Nokia Siemens Networks, the phone-equipment maker that Nokia Oyj (NOK1V) is fully taking over, is considering reducing about 8,500 jobs to boost profitability, according to three people familiar with the matter.
A scenario being discussed would bring its workforce to 42,000 by the end of 2014, or a 17 percent reduction, partly through selling or shutting down plants and farming out manufacturing, said the people, who asked not to be identified discussing internal targets. Nokia Siemens had about 50,500 workers at the end of June. No final decisions have been made and any plans would have to be approved by sole owner Nokia.
Nokia Siemens has cut more than 20,000 positions during the past two years, a move that has proved to be successful by restoring profitability amid declining sales as its shareholders tried to unwind a six-year ownership agreement. Any plan to reduce costs further would give the Espoo, Finland-based manufacturer a more competitive position against market leader Ericsson AB (ERICB) and Chinese makers.
“It’s good to be focused where you’re strong and to build scale around that dimension,” Nokia Siemens Chief Executive Officer Rajeev Suri said by phone today, after Nokia announced the completion of the 1.7 billion-euro ($2.3 billion) purchase of Siemens AG (SIE)’s share and renamed the unit to Nokia Solutions and Networks. “We’re the only ones playing that game.”
Suri declined to comment on any potential job-cut plans, as did Brett Young, a spokesman for Nokia.
Shares of Nokia pared earlier losses of as much as 1.9 percent and closed at 3.07 euros, or 0.8 percent lower, in Helsinki trading today.
European companies that have announced major job cuts in recent months include ThyssenKrupp AG (TKA), Germany’s biggest steelmaker, which said in May it would eliminate 3,000 positions after its net loss widened. Drugmaker AstraZeneca Plc (AZN) said in March it would cut 2,300 sales and administrative jobs in a bid to return to earnings growth.
Responding to intensifying competition from Huawei Technologies Co. and ZTE Corp. (000063), Nokia Siemens started a program in late 2011 to cut 17,000 positions, or about 23 percent of its total. Its profitability has steadily climbed, with its operating margin, excluding some items, expanding to 11.8 percent last quarter from 0.8 percent a year earlier. Revenue dropped 17 percent last quarter.
The buyout gives Nokia, the unprofitable Finnish handset maker, full access to cash from the equipment business. Nokia Solutions is considering selling a 500 million-euro bond to help fund a dividend payment to Nokia worth about 900 million euros, the people said.
The unit is also considering selling manufacturing facilities in Finland, India and China, the people said. Talks with contract manufacturers are in progress, they said.
Last quarter, Nokia Siemens was the only profitable division on a reported basis at Nokia, which is struggling to reverse falling sales at its phone business. The network division had sales of 2.78 billion euros and net cash of 1.45 billion euros.
Nokia Siemens raised 800 million euros in April through the sale of five- and seven-year bonds to repay existing debt. Covenants on its 2018 bonds allow Nokia Siemens’s owners to tap the wireless venture’s coffers provided its free cash flow for the past 12 months is positive, its gross cash exceeds 2 billion euros and it would have a net cash position after the dividend.
Nokia doesn’t plan to integrate Nokia Siemens, Chief Executive Officer Stephen Elop said in July. Nokia’s debt rating was cut further into junk by Standard & Poor’s and placed on review for a downgrade at Moody’s Investors Service following the acquisition.
“I’m not a believer in finding scale through being end to end and therefore spreading your resources in R&D and sales and marketing very thinly,” Suri said. “We are now in the mode of continuous improvement.”