After years of strong growth and overwhelming domination of the mobile handset market, Nokia Corp. is entering unknown territory as its core product segment matures, leaving it to reorganize and transform operations in the midst of a sweeping recession. Although the company remains a strong competitor in all of its business segments—including the wireless infrastructure market, where it has a joint venture with Siemens AG—the reorganization plans announced in recent months indicate Nokia is feeling the heat from the global economic meltdown.
Its future now hangs on how well, and how quickly, president and CEO Olli-Pekka Kallasvuo can reduce operating costs, arrest margin erosion and fend off rivals, even as he works to transform the company into a total connectivity solutions provider. Nokia’s employees might cringe to hear it, but the latest round of job cuts likely won’t be the last. Analysts expect Nokia will need to take further steps to improve its operating position, which means its employees should get ready to say goodbye to more than the 1,700 co-workers who will lose their jobs as a result of the just-announced cut.
The math is simple. Nokia had approximately 126,000 employees at the end of 2008, up 12 percent from 2007 and 84 percent from 2006. While a major part of the payroll increase was due to acquisitions and the merger of its communications equipment business with a Siemens unit, Nokia’s current workforce was built to support a fast-growing sales base, rather than the declining market the company now faces.
Nokia estimates total worldwide mobile handset shipments will decline about 10 percent in 2009 from 1. 2 billion units in 2008, but even this gloomy forecast may be too optimistic if the economy fails to pick up in the second half. If a worst-case scenario develops, Nokia may have to slash costs even more than already announced, according to analysts.