Business Watch: Nokia sheds jobs

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There’s fresh blood on the carpet at Nokia, which is taking the axe to 1,700 jobs across its global empire as it wrestles with tumbling demand for mobiles. The world’s biggest handset maker will make the cuts over the coming few months.

There’ll be up to 700 redundancies in Finland, with the US and the UK – where Nokia’s head office is based in Farnborough, Hampshire – bearing the brunt of the remainder. If this feels like déjà vu, Nokia chief executive Olli-Pekka Kallasvuo (pictured) did say in January that he was aiming to slash annual costs at the handset division by more than €700 million.

But on top of that, the Finnish giant is now swinging the axe in marketing, corporate development and its global support functions. If you want to know why this is happening now just look at what investment analysts are expecting profit wise from Nokia in the current quarter.

It forecasts on average that the group will report earnings per share of just €0.08 in the first quarter of the calendar year 2009. To rewind to the last time Nokia made less money than that in a quarter, you have to step back in time to the dotcom implosion and the third quarter of 2001.

In that period, fewer than 100 million phones were sold by all handset makers across the planet. Nokia is expected to shift a similar amount, by itself, in the current quarter and yet, price competition, falling demand, fierce rivalry in smartphones and rising costs mean that profitability has taken a big hit.

Clearly then, the company – which suffered an 80 per cent slump in operating profits for the Christmas quarter, along with a 19 per cent drop in sales – believes its cost base is too high.

Too high for sure when it is forecasting that the total cellphone market will drop by 10 per cent this year. That will be only the second time the industry has shrunk since mobiles were invented in the 1980s.

Networks are destocking and many punters are making do with their existing phones. As the destocking washes through the system there are some faint hopes for an uptick as the year progresses.

“The first quarter will be weak, then it will improve a little,” said Nordea analyst Martti Larjo told Reuters. “Some component suppliers have signalled slight improvement.”

But a quick glance at the UK economy, for instance, tells you that it is way too early to be getting excited about a real recovery. Average earnings have just fallen for the first month since comparable records began in 1991, and unemployment has shot above two million for the first time since Labour came back into power.

Nokia, which also announced 600 jobs back in November, is the latest contributor to those ballooning unemployment figures.

The company has said which departments will be affected but staff won’t be told whether they will lose their jobs until the company has consulted the unions and employee reps.

Now they say investors like cost-cutting announcements because these tend to feed through into stronger profits. But on the day of its announcement, Nokia shares were down 3.5 per cent in early trading at €8.68.

That was almost certainly because analysts at Goldman Sachs were also busy cutting their forecasts for Nokia’s earnings per share in 2009 and 2010 due to weaker demand, greater margin impact from a strong yen and a lower smartphone market share.

There is little doubt that Nokia is struggling more than some of its rivals in the lucrative smartphone market. Two words explain why, and both of them are fruity: Apple, and BlackBerry. Oh yes, and Google.

Goldman Sachs said it now expects market volumes for handset sales to plummet by some 14 per cent this year and increase only five per cent next year. It had earlier predicted a 10 per cent fall for 2009 – in line with Nokia’s forecasts – and 10 per cent growth next year.

When one of the world’s leading stockbrokers turns quite so bearish on the outlook for the mobile phone sector it is perhaps cause for concern for everyone working in it. Just ask the poor people at Nokia who are being asked to clear their desks.

Full article in Mobile News issue 435 (March 23, 2009).

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