Nokia cuts manufacturing and R&D in Finland

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Nokia cuts manufacturing and R&D in Finland

By CAROLINE GABRIEL

Published: 12 February, 2009

READ MORE: Nokia

Despite the markets' growing conviction that the second quarter will already see some improvement in the handset market as inventory clears, the actual news emanating from the manufacturers remains gloomy.

Nokia announced yesterday that it was cutting back manufacturing and R&D in its home country, adjusting to lower levels of demand and output in most regions in the current period, and shifting some activities to lower cost bases. As part of this previously announced strategy, it will scale back handset production at its factory at Salo, Finland, cutting the 2,500-strong workforce by 20% to 30%, and will shut down a research unit based in Jyvaskyla, which employs 320. It is seeking to reduce its annual costs overall by €700m ($905m). The layoffs may seem minor compared to those at some rival companies, but they are serious for an organization that has no history of mass job reductions.

"The planned closure of the Jyväskylä site is an unfortunate, yet unavoidable measure. We must adjust our resources to reflect reduced market demand in order to maintain our competitiveness also in the future," said Peter Røpke, senior VP of devices at Nokia R&D.

Perhaps its greatest cost saving, though, will come from its increased price negotiation power with suppliers, given the pressures upon those vendors, and Nokia's rising market share, even in a depressed sector. According to Gartner, Nokia and Hewlett-Packard shared the crown last year for the world's largest buyers of chips - for phones and PCs respectively. "HP and Nokia showed that manufacturers benefited from a significant decline in average selling prices," said the analyst firm.

Most pundits - and vendors - are clinging to the belief that smartphones will remain buoyant despite the general downturn in the handset market. But one analyst is even sceptical about that - Richard Windsor at Nomura in London said in a research note this week the smartphone growth will be almost zero. "I find that the industry view that there will be good growth in smartphones in 2009 to be fundamentally flawed," he wrote. "I see two years of almost no growth before a strong bounceback in 2011."