” changed around 2016 such that by December 2020, a tardy 2018 ICB appeared, covering fiscal-year 2017.

This year, 2023, has brought a flurry of five laggard ICBs in two batches.

A composite Information Collection budget appeared in May, covering fiscal years 2018-2021 with those same corresponding dates printed on the cover.

But that still didn’t catch things up. That was accomplished with a July flourish, whereby the bland and traditional white-paper style ICB format was ditched for a glossier-looking report called Tackling the Time Tax: How the Federal Government Is Reducing Burdens to Accessing Critical Benefits and Services.

"Tackling the Time Tax: How the Federal Government Is Reducing Burdens to Accessing Critical ... [+] Benefits and Services," July 2023.

The traditional paperwork-hours grid we’ve seen for years does get presented to the public. But in the Biden administration it gets relegated to one of three separate appendices (”Appendix B: Paperwork Burden Accounting”).

The subtitle speaks volumes here. Not only are there no apologies for years of excruciatingly late reports, there is little sympathetic reporting on the varieties of red tape affecting business that largely spawned the Paperwork Reduction Act in the first place.

That observation isn’t to subtract from the fact that the PRA did address government-wide paperwork burdens. But the new emphasis for OMB is almost purely on lessening “varieties of administrative burdens that create barriers for individuals accessing public programs and services.” This represents a substantial shift in tone to which Congress needs to pay attention.

OMB "efforts to support innovation in small firms" did rate a mention, but the ICB is plainly no longer deployed primarily as a “streamlining government” report from the standpoint of those having to obey its rules or else. Rather, it is being transformed to ease access to growing federal largesse and a consequently more powerful Washington. Indeed, OMB’s Tackling the Time Tax leads with the lament that, "every year more than $140 billion in government benefits that Congress has authorized goes unclaimed."

Tackling the Time Tax showcases commitments to the likes of automatic eligibilities for questionable programs and partnering with "community-based organizations." The writing had been on the wall in obscure proclamations and guidance like OMB’s April 2022 Memorandum M-22-10, “Improving Access to Public Benefits Programs Through the Paperwork Reduction Act,” and December 2022’s “Strategies for Reducing Administrative Burden in Public Benefit and Service Programs.”

These moves to expand and normalize dependency on federal programs (as opposed to, for example, emphasizing paperwork reductions to be enjoyed from restoring federal programs to the state authorities to which they properly belong) are in keeping with OMB’s simultaneous problematic rewrite of its Circular A-4 guidance on regulatory analysis. That project is replacing strict and ruthless cost-benefit exams of agency regulations with the pursuit of net-benefits by the progressive left, providing unavoidable evidence that OMB no longer plays the appropriate watchdog role and congressional intervention is necessary.

Any beneficial hourly paperwork reductions we see now are less likely to come from ending or streamlining programs, than from easing claims to an expanding inventory of government programs.

10.34 Billion Hours of Federal Paperwork in FY 2022

As the latest fiscal year 2022 edition of the federal Information Collection Budget of the United States Government portrays the state of play, 10.34 billion hours were required to complete mandatory paperwork from 40 departments, agencies and commissions. A table below depicts these.

Federal Information Collection Budget, Fiscal Year 2022, Millions of paperwork hours by ... [+] department/agency.

The vast bulk, here 6.60 billion hours, is attributable to the Department of the Treasury, with the runner-up Department of Health and Human Services clocking in 1.65 billion hours. Past years’ cross-governmental paperwork-hour tallies appear below by fiscal year.

One might compare 2022’s just-revealed 10.34 billion hours to the overall 7.2 billion hours clocked back in fiscal year 2000. Biden’s new report indicates an increase over fiscal year 2021’s 9.974 billion hours, despite renewed ease-of-access to larger government programs just discussed.

