Nokia announces job cuts of up to 10,000, sale of Vertu and Scalado acquisition

Alex Wagner
Editorial Director of News and Content from  Omaha, NE
| June 14, 2012

Nokia CEO Stephen Elop

Nokia made news this morning with a string of announcements that it explains are intended to aid in "sharpening its strategy, improving its operating model and returning the company to profitable growth." The first of the moves Nokia announced it plans to broaden its range of Lumia devices and helping to differentiate Windows Phone as a whole, and as part of those plans, it'll be acquiring Scalado. Scalado is a firm whose photography software was recently a part of the BlackBerry 10 demo at BlackBerry World 2012. During the demo, Scalado's tech allowed the user to rewind a portion of their image (say, when the subject had its eyes closed) to find a point in time during the photo-taking process that produced a more desirable result (when the subject had its eyes open). Another Scalado feature, dubbed Remove, lets the user remove a person from an image after it's taken.

During a conference call this morning to discuss Nokia's announcements, CEO Stephen Elop also said that Nokia plans to offer its Lumia handsets at lower prices in order to help it better compete against cheap Android phones. The exec said it "needs to compete with Android aggressively" and that Nokia will be able to do this thanks to support from Microsoft.

In other device-related Nokia announcements, the Finnish firm revealed that it plans to sell its luxury handset business Vertu to European private equity firm EQT VI. While exact details of the deal haven't been revealed, Nokia has said that it'll retain a 10 percent shareholding stake in Vertu. The sale is expected to close sometime in the second half of this year.

Nokia also made announcements regarding its employees and executives. The company said that it plans to "rescale" itself by making more reductions in its Devices and Services that'll ultimately see it shed up to 10,000 jobs globally by the end of 2013. Included in this job reduction effort will be the closing of facilities in Canada and Germany, the closure of a manufacturing facility in Finland, focusing of marketing and sales activities (including the prioritization of "key markets") and a decrease in "non-core assets."

Nokia's executive shuffle will see a number of employees appointed to new positions while others step down from their posts. Among the handful of new executive appointments, Nokia announced that Juha Putkiranta will become executive vice president of Operations, Timo Toikkanen will be EVP of Mobile Phones and Chris Weber (known for leading Nokia's U.S. efforts) will become EVP of Sales and Marketing. Meanwhile, CMO Jerri DeVard, EVP of Mobile Phones Mary McDowell and EVP of Markets Niklas Savander will all step down from their positions. Those three execs will fill advisory roles in Nokia during the transition period of their jobs.

All of these changes are clearly pretty big for Nokia, a company that hasn't exactly had a smooth go of things as of late. Whether or not these moves help Nokia turn things around remains to be seen, but it's obvious that Nokia and CEO Stephen Elop are willing to make big alterations to help the handset manufacturer succeed. One of the changes that users can look forward to is the inclusion of Scalado software in Lumia devices, which should make for an interesting addition when you consider that Nokia will also be bringing its PureView tech to its Lumia products. If you'd like to spend your morning reading further into Nokia's large list of changes, you can find the company's full announcement down below.


Nokia sharpens strategy and provides updates to its targets and outlook

Company announces targeted investments in key growth areas, operational changes and significantly increased cost reduction target

Company lowers Devices & Services outlook for the second quarter 2012

Nokia Corporation

Stock exchange release

June 14, 2012 at 9.30 (CET+1)

Espoo, Finland - Nokia today outlined a range of planned actions aimed at sharpening its strategy, improving its operating model and returning the company to profitable growth. While planning to significantly reduce its operating expenses, Nokia remains focused on the unique experiences offered by its smartphones and feature phones, including an increased emphasis on location-based services.

Nokia's strategy is about delivering great mobile products that sense the world. Nokia plans to:

- Invest strongly in products and experiences that make Lumia smartphones stand out and available to more consumers;

- Invest in location-based services as an area of competitive differentiation for Nokia products and extend its location-based platform to new industries; and

- Improve the competitiveness and profitability of its feature phone business.

To execute this strategy, Nokia is making changes to its management team by tapping into the strong leadership bench at the company.

To support this period of transition, Nokia intends to improve its operating model by significantly reducing its Device & Services operating expenses, substantially reducing its headcount and reducing its factory footprint. As a result, Nokia intends to return to sustainable non-IFRS operating profitability in Devices & Services as soon as possible.

"We are increasing our focus on the products and services that our consumers value most while continuing to invest in the innovation that has always defined Nokia," said Stephen Elop, Nokia president and CEO. "We intend to pursue an even more focused effort on Lumia, continued innovation around our feature phones, while placing increased emphasis on our location-based services. However, we must re-shape our operating model and ensure that we create a structure that can support our competitive ambitions."

Targeted investments

In Smart Devices, Nokia plans to extend its strategy by broadening the price range of Lumia and continuing to differentiate with the Windows Phone platform, new materials, new technologies and location-based services. In line with this strategy, Nokia today announced the planned acquisition of assets from Sweden-based Scalado, which currently has imaging technology on more than 1 billion devices. This acquisition is aimed at strengthening Nokia's imaging assets.

