Nokia Oyj (NOK1V) will eliminate 3,500 jobs, shut a mobile-phone factory in Romania and inject 1 billion euros ($1.4 billion) with Siemens AG (SIE) into their unprofitable network-equipment venture.
The closure of the plant in Cluj, which only began production in 2008, along with adjustments with suppliers will take out 2,200 positions, Nokia said today. The company will also reorganize its map business, cutting 1,300 jobs, and review the future of its handset plants in Finland, Hungary and Mexico.
The reductions come on top of 4,000 job cuts announced in April, mainly in research and development. Chief Executive Officer Stephen Elop is slimming Espoo, Finland-based Nokia to arrest a decline in market share to Apple Inc. and pursue faster-moving Asian competitors such as HTC Corp. that are driving the price of smartphones below $100.
“It seems there’s a shortfall in volumes compared to what the company expected last spring and now they need to adjust production to meet lower levels of demand,” said Michael Schroeder, a Helsinki-based analyst at FIM Bank.
Nokia fell as much as 2.3 percent in Helsinki and was up 0.5 percent to 4.20 euros as of 12:48 p.m. local time. Siemens added 0.1 percent to 68.93 euros in Frankfurt trading.
Preferred Shares
Nokia and Siemens will each contribute 500 million euros in cash to Nokia Siemens Networks, their 50-50 venture. The parents will get preferred stock in return, Nokia spokesman James Etheridge said by telephone.
The owners named Jesper Ovesen as the venture’s executive chairman, replacing former Nokia CEO Olli-Pekka Kallasvuo, who was non-executive chairman and is retiring from Nokia. Ovesen, 54, was chief financial officer of TDC A/S, whose private equity owners sold shares in the Danish carrier to the public last year.
It will be easier for Nokia Siemens to tap the financial markets independently once its profitability improves, Siemens spokesman Wolfram Trost said. It’s too early to speculate on a possible initial public offering and the focus now is on operational and financial improvements, he said.
Nokia Siemens, which has been unprofitable for all but one quarter since it started in April 2007, said in July that it wanted to improve its competitiveness as a standalone entity and had ended talks about a possible stake sale to private-equity investors. The venture, the second-largest maker of wireless networks after Ericsson AB, is struggling to hold onto that position as competition with China’s Huawei Technologies Co. intensifies.
Industry Outlook
“Ovesen may be able to do another successful restructuring just as he seems to have done at TDC,” said Michael Hagmann, an analyst at Nomura International Plc in London. “At the end it may take a little bit longer until demand in this industry finally improves enough for Siemens to be able to offload its stake.”
Nokia shipments of low-end phones dropped 16 percent in the second quarter. Smartphone volume fell 34 percent. The company is expected to start shipping a new line based on Microsoft Corp.’s Windows Phone by year-end.
Nokia has 10 handset factories. Three make smartphones, in Finland, China and South Korea, and one in the U.K. makes the Vertu luxury models. Low-end mobile phones are made in Brazil, Mexico, China, Romania, Hungary and India. Nokia announced plans in March to add a plant in Vietnam.
Navteq Reorganization
The company is folding its maps business Navteq, acquired for $8.1 billion in 2008, into a new location and commerce software division that will help its handsets stand out from competitors. Nokia will shutter units in Bonn and Malvern, Pennsylvania as a result.
Nokia’s smartphone market share plummeted to 20.9 percent in the second quarter from 37.4 percent a year earlier, according to researcher Gartner Inc. Its overall handset market share declined to 22.8 percent from 30.3 percent in the second quarter of 2010.
Elop has also shifted 3,000 employees to Accenture Plc (ACN) along with the Symbian operating software to make way for the adoption of Microsoft’s Windows Phone 7 and other platforms.
While factories in Asia “provide greater scale and proximity benefits,” the company is committed to keeping research and development facilities in Europe, Elop said in the statement.
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