Nokia to Cut 10,000 Jobs as Elop Tries to Stanch Losses
Nokia Oyj (NOK1V) reduced its earnings forecast for the second time this year and said it will cut as many as 10,000 more jobs and shut production and research sites in Chief Executive Officer Stephen Elop’s biggest overhaul.
The stock fell 18 percent to the lowest level since 1996, pushing Nokia’s market value below $10 billion. As part of the changes, sites in Finland, Germany and Canada will be closed and executives Niklas Savander, Mary McDowell and Jerri DeVard will leave, Espoo, Finland-based Nokia said today.
Elop, who took over as CEO in 2010, is reorganizing Nokia after market-share gains by Apple Inc.’s iPhone and Samsung Electronics Co. devices led to a slump in sales and four straight quarterly losses. The company risks going out of business in as little as two years unless it reduces expenses, said Alexander Peterc, an Exane BNP Paribas analyst in London.
“They are trying to survive,” said Peterc, who has an underperform rating on the stock. “They can’t continue like this.”
Nokia said the second-quarter adjusted operating margin at the devices unit will be worse than a loss equivalent to 3 percent of revenue in the first quarter. Nokia had projected margins to be “similar to or below” the first-quarter level.
Nokia fell 39.6 cents to 1.83 euros at the close of trading in Helsinki, bringing the stock’s decline in the past 12 months to 58 percent. The company has a market value of 6.8 billion euros ($8.6 billion), down from a peak of more than 300 billion euros in 2000.
The job cuts, 3,700 of which will take place in Finland, amount to almost a fifth of the total excluding a joint venture with Siemens AG. (SIE) Elop had already announced more than 10,000 job cuts across the company. He said in April that Nokia would speed up a cost-cut program and take further actions if needed.
“This is harder than we thought and we’re having to make deeper changes,” Elop said today on a conference call. He said Nokia has enough net cash to go through the transition and “the scope of today’s changes is designed to ensure this remains true.”
A substantial drop in sales could be enough to burn through most of the company’s cash and “bring into question Nokia’s very survival,” Societe Generale said last month. Nokia, which had its ratings cut to junk by Standard & Poor’s and Fitch Ratings in April, said it had net cash of 4.9 billion euros as of March 31.
The cost of insuring Nokia bonds using credit-default swaps rose to its highest since May 25, when it reached a record. It jumped 87 basis points, or 11 percent, to 853 basis points, according to Bloomberg prices. Swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.
Nokia has lost more than 70 billion euros in market value since Apple introduced the iPhone in 2007, taking the lead in smartphone innovation. While Nokia’s falling value brings it closer to becoming a takeover target, the company needs to stabilize its business to attract suitors, said Lars Soederfjell, an analyst with Bank of Aaland in Stockholm.
“Would you buy into this, with these type of fundamentals?” he said. “There’s too much uncertainty.”
To challenge Apple and handset makers using Google Inc.’s Android software, Elop adopted Microsoft Corp. (MSFT)’s Windows Phone, abandoning Nokia’s homegrown Symbian operating system. Nokia shipped more than 2 million Lumia smartphones running Windows Phone last quarter, while Apple sold 35.1 million iPhones.
Elop today reiterated Nokia’s commitment to Windows Phone, saying however that progress with the products has been “slower than we would like.”
Nokia’s total handset shipments declined 24 percent in the first quarter, allowing Samsung to overtake the company as the world’s biggest mobile-phone maker. Nokia’s operating margin for mobile phones plunged to 3.7 percent last year from more than 20 percent before Apple introduced the iPhone in 2007.
“We don’t have Nokia returning to profitability in devices in the foreseeable future, not this year and not next,” Peterc said.
The job cuts are are aimed at accelerating Nokia’s cost- reduction efforts. The company now targets additional savings of about 1.6 billion euros, aiming to bring annual expenses at its devices business to about 3 billion euros by the end of 2013. That’s down from 5.35 billion euros in 2010.
The company will close a manufacturing plant in Salo, Finland, and facilities in Ulm, Germany, and Burnaby, British Columbia. The cuts and closures will result in expenses of about 1 billion euros, Nokia said.
The biggest share of cuts will come in research and development, where Nokia is killing whole projects to preserve others that are more important, Chief Financial Officer Timo Ihamuotila said on a call. Sales is the second-biggest area affected and general overhead is third, he said.
Elop promoted Timo Toikkanen, Nokia’s head of business development, to take over from McDowell as executive vice president for low-end phones. Tuula Rytilae will become chief marketing officer, replacing DeVard. Savander’s title was executive vice president of markets.
Chris Weber, who introduced the Lumia line in North America as the head of U.S. operations, will become executive vice president of sales and marketing. Juha Putkiranta was named to a new job of executive vice president of operations.
The company also agreed to sell its Vertu luxury-phone unit to Swedish private-equity firm EQT Partners AB, without disclosing terms. The companies were discussing a deal at about 200 million euros, people with knowledge of the matter said earlier this week.
Nokia had 53,553 workers at the end of March, excluding the network-gear joint venture with Siemens. Including Nokia Siemens Networks, the company employed 122,148 people, down 6.7 percent from a year earlier.
Nokia Siemens, which also is struggling to return to profit, is cutting 17,000 jobs worldwide to save 1 billion euros in annual operating expenses and production costs by 2013.
To contact the reporter on this story: Diana ben-Aaron in Helsinki at firstname.lastname@example.org