Nokia starts to sink; 10,000 jobs cut

Nokia is cutting another 10,000 jobs as it continues to struggle in the face of iPhone and Android growth. Will the last one out turn the lights off?
Written by Zack Whittaker, Contributor

Nokia will lay off 10,000 jobs worldwide by the end of 2013, the Finnish phone giant said on Thursday.

Phone-making plants and research and development will also take a hit, including centers in Ulm, Germany and Burnaby, Canada. A manufacturing plant in Salo, Finland will close but its R&D efforts will remain there.

The company's management will also be shuffled, chief executive Stephen Elop said in a statement.

"These planned reductions are a difficult consequence of the intended actions we believe we must take to ensure Nokia's long-term competitive strength."

That's corporate speak for: cut now, or face not being able to pay our employees later down the line. In simple terms, a cut of non-essential employees takes the heat off its falling operating margin.

Its plan to "return to sustainable adjusted operating profitability there as quickly as possible" has to come now or face the risk of posting an operating loss down the line. That's 'beginning of the end' talk for any business.

Nokia said its second-quarter adjusted operating margins for its phone unit would be "worse" than a loss equivalent to 3 percent of its first-quarter revenue. The company will also book a restructuring charge of €1 billion ($1.3bn).

Management shuffle, check. Reduction in operating costs, check. Job losses to skim off the top layer, check. All things point to "doing a RIM".

Who falls first: RIM or Nokia? The BlackBerry maker has a head start but Nokia is only a few steps behind, it seems.

(Shortly after this article was published, Wayne Smallman tweeted me: "Nokia and BlackBerry are like trains crashing in slow motion." It was too good not to share.)

In a fight for corporate survival, the signals show Nokia is losing the smartphone fight and has finally woken up to it. It doesn't take a genius to note it's the iPhone and Android smartphone battle that's hammering Nokia.

There are two things to note: employee count as assets, and how much cash the company has.

Nokia, unlike RIM, is relatively employee heavy. It can start hacking away at its employee base without hitting its operations too negatively.

Nokia already cut 4,000 jobs earlier this year and shifted its manufacturing core from Finland to Asia. It followed a 3,500 job cut in September 2011. A few in between: that’s 24,000 job losses since the former Microsoft executive took charge of the Finnish-based company.

Bloomberg reports Nokia had 53,500 workers at the end of March. We can probably knock that down a tier to roughly 45,000 give or take 5 percent.

RIM, on the other hand, had around 16,500 before the June layoffs.

RIM has a strong cash position it can dip into. It had more than $2 billion at the last count it can chip away at instead of cutting essential jobs it can't afford to lose.

Shareholders will not like the idea of it, but it's something at least.

Nokia's cash position appears healthy. As of December 2011, it stood at $14.2 billion making the company an attractive acquisition target. That figure has likely dropped by a billion or two since. But its share price has fallen by more than 70 percent in the last year.

Nokia's market cap puts the company's worth at $10.45 billion, down from $11.8 billion over a month ago. The phone giant could be bought for next to nothing at this point.

The likelihood is Nokia will not bounce back on its own. Microsoft could step in considering its "strategic partnership" with the phone maker. Microsoft provides the mobile operating system, and Nokia provides the phones. It's a relationship like no other, but as with any marriage, if one goes down and leaves a chunk of debt the other will suffer.

But following a report that Microsoft looked at Nokia as a tempting offer, not before backing away promptly unimpressed by what it saw, it seems somewhat unlikely.

We'll see where it goes from here. Nokia's second-quarter results will be an interesting one.

Image credit: Roger Cheng/CNET.


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