 "It's official: Nokia Chennai facility to come under 'Service Agreement'")
Nokia today officially communicated to its workers that the Chennai facility will become a contract manufacturing unit for Microsoft, which agreed to buy Nokia's devices and services businesses globally, for Euro 5.44 billion. The development comes on the backdrop of Nokia's inability to transfer the facility before April 25, the deadline was set to transfer the assets, due to Income Tax dispute.
While Nokia did not offer any comment, Union sources have confirmed that they have received the notice stating that facility will come under “Service Agreement” model.
According to sources through this agreement, Nokia will be the contractor for Microsoft, while the employees will continue to be Nokia's.
The notice stated that while their wont be any change in the salary, the facilities might get cut and work will be based on Microsoft's order. VRS will continue till May 14.
Globally Nokia has eight factories, two in China, one each in Brazil, Hungary, India, Mexico, Vietnam and South Korea. Of these factories, while there is no news about which all facilities will be transferred to Microsoft sources said Microsoft decided to keep the South Korea's facility outside the deal and some of the other “operational businesses” in other countries will also come under service agreement.
The South Korean factory employeed about 200 people, which had been part of the original terms of the deal. It was reported that Microsoft requested a change in the transaction due to excess capacity, and we have signed a joint agreement on this adjustment.
Microsoft did not respond to Business Standard's query.
Both the companies already got nods from other major countries including China, European Commission and the US Department of Justice and numerous other jurisdictions approvals.
On Monday, Nokia announced that it expects the transaction would close on April 25, 2014. This transaction will not include Chennai facility which was freezed by the Income tax department, that has slashed a Rs 21,000 crore tax notice on Nokia. The Department refused to allow transfer of the plant till the dues claimed by the department are not remitted by the company. The matter is now at the Apex Court.
Nokia is also facing a similar dispute with Tamil Nadu Government's sales tax department, which issued a Rs 2,400 crore tax notice. The matter was argued at the Madras High Court last week and the Court has reserved its order for April 29.
Meanwhile, a source said that how long the service agreement would continue is a big question, which is remain unaswered, because handsets is a high-technology business and as Nokia has decided to exit the sector, the factory will be left with no technology support.
Nokia Chairman and Interim CEO Risto Siilasmaa earlier said if the company is not allowed to transfer the factory to Microsoft it will not have a business and if it doesn’t have a business, it can’t manufacture anything in the factory.
The facility has around 8,000 direct and another 20,000-25,000 employees. Over 5,000 of the total direct employees are women.
The company has offered Voluntary Retirement Scheme for the employees, starting from April 15 for a month. The Nokia India Employees Union (NIEU) has opposed the scheme and demanded the management should ensure the plant to be transferred to Microsoft. However, almost the entire trainees numbered around 700, are opting for the scheme. The Union claims that the trainees has no other go, but to accept the Scheme since the company their contract will not be renewed after the training period.
The Union, on Monday, has started hunger strike while continuing the production process, to mark their protest. "We are worried of the situation. The management is not giving us proper reply on the fate of the factory or the job security of the workers," said M Saravana Kumar, president of the Union earlier.
Facts about Nokia's Sriperumbudur factory
Company name: Nokia India
Year of incorporation: 1995
Investment in India: Nokia Finland made an initial investment of Rs 35.6 crore in Nokia India starting in 1996 and has increased to Rs 1,858.95 crore which includes production, work paid resources and parked assets
Number of employees: around 8,000 (50 % of are women) directly & another 25,000 indirectly
Turonver/sales: During the period 2005-06 to 2011-12, it had cumulative turnover/sales of Rs 150700.44 crore.
Number of mobile phone produced: Till March 2014, around 800 million units
Plant's significance: About 50% of Nokia handsets were manufactured in India and 40%/50% of the production was exported
Source: Delhi High Court's Order in December, 2013
While Nokia did not offer any comment, Union sources have confirmed that they have received the notice stating that facility will come under “Service Agreement” model.
According to sources through this agreement, Nokia will be the contractor for Microsoft, while the employees will continue to be Nokia's.
The notice stated that while their wont be any change in the salary, the facilities might get cut and work will be based on Microsoft's order. VRS will continue till May 14.
Globally Nokia has eight factories, two in China, one each in Brazil, Hungary, India, Mexico, Vietnam and South Korea. Of these factories, while there is no news about which all facilities will be transferred to Microsoft sources said Microsoft decided to keep the South Korea's facility outside the deal and some of the other “operational businesses” in other countries will also come under service agreement.
The South Korean factory employeed about 200 people, which had been part of the original terms of the deal. It was reported that Microsoft requested a change in the transaction due to excess capacity, and we have signed a joint agreement on this adjustment.
Microsoft did not respond to Business Standard's query.
Both the companies already got nods from other major countries including China, European Commission and the US Department of Justice and numerous other jurisdictions approvals.
On Monday, Nokia announced that it expects the transaction would close on April 25, 2014. This transaction will not include Chennai facility which was freezed by the Income tax department, that has slashed a Rs 21,000 crore tax notice on Nokia. The Department refused to allow transfer of the plant till the dues claimed by the department are not remitted by the company. The matter is now at the Apex Court.
Nokia is also facing a similar dispute with Tamil Nadu Government's sales tax department, which issued a Rs 2,400 crore tax notice. The matter was argued at the Madras High Court last week and the Court has reserved its order for April 29.
Meanwhile, a source said that how long the service agreement would continue is a big question, which is remain unaswered, because handsets is a high-technology business and as Nokia has decided to exit the sector, the factory will be left with no technology support.
Nokia Chairman and Interim CEO Risto Siilasmaa earlier said if the company is not allowed to transfer the factory to Microsoft it will not have a business and if it doesn’t have a business, it can’t manufacture anything in the factory.
The facility has around 8,000 direct and another 20,000-25,000 employees. Over 5,000 of the total direct employees are women.
The company has offered Voluntary Retirement Scheme for the employees, starting from April 15 for a month. The Nokia India Employees Union (NIEU) has opposed the scheme and demanded the management should ensure the plant to be transferred to Microsoft. However, almost the entire trainees numbered around 700, are opting for the scheme. The Union claims that the trainees has no other go, but to accept the Scheme since the company their contract will not be renewed after the training period.
The Union, on Monday, has started hunger strike while continuing the production process, to mark their protest. "We are worried of the situation. The management is not giving us proper reply on the fate of the factory or the job security of the workers," said M Saravana Kumar, president of the Union earlier.
Facts about Nokia's Sriperumbudur factory
Company name: Nokia India
Year of incorporation: 1995
Investment in India: Nokia Finland made an initial investment of Rs 35.6 crore in Nokia India starting in 1996 and has increased to Rs 1,858.95 crore which includes production, work paid resources and parked assets
Number of employees: around 8,000 (50 % of are women) directly & another 25,000 indirectly
Turonver/sales: During the period 2005-06 to 2011-12, it had cumulative turnover/sales of Rs 150700.44 crore.
Number of mobile phone produced: Till March 2014, around 800 million units
Plant's significance: About 50% of Nokia handsets were manufactured in India and 40%/50% of the production was exported
Source: Delhi High Court's Order in December, 2013