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Nokia to Cut Phone Production

The mobile market has long been seen as a rapidly growing field, but it can't escape the global economic slowdown. Cell phone manufacturer Nokia Corp. (NYSE: NOK) said Wednesday it would cut its phone production because of waning demand.

The company is planning to cut annual costs by about $905 million, and it will close manufacturing sites throughout Finland. The Salo, Finland, plant will decrease production and 20% to 30% of its 2,500 employees will face staggered temporary layoffs.

"With these plans, we aim to scale down Salo production to reflect market demand, while operations in the factory continue uninterrupted," said Juha Putkiranta, Nokia's senior VP of demand supply network management, in a statement. "This is one of the measures we are taking to adjust our global demand supply network to the current situation."

With household budgets tight, consumers either don't have money to spend or are holding off replacing their phones. This has already led to tough fourth quarters for cell phone makers like LG Electronics Inc. (London: LGLD; Korea: 6657.KS) , Motorola Inc. (NYSE: MOT), Samsung Corp. , and Sony Ericsson Mobile Communications . If this year does lead to an overall dip, it will be only the second year the market has seen a contraction since its inception in the 1980s.

"2009 will be challenging for our industry," Nokia CEO Olli-Pekka Kallasvuo said in a statement. "However, we have a strong, enviable base to build on, and I believe we will continue to strengthen our position on many fronts."

The smartphone market is still expected to grow by about 10% to 20% despite the overall contraction. Nokia is still the global leader in this field, but it's quickly losing ground to the likes of Apple's iPhone 3G and BlackBerry 's BlackBerry line. Nokia is preparing its next generation of smartphones to fight the competition, and that lineup will be led by the N97.

Helping IT and networking groups with fixed budgets meet the demands of a growing mobile workforce is the subject of an InformationWeek Webcast on Feb. 18, "Six Ways To Cut Laptop And Mobility Costs" (registration required).

— Marin Perez, InformationWeek

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