In order to lower its operating cost as well as to generate savings of at least €1.6 billion by the end of fiscal 2013, Nokia Corporation (NOK) has taken a few cost cutting measures.
As a part of its cost cutting initiatives, Nokia plans to lay off 10,000 employees. The company also intends to shut down its production and research and development unit. It will also divest its 90% stake in premium handset developing unit Vertu. Further, the company also restructured its top level management to execute the laid down objectives in a more effective manner.
Nokia is currently facing a huge cash crunch. Cash flow from operations dropped 76.2% in 2011 from the previous year. Stiff competition from Apple Inc’.s (AAPL) iPhones and Google Inc’.s (GOOG) Andriod phones have hampered sales over the last few years. Moreover, mounting operating expenses has forced the company to lay-off at least 14,500 employees (exclusive of the recent job cut) over last 15 months.
In February 2012, the company slashed 4,000 staff. This is now the highest lay-off since April 2011 when the company laid off 7,000 workers.
Nokia will also shut down its oldest production division in Salo, Finland. Additionally, the company will also terminate its research and development unit in Ulm, Germany, and Burnaby, British Columbia. The company remains hopeful of its revival by means of downsizing of plants and shutting down of research and development facilities.
In order to address its present cash constraints, Nokia continues to dispense with most of its non-performing business units. Over the past one year, the company sold Vertu, quit commercial licensing, its services business and also an instant messaging service division. Moreover, the company also possesses huge patent portfolios for handsets.
We believe that to meet its immediate cash needs, the company will continue to sell off its patents and dispose its non-performing business units until its newly launched Nokia Lumia series of smartphones succeeds in driving sales and gains a significant share in the smartphone market.
Currently, Nokia has a Zacks #3 Rank, implying a short-term Hold rating on the stock.
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