Nokia, the struggling market leader in mobile phones, said on Thursday that it intended to cut costs by nearly 20 per cent over three years, a move that will most likely eliminate thousands of jobs as it enters an alliance with Microsoft.
The company, based in Espoo, Finland, said it planned to reduce annual operating expenses in its core devices and services business by euro 1 billion, or $1.44 billion, to euro 4.65 billion, or $6.72 billion, by the end of 2013.
“This reduction is expected to come from a variety of different sources and initiatives,” the company said, “including a reduction in the number of employees and normal personnel attrition, a reduction in the use of outsourced professionals, reductions in facility costs, and various improvements in efficiencies.”
Stephen Elop, the Microsoft executive whom Nokia hired to be chief executive last September, said the company would begin negotiations with its work force in Finland and elsewhere next week. Before those talks, Elop said, Nokia will not speculate on the number of jobs it may eventually cut.
“Speculation on the exact numbers and the timing of those numbers is best postponed until we discuss this with” worker representatives, Elop said in a conference call with financial analysts.
Some employees will be able to move into other jobs with Nokia, Elop said, and Nokia may have openings as a result of its partnership with Microsoft. Because of those opportunities, Nokia said it could guarantee employment to its existing employees through this year.
Nokia also confirmed that it had signed its agreement with Microsoft to obtain the Windows operating system for Nokia’s smartphones. The two companies announced the partnership on February 11. Since then, Nokia’s stock price has fallen by about a third.
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The cost-cutting initiative came as Nokia lost its lead in cellphone revenue to Apple, the research firm Strategy Analytics said on Thursday, according to Reuters.
Nokia’s phone revenue fell to $9.4 billion in the last quarter, while Apple’s revenue from the iPhone increased to $11.9 billion, the research firm said.
“With strong volumes and high wholesale prices, the PC vendor has successfully captured revenue leadership of the total handset market in less than four years,” Alex Spektor, an analyst, said.
Nokia also reported Thursday that its profit fell slightly, to euro 344 million ($497 million) in the first quarter from euro 349 million ($504 million) in the period a year earlier.
Sales rose 9.2 per cent, to euro 10.4 billion ($15.0 billion), in large part because of gains in Latin America and China, where Nokia’s sales rose 29 per cent and 30 per cent respectively. Sales in North America fell 36 per cent, and sales in Europe fell five per cent.
Nokia said its sales of smartphones rose 13 per cent in the quarter, to 24.2 million units from 21.5 million. The market grew 74 per cent over all during the same time, Francisco Jeronimo, an analyst with the International Data Corporation in London, said.
On top of that, the average selling price fell six per cent in the same period, to euro 147 rom euro 155 a year earlier, Nokia said.
The company said it had sold 108.5 million cellphones of all types during the quarter, 1 per cent more than a year ago. Yet its global share of the cellphone market fell to 32 per cent from 34 per cent a year ago, according to IDC.
Mikko Ervasti, an analyst at Evli Bank, a private bank in Helsinki, said the cuts in operating expenses were needed to bring Nokia in line with its cellphone peers, like Apple, which on average spend only half on research and development.
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