Nokia halts production at its Indian phone factory

Under orders from Microsoft, Nokia has pulled the plug on production at its last remaining handset manufacturing plant.

Nokia will suspend production at the last handset manufacturing facility that remains in its possession following the sale of its devices business to Microsoft .

The Finnish company plans to wind down operations at the site on November 1, amid ongoing tax disputes with authorities in the country.

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Nokia sold its devices and services unit to Microsoft in April for €5.4bn. However, unresolved  tax issues in India prevented it from including the Chennai plant in the acquisition deal. Nokia continued to run the factory under a transitional services agreement with Microsoft. 

"Microsoft has informed Nokia that it will be terminating the manufacturing services defined in the agreement with effect from Nov. 1. In absence of further orders from Microsoft, Nokia will suspend handset production at the Sriperumbudur facility," Nokia said in a statement. 

"Unfortunately, the continuing asset freeze imposed by the tax department prevents Nokia from exploring potential opportunities for the transfer of the factory to a successor to support the long term viability of the established, fully functional electronics manufacturing ecosystem," it added.

The terminated contract follows plans announced in July by Microsoft to cut its headcount 18,000 jobs , including 12,500 gained through the Nokia acquisition. At the time, Microsoft said it would phase out its feature phone business , including Asha, S40, and Nokia X devices, over the next 18 months.

Nokia's Chennai plant was once among its largest facilities in the world but ahead of the sale to Microsoft it ran afoul of authorities in two separate tax claims , both of which were refuted by Nokia. 

In April, Nokia introduced a voluntary redundancy package , which included offerings elements of its Bridge program , to 6,600 employees in Chennai. A similar package was offered to employees at its Korean facility in Masan, which was excluded from the sale to Microsoft.

According to the Economic Times, 5,700 took up the offer, leaving about 900 employees affected by yesterday's announcement. Those employees are now considering taking legal action.

Nokia said it will be informing all stakeholders including the Labour Commissioner of the suspension. "Nokia is currently evaluating options to minimise the impact on existing employees at the manufacturing facility. It will share further information once details have been finalised," said Nokia.

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