Friday, June 15, 2012

Nokia Cuts Costs and Jobs

Story first appeared in The Associated Press.

Nokia Corp. will lay off 10,000 jobs globally and close plants by the end of 2013, the company said Thursday, in a further drive to save costs and streamline operations.

Nokia said it will shut down some research and development projects, including in Ulm, Germany, and Burnaby, Canada, and close its core manufacturing plant in Finland - in Salo - where it will only maintain research and development operations.

These planned reductions are a difficult consequence of the intended actions the company believes that it must take to ensure Nokia's long-term competitive strength. They are increasing the focus on the products and services that consumers value most while continuing to invest in the innovation that has always defined Nokia.

Nokia also gave an updated outlook, saying that competitive industry dynamics in the second quarter would hit its smartphone sector to a somewhat greater extent than previously expected and that no improvement was expected in the third quarter.

The company's share price plunged more than 7 percent to €2.05 ($2.63) in morning trading in Helsinki.

Although the Finnish cellphone maker said it plans to significantly reduce its operating expenses, it will continue to focus on smartphones as well as cheaper feature phones and intends to expand location-based services.

Nokia also announced that private equity group EQT VI had agreed to acquire Vertu, its global luxury phone brand, but that the Finnish company would keep a 10 percent minority shareholding. No financial terms were announced.

Nokia said that two members of its top leadership team will leave - the head of the struggling mobile phones unit and the head of the markets sector.

The loss-making company has been struggling against fierce competition from Apple Inc.'s iPhone and other makers using Google Inc.'s popular Android software, including Samsung Electronics Co. and HTC of Taiwan. It is also being squeezed in the low-end by Asian manufacturers making cheaper phones, such as China's ZTE.

In April, Nokia announced one of its worst quarterly results ever, blaming tough competition for a €929 million net loss in the first quarter as sales plunged, especially in the smartphone market. Boston-based Strategy Analytics said Nokia had significantly lost market share to Samsung, which pushed it out as the world's largest seller of cellphones by volume, grabbing a 25 percent global market share against Nokia's 22 percent.

Last year, Nokia was still the world's top cellphone maker with annual unit sales of some 419 million devices, but in the last quarter of the year it posted a net loss of €1.07 billion, a marked reverse from the 745 million profit a year earlier.

It has fared even worse in the smartphone sector against Samsung and Apple by dropping to third place in the first quarter of the year, dropping to 12 million units against Samsung's 44.5 million and Apple's 35 million.

Nokia is significantly increasing its cost reduction target for devices and services in support of the streamlined strategy announced today. With these planned actions, Nokia believes its devices and services business have a clear path to profitability. Nokia intends to maintain its strong financial position while proceeding aggressively with actions aimed at creating shareholder value.

Last year, Nokia announced more than 10,000 layoffs, aimed at cutting operating expenses by €1 billion ($1.31 billion) by 2013.

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