Nokia Faces Steepest Job Cuts in 20 Years on Microsoft Deal

Nokia Oyj (NOK1V) workers are bracing for what may be the steepest job cuts in almost two decades as the world’s largest maker of mobile phones prepares to start a partnership with Microsoft Corp. (MSFT)

A reduction in research and development activities is set to be announced by the end of the month, with as many as 6,000 jobs under threat, said Antti Rinne of Pro, Finland’s biggest private-sector office-worker union. That would be equivalent to 38 percent of the Finnish company’s global devices R&D workforce. Nokia declined to comment on the numbers.

Chief Executive Officer Stephen Elop said on Feb. 11 that Nokia will adopt Microsoft’s Windows Phone 7 as its main smartphone operating system over the next two years, a move triggering “substantial reductions in employment.” As he phases out Nokia’s homegrown Symbian and MeeGo systems, workers haven’t been told who may hang onto their jobs.

“This doesn’t make for very efficient or creative working conditions,” said Kalle Kiili, an engineer in Tampere, a research site that employs 3,000 workers, and represents the YTN union. “This waiting is expensive and we’ve already had a reorganization of R&D in 2009 and another reorganization of Symbian in the second half of 2010, just as the organization was starting to work properly again.”

Nokia slipped 1.6 percent to 6.19 euros as of 1:07 p.m. in Finland today.

R&D Budget

At 3 billion euros ($4.3 billion), Nokia’s 2010 research budget for devices, which include products ranging from basic handsets to smartphones that can edit documents and show movies, is more than twice Apple Inc. (AAPL)’s entire $1.78 billion R&D budget.

Nokia today unveiled an updated version of the Symbian smartphone software and two new smartphones that will run it.

The E6 business phone combines a Qwerty keyboard and a touchscreen. The X7 entertainment phone has a large display to play games and an 8-megapixel camera for taking pictures and high-definition-quality videos. Both handsets will start shipping in the second quarter, Nokia said.

Since Apple shipped its first iPhone in 2007, Nokia’s share of smartphone sales by volume has shrunk 20 percentage points to 30.8 percent in the final quarter of 2010, according to researcher Gartner Inc.

At the end of last year, Nokia employed 16,134 people in R&D for devices and services, a company filing showed.

Cost Cuts

“The reductions are likely to come gradually, over the next 12 months because they have some further development in the pipeline for Symbian,” said Michael Schroeder, an analyst at FIM Bank in Helsinki who has a “reduce” rating on the stock. “The expectation is that after the transition period they would have cut a third of their device R&D spending compared to what it was in 2010, so that would mean 1 billion euros in total.”

Nokia has said the transition would extend into 2012. Under Finnish laws, companies must start negotiations with unions when they announce job-cut plans. Those talks typically last about six weeks. Nokia is scheduled to release earnings April 21 and hold its annual shareholder meeting May 3.

Nokia has about 21,000 workers in Finland, or 16 percent of its global headcount including the networks venture with Siemens AG (SIE), according to filings. The figure also includes a smartphone factory in Salo with about 2,000 employees.

In November 2009, Nokia Siemens announced plans to eliminate 5,760 jobs. The venture cut as much as 15 percent of 60,000 positions when it was created in 2007.

Revamp

In 2008, Nokia closed a handset plant in Bochum, Germany, slashing about 2,300 jobs. Nokia announced reductions of 1,700 jobs in sales, marketing and management in March 2009 as consumer demand fell in the global recession.

Nokia’s headcount declined by 31 percent between 1990 and 1993, according to annual reports, as the company shed units making rubber products and computers. The handsets organization has more than doubled in size since 1999, to 58,642 people at the end of last year.

A month after taking over as CEO in September 2010, Elop announced a plan to cut 1,800 jobs in areas including Symbian smartphones.

“We have said we are planning to say more about the impact on our personnel in the last week of April,” said Nokia spokeswoman Paeivyt Tallqvist, adding that any announcement won’t be restricted to Finland and the plans include starting negotiations with employee representatives. “We have not given any figures or estimates.”

Share Price Decline

Nokia has slid 24 percent since Feb. 11 amid investor skepticism that the alliance with Microsoft will result in products capable of regaining share from Apple and Google. The Espoo-based company’s market value was surpassed last week by HTC Corp. (2498), Asia’s second-largest maker of smartphones. Standard & Poor’s and Moody’s Investors Service have both cut Nokia’s debt ratings since the Microsoft agreement.

“People could be disappointed if they announce something and don’t indicate how they will go forward,” said FIM’s Schroeder. “The key issue from an investor viewpoint is not how much they will cut now, but the long-term outlook for Nokia smartphones overall.”

A model could be what happened in Jyvaskyla when Nokia and the government were able to create 450 jobs to replace 320 lost when the phonemaker closed an R&D site, said Anssi Paasivirta, a director at the Ministry of Employment. Paasivirta has worked on more than 20 restructurings including the shuttering of paper mills, the closing of Finnish production at Nokia’s contract manufacturer Perlos Oyj in 2007 and job cuts at the Salo factory.

Longer-Term Projects

Nokia shut an R&D site in Jyvaskyla in 2009, leaving R&D groups in Salo near the factory as well as Tampere, Oulu and the capital area which includes Helsinki and Espoo.

Other devices R&D locations include Beijing, Bangalore, Copenhagen, and San Diego, as well as Ulm, Germany, and London and Farnborough in the U.K. Nokia also maintains a network of 13 research centers working on longer-term projects such as sensor technology and 3-D interaction.

Finland’s Ministry of Employment has a working group that meets weekly with Nokia and others to review options for helping people through the transition, said Paasivirta. Asked about the reorganization, Finance Minister Jyrki Katainen told Bloomberg News yesterday that he expects Nokia to do its best to create new opportunities for those who will lose their jobs.

“Some people who had other opportunities have left, particularly in MeeGo, but most are still waiting for whatever’s going to happen,” said Kiili, the Nokia engineer. “The fear is worse than it was earlier because it clearly involves people’s jobs and we haven’t had such extensive cuts before.”

To contact the reporter on this story: Diana ben-Aaron in Helsinki at dbenaaron1@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong in Berlin at kwong11@bloomberg.net

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.