Nokia's location-based platform is expected to be another principal area of investment as Nokia plans to differentiate its portfolio of Lumia smartphones with leading location-based services including navigation and visual search applications such as the recently announced Nokia City Lens. Additionally, the company plans to extend its mapping technology to multiple industries to strengthen the platform and generate new revenue.

In Mobile Phones, Nokia intends to improve its competitiveness and profitability. Nokia aims to further develop its Series 40 and Series 30 devices, and invest in key feature phone technologies like the Nokia Browser, aiming to be the world's most data efficient mobile browser. Early results of this innovation can be found in Nokia's latest Asha feature phones which offer a full-touch screen experience at lower prices.

Operational changes and updated cost reduction target 

Balancing its investment priorities, Nokia plans to rescale the company by making additional reductions in Devices & Services. Nokia plans to pursue a range of planned measures including:

- Reductions within certain research and development projects, resulting in the planned closure of its facilities in Ulm, Germany and Burnaby, Canada;

- Consolidation of certain manufacturing operations, resulting in the planned closure of its manufacturing facility in Salo, Finland. Research and Development efforts in Salo to continue;

- Focusing of marketing and sales activities, including prioritizing key markets; 

- Streamlining of IT, corporate and support functions; and

- Reductions related to non-core assets, including possible divestments.

As a result of the planned changes announced today, Nokia plans to reduce up to 10,000 positions globally by the end of 2013. Nokia is beginning the process of engaging with employee representatives in accordance with country-specific legal requirements.

"These planned reductions are a difficult consequence of the intended actions we believe we must take to ensure Nokia's long-term competitive strength," added Elop. "We do not make plans that may impact our employees lightly, and as a company we will work tirelessly to ensure that those at risk are offered the support, options and advice necessary to find new opportunities."

Taking into account these planned measures the company now targets to reduce its Devices & Services non-IFRS operating expenses to an annualized run rate of approximately EUR 3.0 billion by the end of 2013. This is an update to Nokia's target to reduce Devices & Services non-IFRS operating expenses by more than EUR 1.0 billion for the full year 2013, compared to the full year 2010 Devices & Services non-IFRS operating expenses of EUR 5.35 billion. This means that in addition to the already achieved annualized run rate saving of approximately EUR 700 million at the end of first quarter 2012, the company targets to implement approximately EUR 1.6 billion of additional cost reductions by the end of 2013.

As part of these planned changes, Nokia will closely assess the future of certain non-core assets. In line with this, Nokia today announced plans to divest Vertu, its luxury mobile phones business to EQT VI, a European private equity firm. 

Renewed leadership team

Nokia also announced today in a separate press release a number of changes to its senior leadership. Nokia announced that it has appointed Juha Putkiranta as executive vice president of Operations; Timo Toikkanen as executive vice president of Mobile Phones; Chris Weber as executive vice president of Sales and Marketing; Tuula Rytila as senior vice president of Marketing and Chief Marketing Officer; and Susan Sheehan as senior vice president of Communications. Putkiranta, Toikkanen and Weber will join the Nokia Leadership Team effective July 1, 2012.

Jerri DeVard steps down as chief marketing officer; Mary McDowell steps down as executive vice president of Mobile Phones; and Niklas Savander steps down as executive vice president of Markets. DeVard, McDowell and Savander will all continue in advisory roles through the transition of their roles; however, they step down from the Nokia Leadership Team effective June 30, 2012.

Financial impact and outlook for Devices & Services

Nokia expects further charges of approximately EUR 1.0 billion relating to restructuring activities in Devices & Services by the end of 2013 in connection with its updated Devices & Services operating expense target. This is in addition to cumulative charges of approximately EUR 900 million recognized as of the end of first quarter 2012 in connection with previously announced restructuring activities. By the end of the first quarter 2012, Nokia had cumulative restructuring related cash outflows of approximately EUR 450 million. From the second quarter 2012 onwards, Nokia expects restructuring related cash outflows to be approximately EUR 650 million in 2012 and approximately EUR 600 million in 2013. Out of the total expected charges relating to restructuring activities of EUR 1.9 billion, Nokia expects non-cash charges to be approximately EUR 200 million.

These cost reduction measures are designed to return Nokia's Devices & Services business to sustainable non-IFRS operating profitability as soon as possible.

During the second quarter 2012, competitive industry dynamics are negatively affecting the Smart Devices business unit to a somewhat greater extent than previously expected. 

Furthermore, while visibility remains limited, Nokia expects competitive industry dynamics to continue to negatively impact Devices & Services in the third quarter 2012. Nokia now expects its 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%.

"Nokia is significantly increasing its cost reduction target for Devices & Services in support of the streamlined strategy announced today," said Timo Ihamuotila, executive vice president and CFO. "With these planned actions, we believe our Devices & Services business has a clear path to profitability. Nokia intends to maintain its strong financial position while proceeding aggressively with actions aimed at creating shareholder value."

Via MobileBurn