Nokia cuts thousands of jobs

  • 2003-04-17
  • Paal Aarsaether

Nokia, the world's leading mobile-telephone maker and a barometer for the telecom sector, said it would slash 1,800 jobs in its infrastructure division, raising questions about the future of the ailing unit.

"It's obviously a preventive measure, in the sense that they don't expect a rebound in the market to happen this year, or even next year," Karri Rinta, an analyst with Evli Bank, said.

Nokia's share price dropped 3.9 percent on April 10 following the news, trading at 13.69 euros on the Helsinki Stock Exchange.

The move was, however, expected, analysts noted, saying it reflected continued tough times in the sector given the continued downturn in the global economy and Nokia's previous guidance of a drop in networks sales by 15 percent to 20 percent year-on-year in first quarter 2003.

Nokia's network sales, as well as those of rivals Ericsson, Motorola and Siemens, have slumped as mobile phone operators delay their investments in next-generation, or 3G, mobile phone networks.

A total of 1,100 of the job cuts will be in Finland, mostly in research and development, but also in operations, support sales and marketing, Nokia said.

"The reductions reflect the market conditions that we have had and are still having," Thomas Joensson, a spokesman for Nokia Networks, said.

Rinta pointed out that they have cut especially deep in research and development shows that they expect the whole migration onto the next generation will take place at a slower pace.

"Now we definitely have to review our outlook for both this year and next year for the whole sector, as there are no bright spots or upturns in sight," he said.

As Nokia is the star performer in a battered telecom sector, steadily meeting earnings targets, its rivals in the network sector will be even harder hit, analysts suggested.

Archrival Ericsson, the world's biggest in infrastructure, will be most severely affected, they said.

"As Nokia is streamlining its organization with a fairly heavy hand, we might expect further cuts from the other players," Mika Paloranta, analyst with investment bank Carnegie, said.

Of the next-generation network contracts, Nokia has secured just under one third, while Ericsson is on top with over 30 percent of the market, and Siemens has about 20 percent.

But as these deliveries are now being delayed even further due to the continued global economic downturn, their bottom lines will still suffer, analysts concluded.

Nokia's announcement follows a similar one two months ago when 550 workers lost their jobs, and last year Nokia was forced to shed 10 percent of its network staff of 18,000 to cut costs and keep it profitable.

"As far as we can see this is enough, we don't foresee any further reductions under the current conditions," Nokia spokesman Joensson said.

Nokia is scheduled to publish its first quarter results on April 17.

According to its mid-quarter update published a month ago, handset sales are also expected to be less buoyant, at the lower end of its sales growth target of up to 9 percent, while earnings per share are seen in the 0.15 euro to 0.17 euro range.

While some 20 percent of Nokia's 30 billion euros in sales in 2002 came from the network side, only 10 percent of its profit of 4 billion euros arose from infrastructure sales.

Following the latest round of job cuts, the network division will have a workforce of about 15,000, or one-quarter of Nokia's total of 60,000.