January 24, 2021

Nokia to Cut Costs More After Loss

BERLIN — The two largest European makers of telecommunications equipment, Nokia and Ericsson, announced plans Thursday to continue or accelerate cost-cutting efforts in the face of rising competition, internal reorganizations and weak demand in North America.

Nokia, which sells more mobile phones than anyone else, said it planned to cut more than the €1 billion, or $1.43 billion, it had previously planned to trim from its operating expenses by 2013. The company, based in Espoo, Finland, made the announcement while reporting a €368 million second-quarter loss, its first since the third quarter of 2009.

Ericsson, the largest maker of telecommunications networking equipment, reported a 60 percent increase in profit for the quarter but took a restructuring charge of 1.3 billion Swedish kronor, or $202 million, more than some investors had been expecting, to pay for layoffs in Sweden.

The separate announcements set off heavy trading in the shares of both companies in Europe.

Ericsson’s shares closed off 9.7 percent in Stockholm, where it is based. Nokia’s shares ended the day up 2.5 percent as investors welcomed the phone maker’s intention to increase its austerity measures, even though the company did not specify a new target.

Pete Cunningham, an analyst in Reading, England, at Canalys, a research firm, said Nokia’s sales decline stemmed from its difficulty selling smartphones in China that use its Symbian operating system. Nokia said in February that it planned to replace Symbian with Microsoft Windows Phone software starting later this year.

“This is obviously not good news from Nokia,” Mr. Cunningham said. “I think the appetite for Symbian devices has fallen away very quickly since Nokia made the announcement about moving to Microsoft in February. This shows they definitely need those Windows phones as soon as possible.”

Stephen Elop, the Nokia chief executive, hired from Microsoft last year, said Nokia had replaced key sales executives, reduced inventories in China, revamped its phone-pricing strategy and refocused its retail marketing programs to compensate for the downturn.

“The challenges we are facing during our strategic transformation manifested in a greater than expected way” during the quarter, Mr. Elop said in a statement. “However, even within the quarter, I believe our actions to mitigate the impact of these challenges have started to have a positive impact on the underlying health of our business.”

Mr. Elop, during a conference call with analysts, reiterated that Nokia planned to sequentially introduce the first Microsoft devices this year in various national markets. He did not specify the number of phones nor the markets.

Nokia’s sales fell in all regions of the world except the Middle East and Africa during the quarter. The greatest percentage decline was in North America, where sales fell 61 percent to €88 million from €223 million a year earlier.

Ericsson shares fell sharply even as the company, which faces competition from the Chinese companies Huawei and ZTE and the French company Alcatel-Lucent, reported an increase in second-quarter profit to 3.2 billion kronor from 2 billion kronor a year earlier.

Sales at Ericsson rose 14 percent to 54.8 billion kronor from 48.0 billion kronor.

Hans Vestberg, Ericsson’s chief executive, said the company’s restructuring charge in the second quarter had been greater than expected but was part of the ongoing adjustment of its global business to meet the economic conditions.

“If you look at our numbers today, this is one of the strongest quarters of growth we’ve ever had,” Mr. Vestberg said. “We had a higher restructuring cost than expected, but we did that to improve the profitability of the company going forward.”

Mr. Vestberg said demand for mobile networking equipment remained strong globally during the quarter, especially in Russia, China, Brazil and India. Sales rose by 70 percent in Russia, 96 percent in China, 17 percent in Brazil and 107 percent in India, as operators built high-speed mobile broadband networks for growing populations.

Sales of networking equipment in North America fell 6 percent in the quarter, which Mr. Vestberg attributed to the appreciation of the Swedish currency against the dollar.

Article source: http://www.nytimes.com/2011/07/22/technology/nokia-and-ericsson-announce-cost-cutting.html?partner=rss&emc=rss

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