Nokia’s day of disaster


10,000 job cuts, loss of three board members, cutting earnings forecast for the second time this year… and more

By Heather McLean

Nokia is back in the news today as it announces 10,000 job cuts, the loss of three board members and a re-jig of those left, the fact it is cutting its earnings forecast for the second time this year, and pinning its hopes for revival in the world of developers onto the coattails of the location market, and imaging through its acquisition of Scalado, a mobile imaging business.

Dropping its earnings forecast for the second time this year, Nokia said that during the second quarter 2012 competitive industry dynamics have negatively affected its smart devices business unit to a greater extent than previously expected. It added that it expects competitive industry dynamics to continue to negatively impact devices and services in the third quarter 2012. Nokia now expects its non-IFRS devices and services operating margin in the second quarter 2012 to be below the first quarter 2012 level of negative 3%. This compares to the previous outlook of similar to or below the first quarter level of negative 3%.

Additionally, the company intends to offload 10,000 workers by the end of 2013; it is significantly reducing its device and services operating expenses, substantially reducing its headcount and reducing its factory footprint. Nokia plans to pursue a range of planned measures including: reductions within certain research and development projects, resulting in the planned closure of its facilities in Ulm, Germany and Burnaby, Canada; and consolidation of certain manufacturing operations, resulting in the planned closure of its manufacturing facility in Salo, Finland. The research and development efforts in Salo will continue, but: there will be a focusing of marketing and sales activities, including prioritising key markets; streamlining of IT, corporate and support functions; and reductions related to non-core assets, including possible divestments.

In a statement, president and chief executive Stephen Elop said: 'These planned reductions are a difficult consequence of the intended actions we believe we must take to ensure Nokia's long term competitive strength.'

On top of that we have losses at the top; Nokia is saying goodbye to its executive vice president and chief marketing officer Jerri DeVard, executive vice president of mobile phones Mary McDowell, and executive vice president of markets Niklas Savander; three important strategic positions.

Nokia has had a shuffle around of the exec members remaining to fill the gaps. Juha Putkiranta will become executive vice president of operations; Timo Toikkanen as executive vice president of mobile phones; Chris Weber as executive vice president of sales and marketing; Tuula Rytila as senior vice president of marketing and chief marketing officer; and Susan Sheehan as senior vice president of communications. Putkiranta, Toikkanen and Weber will join the Nokia Leadership Team on 1 July.

So that all its staff feel slightly less miserable at this flurry of bad news on a Thursday morning, including that the company's share price dropped by 5.7% today, Nokia has announced plans to acquire imaging specialists as well as all technologies and intellectual property from Scalado, which has worked with Nokia for 10 years on its smartphones. The company intends to make imaging more of a differentiator.

Nokia's location-based platform is also expected to be another principal area of investment as Nokia plans to differentiate its portfolio of Lumia smartphones with location-based services, including navigation and visual search apps. Additionally, the company plans to extend its mapping technology to multiple industries to strengthen the platform and generate new revenue.

However, Dave McQueen, principal analyst at Informa Telecoms & Media, remarked: 'Location has to be an important differentiator for Nokia having paid $8.1 billion for Navteq five years ago and there is still no discernable ROI. Nokia's mapping offers a better experience than Google's, plus new applications like Nokia Maps, Drive, Transport and City Lens should be at the forefront of its marketing. Apple dropping Google maps also makes this space interesting.

'The company is hoping to gain market leadership in music and imaging, notably with its PureView and now the purchase of Scalado. All these have to combine with better smartphones using new materials, new technologies and location-based services to provide stronger points of differentiation, whilst making them available at a range of price points,' continued McQueen.

Mark Newman, chief research officer at Informa Telecoms & Media, added: 'For some time now Nokia has believed that its location capabilities could be an important differentiator. But the question is whether mobile phone users or the developer community also see this as a major advantage that Nokia has over its competition.'

Newman continued: 'It is also interesting to see that Nokia is hoping to use location as a way into the business market. Nokia says that it wants to 'extend its mapping technology to multiple industries'. Nokia has struggled for a long time with its enterprise strategy but it looks as if its new thrust is going to involve more of a push into the M2M sector and developing a revenue stream outside of the sale of devices.'

The only positive from today's announcements is that Nokia has done a deal for EQT VI, part of the private equity group in Northern Europe, to acquire Vertu, Nokia's luxury mobile phones business. Nokia will remain a 10% stakeholder.

Smart Chimps says: Whichever way you look at it, things look dire for Nokia. Is there any hope? <a href=''>Email </a>the Big Chimp and tell us what you think.


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