Nokia Corp. has unveiled a major restructuring process in an effort to become a profitable and more relevant company.
The Finnish mobile company, which recently lost its long-held position as the world's leading device maker to Samsung Corp., has been struggling in the face of competition from the Android-based smartphone vendors, Apple Inc. and a new wave of low-cost feature-phone players, reported a massive loss for the first three months of this year and is the subject of much speculation about its future. (See Euronews: Takeover Rumors Lift Nokia, Nokia Loses Its Mobile Crown and Nokia Loses More Than €1.57B.)
With the second quarter's performance looking dire, CEO Stephen Elop has decided to take drastic measures in order to survive the onslaught, though his tactics and the outlook for the next few quarters have sent investors running to the hills -- Nokia's share price is down 11 percent to €1.98 Thursday morning on the Helsinki stock exchange.
Here are the key details announced early Thursday.
Nokia is to cut up to 10,000 jobs worldwide by the end of 2013. As part of this it will shrink its IT, corporate and support functions. In February the company announced the loss of 4,000 jobs. (See Nokia Cuts 4,000 More Jobs .)
Certain R&D projects will be reduced, resulting in the closure of research facilities in Ulm, Germany, and Burnaby, Canada.
Manufacturing operations will be further consolidated, resulting in the closure of facilities in Salo, Finland. R&D operations will continue in Salo.
None-core assets will be shrunk, closed or sold. As part of this process, Nokia has agreed to sell a majority stake in its luxury mobile phone unit, Vertu, to private equity firm EQT VI for an undisclosed sum. Nokia will retain a 10 percent stake in Vertu, which is based in the U.K. and employs about 1,000 staff.
The cost-cutting measures, which will result in €1 billion (US$1.26 billion) of restructuring charges, should help the company reduce its annual operating expenses (excluding one-time charges such as restructuring costs) at its Devices & Services (smartphones and feature phones) line of business by €1.6 billion ($2 billion), leaving its annual operating expenses run rate at €3 billion ($3.77 billion) by the end of 2013.
The company has promoted internally to create a new senior team (from July 1): Juha Putkiranta will be executive vice president of Operations; Timo Toikkanen will replace outgoing Mary McDowell as executive vice president of Mobile Phones; Chris Weber will be executive vice president of Sales and Marketing; Tuula Rytila becomes senior vice president of Marketing and chief marketing officer, replacing current CMO Jerri DeVard, who is leaving the company; and Susan Sheehan will be senior vice president of Communications. In addition, executive vice president of Markets, Niklas Savander, is leaving the company. In April, Nokia announced that global sales leader Colin Giles was leaving on June 30. (See Nokia Streamlines Sales Management.)
Nokia's smartphone sales are shaping up to be worse than expected during the second quarter, which closes June 30, while "competitive industry dynamics" are set to make the third quarter a tough one too. The company now expects its Devices & Services second-quarter operating margin (before one-time costs) to be worse than the first quarter's negative 3 percent, compared with its previous expectation of recording an operating loss about the same as the first quarter's.
The company, which has three business units (Devices & Services, Location & Commerce, and Nokia Siemens Networks) believes the changes can reverse its fortunes and make it a growing, profitable company again. It intends to invest in its location-based services that can be integrated into its phones and focus its device developments on the Lumia range. As part of this strategy it has agreed to acquire Swedish imaging technology specialist Scalado for an undisclosed price, a move that will give it technology, intellectual property and development staff.
CCS Insight analyst Ben Wood noted on Twitter that the resizing of the company is a "necessary evil" but that Nokia "can't keep cutting forever." He added that the purchase of Scalado is "astute… [a] great asset underlining Nokia is going big in imaging."
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