There’s nothing particularly counterintuitive about that, since more paper follows logically from more programs even if the ground-level paperwork is made “easier,” and there are certainly more programs given recent legislation like the Inflation and Infrastructure laws. Since the ICB appears to be resurrected to stay, albeit with its suspect change in thrust, we might get a clearer idea of trends when fiscal year 2023 arrives upon us in less than a week.

One might note that a small Trump slowdown in paperwork materialized between 2017 and 2019, perhaps given that administration’s range of regulatory liberalization moves such as the elimination of two rules for every significant rule added. There was a jump in 2020, but fiscal year 2021’s “low” count of 9.974 began during the Trump term.

Lifetime Equivalents

A billion here, a billion there, as they say. How might one visualize 10.34 billion hours of federal paperwork?

Here’s one way. An 80-year human lifespan amounts to 29,200 days, which translates into 700,800 hours (life is short; here’s an animation of this).

Looking at things this way, the 2022 ICB’s 10.34 billion hours of paperwork translates into the equivalent of 14,883 human lifetimes. On the bright side, one can see from the bullets above that this is an improvement over some priors years’ amounts of “dead tape.”

Not everyone lives 80 years, of course (the average is 76.4 years and unfortunately declining), and to that extent paperwork costs more “lives.” Surely, not many wish to spend more of our finite 700,000 hours on federal paperwork than absolutely necessary; yet one can’t escape feeling the bureaucracy sees much of this as a bargain.

For periodic real-time exams for those so inclined, in addition to the formal Information Collection Budget, the OMB maintains an online landing page for “Government-Wide Totals for Active Information Collections.” As of today it stands at 10.5 billion “total annual hours” (similar to the Time Tax level) at a proclaimed $163.2 billion in “total annual cost.”

This appears to be OMB translating paper-shuffling and compliance into $15.50 per hour.

Historically the OMB has tended not to provide annual dollar-cost estimates for paperwork. But even back in the 2011 ICB it was noted that “if each hour [then “only” 8.783 billion] is valued at $20, the monetary equivalent would be $176 billion.” By comparison, the corporate income tax intake recently was $268 billion, so paperwork is a big dollar cost.

Back at the turn of the century (2001) OMB had pegged “Process/Paperwork” at up to $190 billion annually (over $250 billion in today’s dollars), and none can claim that the federal government is smaller today. Back then, paperwork was regarded as making up some 20 percent of overall regulatory costs, an observation having interesting implications for those who ponder them.

In any event, good luck finding a $15.50-per-hour compliance officers, a notion that appears to downplay the value of the public’s time even for those disinclined toward minimum-wage-hike enthusiasms.

A decade ago, this roundup of paperwork costs remarked upon the salaries of banking and environmental compliance for comparison’s sake. Today, the Bureau of Labor Statistics notes the following mean May 2022 hourly wages (the median is lower) for basic categories that one might regard as relevant in keeping up with complex federal paperwork. All exceed the $15.50 seemingly employed by OMB

Assuming $40 an hour would mean over $413 billion in mere paper-shuffling costs at the new ICB’s 10.34 billion hours level. None of this is counting actual compliance with underlying rules and regulations; just the paper.

Health, finance and labor-related paperwork are likely to be driven higher by recent legislation like that mentioned. Just as unnecessary regulatory programs require scrutiny and rollback (as, for example, Sen. Rick Scott’s (R-Florida) “Unnecessary Agency Regulations Reduction Act” would require), critical analysis for federal paperwork is urgent. That task cannot be conducted by an OMB bent instead on increasing access to the larger federal government being ushered in by “Bidenomics” and the latter’s disdain for federalism and state, local and individual decision-making.

The very source of benefits, well-being and prosperity for which the federal government attempts to take credit in narratives like Tackling the Time Trap is the private productive sector, which in the final analysis, pays for it all, no matter what.

Policymakers should awaken to the many transformations at OMB, and this particular instance, restore the spirit and intent of the original Paperwork Reduction Act.

NOKIA AIRSCALE

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