Tieto Cuts 1,300 Jobs in Strategy Revamp to Focus Offerings

Tieto Oyj (TIE1V), Finland’s largest software company, will cut 7 percent of its workforce as it restructures to simplify its business and exit unprofitable markets. The stock rose to its highest in 13 months.

Tieto will eliminate 1,300 jobs including about 500 in Finland and 300 in Sweden as part of a plan to save 50 million euros ($66 million) in annual costs, the Helsinki-based company said in a statement. It will incur one-time costs of 50 million euros.

Chief Executive Officer Kimmo Alkio, who took over in November, will focus the company on specific industries particularly financial services, government and healthcare, manufacturing, telecommunications and utilities. Tieto’s costs are higher than peers, he said, setting a target of earnings before interest and taxes of at least 10 percent of sales by 2016.The company will concentrate on markets where Tieto can be among the top three service providers.

“We will evaluate our presence in other markets and either create focus within very specific industry segments and operate profitability, and if that’s not possible we will also consider exits,” Alkio said in a telephone interview. “This process is already ongoing in our most challenging markets.”

Shares Gain

Tieto gained 4.5 percent to 15.26 euros, the highest since Feb. 10, 2011, as of 10:40 a.m. in Helsinki.

The company has already reduced its activities in Russia to supporting Nordic companies and to the finance, oil and gas industries. It is reviewing operations in Germany this year.

Tieto gets most of its revenues from outsourced software maintenance and management for corporate customers. It is now seeking to expand in consulting and systems integration to get revenue from designing new applications, said the CEO, who joined Tieto in November from security and cloud software maker F-Secure Oyj. (FSC1V)

About 20 percent of revenues come from so-called product engineering, or subcontracting work building products for customers including Nokia Oyj (NOK1V), Nokia Siemens Networks, and Ericsson AB. Nokia is phasing out its Symbian software platform through an outsourcing agreement with Accenture Plc (ACN) and has adopted Microsoft Corp.’s Windows Phone for its latest handsets.

“The Symbian work going down creates short-term clear challenges but this is the kind of variation at key customers that we are used to managing,” Alkio said. Tieto is investing in Windows Phone development and will seek product engineering contracts globally even as it narrows its geographic focus in the enterprise outsourcing business, he said.

Tieto had 18,123 employees at the end of December according to its annual report. The Finnish government holds 10.3 percent of Tieto shares.

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 at kwong11@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to 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.