Nokia to cut cost with Microsoft collaboration

Nokia to cut cost with Microsoft collaboration

Nokia chief executive Stephen Elop. NYT

The company, based in Espoo, Finland, said it planned to reduce annual operating expenses in its core devices and services business by 1 billion euros, or $1.44 billion, to 4.65 billion euros, or $6.72 billion, by the end of 2013.

“This reduction is expected to come from a variety of different sources and initiatives,” the company said, “including a reduction in the number of employees and normal personnel attrition, a reduction in the use of outsourced professionals, reductions in facility costs, and various improvements in efficiencies.”

Stephen Elop, the Microsoft executive whom Nokia hired to be chief executive last September, said the company would begin negotiations with its work force in Finland and elsewhere next week. Before those talks,Elop said, Nokia will not speculate on the number of jobs it may eventually cut.

“Speculation on the exact numbers and the timing of those numbers is best postponed until we discuss this with” worker representatives, Elop said in a conference call with financial analysts. Some employees will be able to move into other jobs with Nokia, Elop said, and Nokia may have openings as a result of its partnership with Microsoft. Because of those opportunities, Nokia said it could guarantee employment to its existing employees through this year.

Nokia also confirmed that it had signed its agreement with Microsoft to obtain the Windows operating system for Nokia’s smartphones. The two companies announced the partnership on February 11. Since then, Nokia’s stock price has fallen by about a third.

The cost-cutting initiative came as Nokia lost its lead in cellphone revenue to Apple, the research firm Strategy Analytics according to Reuters. Nokia’s phone revenue fell to $9.4 billion in the last quarter, while Apple’s revenue from the iPhone increased to $11.9 billion, the research firm said.

“With strong volumes and high wholesale prices, the PC vendor has successfully captured revenue leadership of the total handset market in less than four years,” Alex Spektor, an analyst, said. Nokia also reported that its profit fell slightly, to 344 million euros ($497 million) in the first quarter from 349 million euros ($504 million) in the period a year earlier.

Sales rose 9.2 per cent, to 10.4 billion euros ($15.0 billion), in large part because of gains in Latin America and China, where Nokia’s sales rose 29 per cent and 30 per cent respectively. Sales in North America fell 36 per cent, and sales in Europe fell 5 per cent.

Nokia said its sales of smartphones rose 13 per cent in the quarter, to 24.2 million units from 21.5 million. The market grew 74 per cent over all during the same time, Francisco Jeronimo, an analyst with the International Data Corporation in London, said. On top of that, the average selling price fell 6 per cent in the same period, to 147 euros from 155 euros a year earlier, Nokia said. The company said it had sold 108.5 million cellphones of all types during the quarter, 1 per cent more than a year ago. Yet its global share of the cellphone market fell to 32 per cent from 34 per cent a year ago, according to IDC.

Mikko Ervasti, an analyst at Evli Bank, a private bank in Helsinki, said the cuts in operating expenses were needed to bring Nokia in line with its cellphone peers, like Apple, which on average spend only half or even less on research and development than Nokia does.

Ervasti said the cost-cutting could translate into 6,000 fewer jobs in its cellphone research and development work force, or roughly 38 per cent of Nokia’s total staff for mobile phones. Those employees are now working in Finland, China, India, Germany, England, Denmark and San Diego. “These cuts were needed and are in line with what the market was expecting,” Ervasti said. “This is a direct consequence of the Microsoft agreement, and Nokia’s own need to trim expenses.”