Friday, October 22, 2010

Nokia Swings to Profit, Plans Job Cuts

The Wall Street Journal

Nokia Corp.'s new chief executive unveiled plans to cut 1,800 jobs and speed delivery of new products, part of his strategy to turn around the company's struggling smartphone business.

Chief Executive Stephen Elop, in his first address to investors since replacing Olli-Pekka Kallasvuo last month, said the Finnish company would have to undergo difficult changes to catch up again to rivals such as iPhone maker Apple Inc. and smartphones based on Google Inc.'s Android software.

"Nokia has been characterized as an organization where it is too hard to get things done," Mr. Elop said in a conference call following the report. "More than anything else, the changing market dynamics demand that we must improve our ability to aggressively lead through changes in our environment." He added that Nokia's board of directors has given him a clear mandate for change.

The company said it plans to streamline its smartphone operations and cut 1,800 jobs, about 2.8% of Nokia's global work force excluding Nokia Siemens Networks, its telecom-equipment joint venture with Siemens AG.

Nokia executives said the moves would be part of an effort to get new products to market faster, a key failing in recent years. The company also said it would streamline its services organization.

In the quarter ended Sept. 30, Nokia swung to a quarterly profit of €529 million ($740 million) from a year-earlier loss of €559 million when the result was hit by heavy impairment charges. Third-quarter revenue rose 4.7% to €10.27 billion.

Nokia said mobile-device shipments in the third quarter increased 2% from a year earlier to 110.4 million units, though its market share fell to 30%. The average selling price increased to €65 from €64—the first such increase in years.

Nokia's American depositary shares were up 4.2% to $11.28 on the New York Stock Exchange in 4 p.m. composite trading Thursday.

The smartphone market is booming. Research firm Strategy Analytics reported Thursday smartphone shipments jumped 78% in the third quarter from a year ago to 77 million units. But Nokia's share of the market fell to 34.4% from 37.8% a year earlier, Strategy Analytics said.

Nokia has struggled to compete at the high end of the market with the iPhone and the growing number of devices based on Google's Android. In September Nokia replaced Mr. Kallasvuo with Mr. Elop, formerly of Microsoft Corp., to help stem the slide and rebuild Nokia's market value, which fell by 70% , or $90 billion, over the last three years of Mr. Kallasvuo's tenure.

Mr. Elop, a Canadian who is Nokia's first non-Finnish CEO, has a strong background in software and services, which are becoming increasingly important to sales in the mobile world, and has experience working in North America, a market where Nokia has struggled.

During the conference call, Mr. Elop reiterated the company's support for its Symbian operating system even as rival manufacturers switch to other operating systems such as Google's Android and Microsoft's Windows Phone 7.

Last month Nokia introduced its new line-up of smartphones based on its upgraded Symbian software, though the results of those efforts won't show up until the fourth quarter or later.

Nokia also expects to ship the first devices based on the MeeGo operating system, intended for Nokia's next generation of devices, in 2011, Mr. Elop said.

Nokia forecast fourth-quarter sales of its devices and services unit would be between €8.2 billion and €8.7 billion. The company also raised its full-year operating margin guidance at its devices and services segment to 10%-12% from 10%-11% previously.

Nokia Siemens Networks reported a 7% year-on-year sales increase to €2.9 billion, but still posted an operating loss of €282 million as gross margins fell.