Handset maker Nokia Corp. announced on Thursday its plans to cut 10,000 jobs, close factories and research facilities, and replace several key executives in a bid to reshape the company in the face of shrinking sales. Once the largest cell phone maker in the world, Nokia has watched its share of the smartphone market shrink first with losses to RIM and now to the more popular Apple and Android devices.
The company warned its loss for the second quarter would be higher than it previously forecast, representing its third cut in earnings outlook; shares plunged following the announcement. The company's shares have dropped 50% since the beginning of this year, and its credit was recently downgraded to junk status by Fitch and Standard & Poor's, and to near-junk by Moody's.
Nokia CEO Stephen Elop made a "bet the farm" decision a year ago February when it announced it would abandon its own mobile operating system, Symbian, and use Windows Phone as its primary platform going forward. Unfortunately that transition is taking longer than planned, and the worldwide market share for Windows Phone sits at around 1.5% versus 50.9% for Android and 23.8% for Apple's iOS.
The 10,000 job cuts will be made by the end of next year. Nokia's head count, including those at the cellular infrastructure division Nokia Siemens Networks (NSN), has fallen by almost 40,000. At the end of the first quarter, Nokia had 122,000 employees, 53,000 working in the mobile devices business.
As part of the cost savings plan, Nokia will close a research and development site in Ulm, Germany, and another in Burnaby, Canada. Consolidating manufacturing operations, the company will close its manufacturing facility in Salo, Finland, and there are plans to streamline of IT, corporate, and support functions.
The management changes hit CMO Jerri DeVard, EVP of Mobile Phones Mary McDowell, and EVP of Markets Niklas Savander, all of whom step down effective June 30, 2012. Juha Putkiranta will become EVP of Operations, and Microsoft Corp. veteran Chris Weber, currently Nokia's North American head, will become EVP of Sales and Marketing. Timo Toikkanen who was Nokia's head of business development will replace Mary McDowell as EVP of Mobile Phones, and Tuula Rytila will replace Jerri DeVard as SVP of Marketing and CMO. Susan Sheehan will be SVP of Communications.
Nokia introduced its Lumina line last October, but Windows Phone is clearly not catching fire with consumers. At the CTIA conference last month, AT&T Wireless CEO Ralph de la Vega, told CNET that "sales had exceeded expectations", though he didn't specify what those expectations were. Similarly, Scott Anderson, VP of the connectivity business group at Best Buy, said the Lumia 900 did surprisingly well, but acknowledged that Best Buy had low expectations for the phone.
Nokia is all-in with Windows Phone, and cannot afford to make yet another radical change of direction. The company is still a factor in lower-cost basic and feature phones, particularly in developing countries, but it does not appear that success with that product line will offset poor performance at the high end. The question is, how long will the board and the shareholders put up with Mr. Elop if things don’t start to improve.
