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Nokia Job Cuts Don’t & Won’t Impress Anyone

The announcement today by {complink 3847|Nokia Corp.}, that it will eliminate one of every five jobs in its mobile handset division and remove three senior executives didn't impress investors. (See: Nokia to Cut 10,000 Jobs, Divest Assets.)

They promptly dumped the stock, driving down the company's market value by more than 15 percent in intraday trading.

CEO Stephen Elop might have meant to signal resolute leadership during an ongoing crisis at the wireless handset vendor, but nothing in today's announcement offers clarity about what the future holds for the company or whether it can right the ship. Investors have seen reorganizations like this before at other endangered companies, and they know where it's leading Nokia. By the end of this year, Nokia will be a much smaller company on a revenue and stock valuation basis, and its future will be even more in doubt, the modest success of its Lumia phone notwithstanding.

There's some disheartening history behind this tough assessment. Nokia's actions are eerily similar to steps taken by other enterprises that slowly diminished after dominating their market sectors. Nokia is unlikely to fall into technology's historical bin, but the job cuts, management changes, and other strategic initiatives implemented so far by Elop remind me of actions taken by Palm Inc., Motorola Inc., Nortel Networks, Lucent Technologies, and many other former tech giants that misread their markets and tumbled into oblivion. {complink 4644|Research In Motion Ltd. (RIM)} is in a similar funk, and its reorganization efforts have not paid off as expected.

If this assessment appears harsh, don't just follow the Nokia sales trajectory. Look more closely at more important factors — why the company is where it is today, what is happening at its rivals (Apple, Samsung, HTC), the monumental changes occurring in its market, and what could make it competitive again. Also, consider the fact that, as Nokia cuts jobs and reorganizes operations (necessary actions if it is to survive), it is also demoralizing employees and sending mixed signals about its future to contractors, suppliers, and other third-party support companies it requires for future growth.

For instance, Nokia suppliers in the communications IC market recall how their profitability and long-term viability were horribly threatened as companies like Motorola declined. They know by now that they've got to pull up the stakes and throw operational and product support behind Nokia's rivals.

As the company totters, members of its ecosystem are feeling the heat and rushing for the exit. This means critical engineering employees will be firing off resumes to other companies. Application developers the company needs to support the rollout of services for the Lumia and other devices will devote more resources to rivals. The effect is already being felt at companies in the extended supply chain. The DSP chip vendor Ceva Inc. recently slashed its 2012 sales and earnings estimates because of declining sales at Nokia. What many suppliers see now is the possibility of getting crushed under the tottering giant.

Nokia is a fast fading shadow of its former self, and no amount of employee retrenchment and management reshuffling will send the market a different message. Today's announcement confirmed that the company is burning more money than it is making. It said in a press statement that it expects the “non-IFRS Devices & Services operating margin in the second quarter 2012 to be below the first quarter 2012 level of negative 3.0%. This compares to the previous outlook of similar to or below the first quarter level of negative 3.0%.” The company also said it “expects competitive industry dynamics to continue to negatively impact Devices & Services in the third quarter 2012.”

It should have added that the situation won't improve that much for the rest of the year. Before today's announcement, analysts had reduced their average revenue estimate for Nokia this year to €39 billion, or about $49.2 billion. (I think sales will be even lower.) The company posted €42 billion of sales for 2011 and €50.7 billion for 2008.

The job cuts will reduce the breakeven revenue target and relieve pressure on the balance sheet at a time when cash conservation is becoming a major priority. They won't cure what really ails Nokia: an inability to catch up with Apple and Samsung, combined with the unwise decision to abruptly terminate Symbian operating system-based products in favor of Windows OS. That move stopped Nokia cold, and for that Elop himself deserves the axe.

13 comments on “Nokia Job Cuts Don’t & Won’t Impress Anyone

  1. _hm
    June 14, 2012

    It is sad story. This is very fast downgrade of an organization. Is there novel way it can be revived?

     

  2. Daniel
    June 15, 2012

    Yes Bolaji, today I had read in EE news about Nokia's plan for cut nearly 10000 jobs worldwide. According to the news they have also plans for shut down its R&D centre at Germany and Canada along with the only manufacturing unit in Finland. This will help Nokia to save annually around 1.6 billion Euros. In general perspective, they are in a wind up stage.

  3. Daniel
    June 15, 2012

    Bolaji, Nokia have only one manufacturing unit and planning to shut down it. So according to your analysis, what would be the future of Nokia? With only R&D centers whether they are able to survive or they are paving the way for a natural death. Whether they have any plan to diversify the shut down facility for a last minute breath with windows based phones & tablets. As a well wisher of Nokia, we would like to know about it.

  4. saranyatil
    June 15, 2012

    I thought in between Nokia would pick up with few products they launched and may be move to a better state . Now this comes as a shock how time can change a big organisation to this state. There was a time when consumers use to wait for launches from Nokia and buy them.

  5. bolaji ojo
    June 15, 2012

    Some folks have suggested they have no other options but to cut their way out. I believe more important than cost-cutting is having a growth story. What's Nokia's growth plan? The CEO talked about seeking ways to reduce operating cost but he didn't outline how to increase sales. That's what the market needs to hear.

  6. Wale Bakare
    June 15, 2012

    “Whether they have any plan to diversify the shut down facility for a last minute breath with windows based phones & tablets.”

    Windows based mobile devices? Marketability of this platform i have not seen it. May be they should ditch it for Android or better still Symbia. Windows cant battle it out in mobile market.

  7. bolaji ojo
    June 15, 2012

    Wale, The fact that Nokia is allowing itself to be used to test and market an unproven operating system is deplorable. Windows may overtake everyone else in two or 5 years but that's not helping Nokia now. I've read extensively reports from analysts, media and consumers about Nokia's strategy and the consensus seems to be that people think Nokia should embrace Android OS or at least include it in its offering. Is anybody listening over in Finland?

  8. t.alex
    June 15, 2012

    After much boasting, Lumia 900 is not able to make a big difference in the market. People are losing trust in Nokia.

  9. Wale Bakare
    June 16, 2012

    @t.alex what do you think could be the reasons for Nokia's Lumia failing to pull more sales for the company? I stated it here sometime – “is mega picture elements (pixel) of Lumia phone” key that would make it compete well with the likes of iPhone and Samsung?

    Trust – i have to agree with you on that. Also think short publicity and lack of indepth market campaign are contributing factors to Lumia poor sales.

     

  10. Daniel
    June 18, 2012

    t.alex, technically Lumia 900 is a good device with lots of features, but lack of sales support and advertisement made the sales down.  I think another reason may be the windows OS, where most people's have a craze about Android flavors and iOS.

  11. Adeniji Kayode
    June 19, 2012

    @saranyati, you are right on that, if Nokia eventually crash out, many mufacturers will flood the market with their products that people don,t give consideration to befor now. Are you all aware of Techno phones? This is a major competitor Nokia has in my area

  12. saranyatil
    June 20, 2012

    Techno phones have no clue about them. what all segments they cater to.

  13. t.alex
    July 6, 2012

    Wale I have tried Lumia 900. It is quite simple to use and quite elegant. Perhaps the price and the apps are not comparable to Android.

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