Finnish mobile maker Nokia Corp. announced on Thursday, June 14, that it plans to make some major changes to its business, including 10,000 additional layoffs and a broad management overhaul. The changes come as the struggling handset maker cut its earnings outlook for the third time in a little over a year.
Nokia is trumped by fierce competition both at the high end of the market from Apple's iPhone and from cheaper handsets running on Google's Android platform. Once at the top of the market, the company has now reckoned that competition in the mobile business has hit its smartphone business "to a somewhat greater extent than previously expected." Nokia has now warned that the operating loss at its main mobile devices unit would in fact be larger than it has previously forecast.
Cost Reductions
In an effort to turn things around, Nokia now plans to cut an additional 10,000 jobs by the end of 2013, aiming to achieve another €1.6 billion ($2 billion) in cost reductions by that time. The additional layoffs come on top of nearly 14,000 job cuts the company announced last year. According to Nokia, the cost-saving measures will amount to €1 billion in restructuring charges.
"These planned reductions are a difficult consequence of the intended actions we believe we must take to ensure Nokia's long-term competitive strength, Nokia CEO Stephen Elop said in a statement, as cited by the Wall Street Journal.
Changes in Management
In addition to the layoffs, Nokia also announced a broad management shake-up. Head of mobile phones Mary McDowell, head of markets Niclas Savander, and recently appointed chief marketing officer Jerri DeVard will step down from their positions at the end of June. McDowell will be replaced by Timo Toikkanen as head of mobile phones, Chris Weberwill will be the new head of markets, and DeVard will be replaced by Tuula Rytila as new marketing officer.
Nokia has seen an accelerated cash burn and a continued decline in handset sales, while its shares continued to drop. The company held €4.87 billion in cash by the end of the first quarter 2012, down €709 million from the end of the fourth quarter, and 24 percent down from the same time last year. Moreover, credit rating companies Fitch and Standard & Poor's have recently downgraded Nokia's credit to junk status, while Moody's rated it near-junk.
Selling Vertu
In an effort to stop the dramatic downfall, Nokia said it has sold its independently-run luxury handset business Vertu to private-equity firm EQT for an undisclosed amount, and pledged to assess the future of other such noncore assets.
The company's CEO Stephen Elop has been in charge of Nokia's radical overhaul since he replaced Olli-Pekka Kallasvuo in September 2010. Elop made the decision to rebuild the company around Microsoft's new Windows Phone software for its devices, and under his helm Nokia's staff has shrunk by nearly 40,000 people. The company numbered 122,000 employees by the end of the first quarter, 53,000 of which worked at Nokia's mobile devices business.
Closing Facilities
Nokia now plans reductions in certain R&D (Research & Development) projects, which will result in the planned closure of the company's facilities in Ulm, Germany and Burnaby, Canada, and it will also consolidate its manufacturing operations, which will result in the planned closure of its manufacturing facility in Salo, Finland. The company will, however, continue R&D in Salo.
