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Nokia fights to survive, but is it enough?

Posted: 18 Jun 2012 ?? ?Print Version ?Bookmark and Share

Keywords:Nokia? job cuts? restructuring? mobile phone market?

Nokia Corp. has announced a planned payroll reduction of at least 10,000 and has also revealed that it has replaced three of the company's senior executives, including the head of its mobile division. The mobile phone company is known to have been struggling to restore its profitability and improve its competitive position against flourishing mobile giants such as Apple Inc. and Samsung Electronics Co. Ltd.

Nokia has appointed Juha Putkiranta as head of operations, Chris Weber as vice president of sales and marketing, and Timo Toikkanen has replaced Mary McDowell as head of the mobile phone division. The company also announced the departure of Jerri DeVard, its head of marketing, and Niklas Savander, its executive vice president of markets.

Nokia has been restructuring operations for more than a year as it has lost wireless handset market share. The losses deepened as consumers flocked to smartphones, abandoning the plain feature phones that helped to make Nokia the market leader. It has since lost that position to Samsung, and it posted four consecutive quarters of net losses starting in the first quarter of 2011. The losses have been compounded by one-time charges associated with the restructuring.

"We intend to pursue an even more focused effort on Lumia, continued innovation around our feature phones, while placing increased emphasis on our location-based services," Stephen Elop, president and CEO of Nokia, said in the release. "However, we must reshape our operating model and ensure that we create a structure that can support our competitive ambitions."

The latest reorganization will result in the closing of facilities in Canada and Germany, along with other steps to reduce its factory footprint. "These planned reductions are a difficult consequence of the intended actions we believe we must take to ensure Nokia's long-term competitive strength," Elop said.

The company also announced the sale of its luxury phone business today to the European private equity firm EQT VI, and it said it "will closely assess the future of certain non-core assets." Nokia expects to cut operating expenses in the devices and services business to approximately $3.8 billion (?3 billion) by 2013 from $6.7 billion (?5.35 billion) in 2010. The company said it has recorded savings of $898.59 million (?700 million) as of the end of the first quarter and is seeking about ?1.6 billion of additional cost cuts by the end of next year.

Other further changes Nokia has planned include:

  • Reductions within certain research and development projects, resulting in the planned closure of its facilities in Ulm, Germany and Burnaby, Canada;
  • Consolidation of certain manufacturing operations, resulting in the planned closure of its manufacturing facility in Salo, Finland. Research and Development efforts in Salo to continue;
  • Focusing of marketing and sales activities, including prioritizing key markets;
  • Streamlining of IT, corporate and support functions; and
  • Reductions related to non-core assets, including possible divestments.

Restructuring is not enough
However, Nokia's announcement did not impress investors who promptly dumped the stock, driving down the company's market value by more than 15 percent in intraday trading.

Elop might have meant to signal resolute leadership in the midst of an ongoing crisis at the wireless handset vendor but nothing in today's announcement adds clarity to what the future holds for the company or confirm it will be able to right the sinking ship. Investors have seen reorganization actions like these before at other endangered companies and they know where it's leading Nokia. By the end of the current year, Nokia will be a much smaller company on a revenue and stock valuation basis and its future will be even more in doubt notwithstanding the modest success its Lumia phone has recorded in the market.

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