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‘Desperate’ Nokia still has Window of hope

Mobile News
July 16, 2012

Windows Phone success the key to survival as redundancies top 40,000 in two years

Nokia’s troubles deepened this month, with the manufacturer confirming it is to shed another 10,000 jobs in Q2 – taking total cuts to 40,000 in two years.

Around 4,000 jobs will be lost in the firm’s home market in Finland, while others will be cut  in its research and development facilities in Germany and Canada. The restructure is expected to be completed by the end of next year and will generate annual savings of around $3.8 billion.

The company has also recently sold its luxury brand Vertu to private equity firm EQT VI, for an undisclosed fee – although it will retain a 10 per cent stake in the business.

The news came as Nokia reported its shares had dropped by around 70 per cent since Q1 2011. The firm has also been leapfrogged by Samsung as global market share leader – a position it held for more than a decade.

Nokia CEO Stephen Elop said of the job losses: “These planned reductions are a difficult consequence of the intended actions we believe we must take to ensure Nokia’s long-term competitive strength.

“We do not make such plans lightly. As a company we will work tirelessly to ensure that those at risk are offered the support, options and advice necessary to find new opportunities.”

The changes will allow Nokia to focus on its core markets in Europe (including the UK), US and China, as it seeks to improve its performance against  competitors, such as Samsung and Apple.

According to analysts, the one-time manufacturing giant is now playing its last card in a “desperate” bid to survive.

Ovum analyst Nick Dillon told Mobile News the firm must now make pushing sales of its Lumia handset range its top priority to avoid the unthinkable.

“Nokia has gone into survival mode,” said Dillon.

“It is in desperate times and is stripping everything down except its core areas of business. There’s really not much left to cut.

“It was always going to be a tough year in the trough between moving away from Symbian and to the Windows operating system, it was just hoping it had enough in reserve.

“The Windows Lumia has to be its number-one priority now, that’s going to be the key to survival – it’s sustaining the business and it is selling, though perhaps not as fast as Nokia wanted, or expected. It is growing, but it needs to grow faster if it is to survive.”

Alongside the negative announcements, Nokia also  confirmed it had partnered with Swedish imaging company Scaldo.

Scaldo, which provides imaging technology to more than a billion devices worldwide, has more than  50 patent technologies and works with a number of major handset manufacturers.

Although existing contracts are being honoured, new technology coming from the company will be the property of Nokia, and is likely to be exclusive on its devices.

US-based Gartner analyst Carolina Milanesi agreed that diversification is the way forward for Nokia. She described its plans as continuing “its mutation into a slender, more agile company focusing on opportunities to differentiate, such as imaging and maps.

“Europe must be playing a big part in Nokia’s more negative outlook for Q2 and Q3; the weak economy and stronger Chinese are making it tougher.

“There is one thing we are hearing loud and clear and that’s about making the Lumia successful – and this will help.”

Battle at the bottom
Although Nokia has struggled against high-end players such as Samsung and Apple, the firm has also found competition tougher in the lower end of the market – an area the manufacturer formerly dominated.

According to IHS Screen Digest senior analyst Ian Fogg, Nokia is being undercut by new players entering the market, such as Chinese manufacturers Huawei and ZTE.

He told Mobile News: “Nokia is struggling at the lower end, it is even being undercut by cheaper producers in the emerging markets.

“At the upper-end it is being held back by Microsoft; the Lumia is single core and weak at multi-tasking. Nokia is hampered because the Windows software doesn’t support some of the higher-grade features which I’m sure Nokia would like to use.

“Then in the mid-market, or the higher entry level, it has the Asha series which, although good phones, are now having to compete in a market with cheap Android handsets with the Android and Google branding. This is an area it will continue to struggle in unless it can get a cheaper version of Windows phones, or Nokia does a deal with someone else.”

The popularity and widespread availability of the Android operating system has contributed to Nokia’s troubles. Nokia has aligned itself with Microsoft for Windows Phone, which has a global market share of 5.2 per cent. Android, which Google claims has around 50,000 activations on devices per day, has 61 per cent, according to latest figures from analyst firm IDC.

However, IDC expects the popularity of Windows Phone to increase significantly to around 19.2 per cent by 2016, closing the gap on Android (predicted to be 52 per cent). It is also expected to overtake Apple,  whose share is expected to fall from 20.5 per cent today, to around 19 per cent in 2016.

Full article in Mobile News issue 518 (July 16, 2012).

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