Nokia's Last Cut Is the Deepest
Working at the Finnish smartphone maker must be rather gloomy right about now and come coupled with a dreadful sense of finality, always wondering whether your position is the next to go. That can't be good for morale.
The last cut is the deepest
The company has just announced that it's slashing its workforce by 10,000 positions. This is the latest and largest in a round of successive reductions over the past 18 months.
That's an awful lot of pink slips to distribute. The company has outlined an aggressive cost-reduction plan, reducing device and services operating expenses by "substantially reducing its headcount and reducing its factory footprint." Nokia plans on focusing on trying to differentiate its Lumia lineup and is acquiring Scalado, a mobile imaging company. It's also going to develop its location-based platform and broaden its mapping offerings.
The company is still aiming to reduce its devices and service-adjusted annual operating expenses to approximately $3.8 billion, after factoring in the nearly $900 million run rate savings it generated in the first quarter and another $2 billion in savings that it hopes to implement by the end of next year.
Diamonds aren't Nokia's best friend
These cost cuts also include the possible divesting of non-core assets, which leads us to another announcement today that Nokia is selling its high-end luxury Vertu brand to EQT VI, a private-equity group in Northern Europe.
No financial terms were disclosed, but Nokia will keep a 10% minority stake in Vertu. Talk of Nokia's interest in selling this division has persisted for months. After all, I can't imagine there's a particularly large market for diamond-encrusted $300,000 phones. Heck, Nokia has enough trouble selling $99 smartphones.
Just as they always say: "Out with the Vertu, in with the Scalado."
There will be blood
The struggling gadget maker is also shuffling the echelons of upper management. A handful of upper-level execs are "stepping down" to "pursue other opportunities outside of Nokia," as their jobs are handed over to fresh blood. That includes Nokia's mobile-phone head and chief marketing officer, among others.
Nokia can certainly use some fresh blood, but that's only at the top, as the lower levels are getting booted en masse.
"That's kind of the issue"
Nokia's new Microsoft (NAS: MSFT) Windows Phone flagship, the Lumia 900, looked promising, even garnering some major marketing support from exclusive carrier partner AT&T (NYS: T) . In April, Ma Bell had said that sales had "exceeded" expectations, without elaborating what that means in actual unit figures.
Since we can't get our eyes on any official numbers, we have to rely on third-party market researchers. Researcher Compete says the device was off to a strong start when it launched two months ago, even outselling Apple's (NAS: AAPL) last-generation iPhone 4 and staying neck-and-neck with the newest iPhone 4S, based on its measurements of online sales.
Unfortunately, the glow faded after the first month and fell back in line with Google (NAS: GOOG) Android offerings like the Samsung Galaxy S II, which saw a discount heading into the unveiling of the Galaxy S III. Compete says the Lumia 900 then actually fell behind other older Windows Phone offerings like the Samsung Focus and HTC Titan.
Nokia's only official response was a vague statement about being "pleased with the consumer reaction." Compete analyst Christopher Collins said: "I don't see the phone around. That's kind of the issue." That echoes my perception also, since I've never seen one out in the wild, and I'm particularly mindful of the gadgets I see out and about as a mobile-sector analyst.
Cost-cutting is a requisite for nearly any turnaround, and Nokia's hopes of righting this ship are still playing out, which means more job cuts are probably in the cards. With the company's future largely riding on Windows Phone, the OS had better start gaining traction. Soon.
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At the time this article was published Fool contributor Evan Niu owns shares of AT&T and Apple, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Microsoft, Apple, and Google. Motley Fool newsletter services have recommended buying shares of Microsoft, Apple, and Google and creating bull call spread positions in Microsoft and Apple. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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