Nokia Corporation (NOK), the world’s largest mobile phone maker, recently announced its decision to reduce its staff strength by 3,500 by the end of 2012, consistent with its cost-control initiative. Such job cuts on the company’s part comes on the back of the closure of its Romanian plant.
In recent times, Nokia delivered poor financial results falling short of the expectation The company continued to loose market share mainly due to stiff competition from Google Inc’s (GOOG) Android-based smartphones and Apple Inc’s (AAPL) iPhones. Moreover, the company also lacks a superior smartphone line up, which is also a concern for Nokia.
So, we believe that in order to minimize its loss, Nokia is currently focusing on reduction of workforce. According to management, the recent layoff will result in a reduction of operating expense by $1.5 billion.
Earlier, the company laid off 7,000 employees and brought upon significant criticism. We believe such layoffs are temporary solutions and will have minimal impact on the company’s bottom line.
However, Nokia’s historic decision to adopt Microsoft Corporation’s (MSFT) Windows Phone 7 software for all its forthcoming smartphones is expected to be the only silver lining amidst its present woes. Moreover, Nokia’s recent lawsuit settlement with Apple coupled with low-end dual-sim product launch will act as positive catalysts for the stock going forward.
We, thus, maintain our long-term Neutral recommendation for Nokia. Currently, Nokia has a Zacks #3 Rank, implying a short-term Hold rating on the stock.
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