May 24, 2024

Nokia Continues Fading in Race With Nimbler Rivals

BERLIN — Nokia, the struggling market leader in mobile phones, said Thursday that it intended to cut costs by nearly 20 percent over three years, a move that will likely eliminate thousands of jobs as it enters an alliance with Microsoft.

The company, based in Espoo, Finland, said it planned to reduce annual operating expenses in its core devices and services business by €1 billion, or $1.46 billion, to €4.65 billion by the end of 2013.

“This reduction is expected to come from a variety of different sources and initiatives,” the company said, “including a reduction in the number of employees and normal personnel attrition, a reduction in the use of outsourced professionals, reductions in facility costs, and various improvements in efficiencies.”

Stephen Elop, the Microsoft executive whom Nokia hired to be chief executive last September, said the company would begin negotiations with its workforce in Finland and elsewhere next week. Prior to those talks, Mr. Elop said Nokia would not speculate on the number of jobs it may eventually cut.

“Speculation on the exact numbers and the timing of those numbers is best postponed until we discuss this with” worker representatives, Mr. Elop said in a conference call with financial analysts.

Some employees will be able to transition into other jobs with Nokia, Mr. Elop said, and Nokia may have new staffing needs as a result of its partnership with Microsoft. Because of those opportunities, Nokia said it would be able to guarantee employment to all of its existing workforce through this year.

Nokia also confirmed that it had signed its agreement with Microsoft to obtain the Windows operating system for Nokia’s smartphone lineup. The two companies had announced the partnership on Feb. 11. Since then, Nokia’s stock price had fallen by about a third.

The cost-cutting initiative came as Nokia lost its lead in cellphone revenue to Apple, the research firm Strategy Analytics said Thursday, according to Reuters.

Apple’s revenue from the iPhone rose to $11.9 billion in the last quarter while Nokia’s phone revenue slipped to $9.4 billion, the research firm said.

“With strong volumes and high wholesale prices, the PC vendor has successfully captured revenue leadership of the total handset market in less than four years,” an analyst, Alex Spektor, said.

Nokia also reported Thurusday that its profit fell slightly to €344 million in the first quarter from €349 million a year earlier.

Sales rose 9.2 percent to €10.4 billion, due largely to gains in Latin America and China, where Nokia’s sales rose 29 percent and 30 percent respectively. Sales in North America fell 36 percent, and sales in Europe fell 5 percent.

Mikko Ervasti, an analyst at Evli Bank, a private bank in Helsinki, said the cuts in operating expenses were needed to bring Nokia in line with its cellphone peers, like Apple, which on average spend only half or even less on research and development than Nokia.

Mr. Ervasti said the cost-cutting could translate into 6,000 fewer jobs in its cellphone R.D. workforce, or roughly 38 percent of Nokia’s total staff for mobile phones. Those employees are currently working in Finland, China, India, Germany, England, Denmark and San Diego, California.

“These cuts were needed and are in line with what the market was expecting,” Mr. Ervasti said. “This is a direct consequence of the Microsoft agreement, and Nokia’s own need to trim expenses.”

Nokia said its sales of smartphones rose 13 percent in the quarter to 24.2 million units from 21.5 million. Meanwhile, the market grew 74 percent over all during the same time, Francisco Jeronimo, an analyst with International Data Corp. in London, said.

On top of that, the average selling price fell 6 percent in the same period to €147 from €155 one year earlier, Nokia said.

The company said it sold 108.5 million cellphones of all types during the quarter, 1 percent more than a year ago. Yet its global share of the cellphone market fell to 32 percent from 34 percent a year ago, according to IDC.

Samsung, the global No. 2, raised its share to slightly more than 26 percent, IDC said.

Mr. Jeronimo said Nokia faced significant challenges as it transitions its mobile lineup away from its own Symbian operating system and towards Microsoft Windows Phone, which will take two years.

Despite the “good performance” of the new, high-end N8 handset in Europe and its mid-tier smartphones, “Nokia is still being affected by the strong Android momentum,” Mr. Jeronimo said, referring to the mobile operating system created by Google, and “by the high-end iPhone, Research In Motion, HTC and Samsung devices.”

The pressure on Nokia could increase, he added, if Nokia users defect from Symbian to rivals in the transition.

Mr. Ervast said the company’s forecast that operating profit margin for devices and services would be 6 percent to 9 percent in the second quarter was slightly better than investors had expected.

Nokia’s share price was up 3.1 percent at €6.12 in Helsinki trading.

Nokia employed 130,951 workers as of March 31, including 59,080 who work for Nokia’s cellphone business and 71,871 who work at its networks venture, Nokia Siemens Networks, and Navteq, its geographic mapping data unit.

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