Is This Smartphone Giant Still Connecting?
Within six months of axing 7,000 employees, Nokia (NYS: NOK) slashed another 3,500 jobs. What does this signify? Red alert, of course.
The frequency of job cuts at Nokia is a major cause of concern for investors. Nokia has been losing market share in the smartphone segment for the past few years, which has forced the company to cut costs and move manufacturing units closer to its primary markets.
Timeline of the job cuts
Earlier this year, in April 2011, Nokia announced its plan to axe about 7,000 employees worldwide in order to reduce its costs by $1.43 billion. This move included laying off about 4,000 employees and transferring the remaining 3,000 to its software partner Accenture (NYS: ACN) .
And now, within six months of this announcement, the Finnish mobile maker has announced plans to cut 3,500 more jobs by 2012. The recent move is the result of the closure of three of its manufacturing plants -- a step taken to reduce costs and realign its business strategies to compete with smartphone makers like Apple and Android OS provider Google.
Out of the total 3,500 job cuts announced on Sept. 29, 2011, about 2,200 workers have been laid off due to the change in location of its manufacturing plant in Cluj, Romania. According to Nokia, moving the plant from Romania to Asia will provide greater scale and proximity benefits. Cheaper labor and reduced transportation costs will invariably result in an increase in production and better productivity. Apparently, the Cluj plant was opened in 2008 for the very same reason; it is being shut now. Nokia will later shut down operations of its facilities in Bonn, Germany, and Malvern, Pennsylvania, which will make another 1,300 employees jobless.
In February 2011, Nokia entered into an agreement with Microsoft (NAS: MSFT) , according to which Nokia will develop its next generation of smartphones using Windows Phone 7 OS, dumping its age-old partner Symbian. While many analysts are still not optimistic about the upgrade, the move was essential for Nokia, as its Symbian platform failed to compete with iOS and Android. The first Windows phone is expected to be released soon in the U.S. However, it would have to be an extraordinary phone if Nokia is to regain the market share lost to the iPhone and other smartphone offerings.
Furthermore, both Nokia and Siemens (NYS: SI) plan to inject capital of $680 million each into their joint venture, Nokia Siemens Network, in an effort to turn around the loss-making unit. The joint venture has not made profits in any of the quarters except one since its inception in April 2007. This inflow of fresh capital will strengthen the venture's financial position, setting the stage for research, innovation, and marketing. However, for Nokia, it means spending more at a time when it is striving to cut costs.
Even if Nokia claims that these steps will perk up its financial position, investors see no reason to stay invested in this company. The number of job cuts clearly represents the weakening financials of the company and its increasing worries over stiff competition in the smartphone sector. It might soon review certain manufacturing facilities in Finland, Mexico, and Hungary.
The company has not been performing well in the past few quarters, nor has its stock managed to attract investors. Shares have shed around 40% of their value in 2011. Share price recently reached the new low of $5, and is now hovering around $6, showing just how reluctant investors are to invest in this company.
I think it makes more sense to stay away from this stock, at least until it comes up with a robust plan to recover. If you're looking for other ways to profit from the mobile revolution, I invite you to check out The Motley Fool's special report "3 Hidden Winners of the iPhone, iPad, and Android Revolution." Simply click here to download it for free.
At the time this article was published