Nokia invites 1,000 to leave: ‘Voluntary resignations’ trim workforce

In an ongoing effort to cut costs, Nokia Corp. today invited 1,000 workers worldwide to voluntarily resign.
The Finnish handset maker, which had about 128,000 employees at the end of 2008, said that between March 1 and May 31 all employees except “direct labor” and senior executives, could accept a “voluntary resignation package.”
“If successful,” said Hallstein Moerk, head of human resources at Nokia, in a prepared statement, “the voluntary initiatives will lessen the need for involuntary redundancies.”
The statement seemed to imply that additional job cuts likely loom in the handset maker’s future as it assesses the depth and longevity of the global economic downturn, which took a toll on most handset makers in the fourth quarter. Analysts have said that inventory in the retail channel across the industry is masking better visibility into consumer demand.
Nokia also said it would grant short-term unpaid leaves and sabbaticals up to one month long, “where operations allow and business continuity is not jeopardized.” The company has encouraged employees to take their holidays rather than work and accept the holidays’ cash value. Nokia has said it intends to cut nearly $900 million in annual operating expenses in its handset division this year.
“Nokia is in the midst of a perfect storm,” analyst Gareth Jenkins at UBS wrote yesterday, before the personnel trimming announced today. “With increased competition at the low end (from Samsung and ZTE) and high end (from HTC, Apple and RIM). . It is clear that the company is in cash conservation mode currently and that restoring the balance sheet to more comfortable levels of cash is the priority.”
Nokia’s moves come amid widespread gloom about the handset industry’s near-term prospects, according to Jenkins, who took the industry’s pulse during last week’s Mobile World Congress event in Barcelona, Spain.
“The general device industry sentiment was extremely poor,” Jenkins wrote yesterday. “It seems fairly clear though that there are substantial discrepancies globally. Currency issues seem to be causing European vendors to be more negative on margins than Korean peers. Similarly, device markets with device subsidies – Europe and North America – seem to be holding up better than those without – most of the rest of the world. We are likely entering the worst period of the current downturn.”
Jenkins, however, said that Nokia’s position in the smartphone market was not as dire as the picture painted by some analysts. Yet he too had a warning.
The potentially lucrative smartphone market is drawing new entrants, many of which will not survive, according to the UBS analyst. Nokia has begun a line of smartphones based on its latest, mid-range 5800 series and has already seen “significant deterioration” of its global share of that market. But “most financial market participants place little credence in Nokia’s ability to compete in the field in the future,” Jenkins wrote. In other words, the Finnish giant is being underestimated.
“We believe the greater risk to Nokia and other incumbent vendors – and many investors we spoke to at the MWC raised the same concern – stems from software-focused, third-party operating system providers such as Google and Microsoft,” Jenkins wrote. “The concern is that the handset industry cedes margins to third-party OS providers as the intelligence and differentiation in devices moves away from hardware to the operating system and applications.”
Indeed, Nokia yesterday announced that it would borrow about $630 million from the European Investment Bank to invest in its Symbian platform, its signature smartphone operating system, which it is betting on to counter its rivals.