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Is This Smartphone Giant Still Connecting?

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Within six months of axing 7,000 employees, Nokia (NYSE: NOK  ) slashed another 3,500 jobs. What does this signify? Red alert, of course.

The frequency of job cuts at Nokia is a major cause of concern for investors. Nokia has been losing market share in the smartphone segment for the past few years, which has forced the company to cut costs and move manufacturing units closer to its primary markets.

Timeline of the job cuts
Earlier this year, in April 2011, Nokia announced its plan to axe about 7,000 employees worldwide in order to reduce its costs by $1.43 billion. This move included laying off about 4,000 employees and transferring the remaining 3,000 to its software partner Accenture (NYSE: ACN  ) .

And now, within six months of this announcement, the Finnish mobile maker has announced plans to cut 3,500 more jobs by 2012. The recent move is the result of the closure of three of its manufacturing plants -- a step taken to reduce costs and realign its business strategies to compete with smartphone makers like Apple and Android OS provider Google.

Out of the total 3,500 job cuts announced on Sept. 29, 2011, about 2,200 workers have been laid off due to the change in location of its manufacturing plant in Cluj, Romania. According to Nokia, moving the plant from Romania to Asia will provide greater scale and proximity benefits. Cheaper labor and reduced transportation costs will invariably result in an increase in production and better productivity. Apparently, the Cluj plant was opened in 2008 for the very same reason; it is being shut now. Nokia will later shut down operations of its facilities in Bonn, Germany, and Malvern, Pennsylvania, which will make another 1,300 employees jobless.

Unfruitful efforts
In February 2011, Nokia entered into an agreement with Microsoft (Nasdaq: MSFT  ) , according to which Nokia will develop its next generation of smartphones using Windows Phone 7 OS, dumping its age-old partner Symbian. While many analysts are still not optimistic about the upgrade, the move was essential for Nokia, as its Symbian platform failed to compete with iOS and Android. The first Windows phone is expected to be released soon in the U.S. However, it would have to be an extraordinary phone if Nokia is to regain the market share lost to the iPhone and other smartphone offerings.

Furthermore, both Nokia and Siemens (NYSE: SI  ) plan to inject capital of $680 million each into their joint venture, Nokia Siemens Network, in an effort to turn around the loss-making unit. The joint venture has not made profits in any of the quarters except one since its inception in April 2007. This inflow of fresh capital will strengthen the venture's financial position, setting the stage for research, innovation, and marketing. However, for Nokia, it means spending more at a time when it is striving to cut costs.

Even if Nokia claims that these steps will perk up its financial position, investors see no reason to stay invested in this company. The number of job cuts clearly represents the weakening financials of the company and its increasing worries over stiff competition in the smartphone sector. It might soon review certain manufacturing facilities in Finland, Mexico, and Hungary.

Fool's take
The company has not been performing well in the past few quarters, nor has its stock managed to attract investors. Shares have shed around 40% of their value in 2011. Share price recently reached the new low of $5, and is now hovering around $6, showing just how reluctant investors are to invest in this company.

I think it makes more sense to stay away from this stock, at least until it comes up with a robust plan to recover. If you're looking for other ways to profit from the mobile revolution, I invite you to check out The Motley Fool's special report "3 Hidden Winners of the iPhone, iPad, and Android Revolution." Simply click here to download it for free.

Fool contributor Vibhuti Shah does not own any shares of any of the companies mentioned in the article. The Motley Fool owns shares of Microsoft, Google, and Apple. Motley Fool newsletter services have recommended buying shares of Accenture, Apple, Microsoft, and Google. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.                                                                                                    

Read/Post Comments (6) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 01, 2011, at 10:37 AM, kimsky5 wrote:

    This article is dated December 1st 2011 and yet it states:

    'The first Windows phone is expected to be released soon'

    How behind the times is that ??????

    The Lumina 800 is doing well in the UK and the other European markets where it has been released so the writer of this ''review'' must be living somewhere the Internet has yet to reach.

  • Report this Comment On December 01, 2011, at 11:25 AM, ramaus wrote:

    "NOK...slashed another 3,500 jobs. What does this signify? Red alert, of course. . .Out of the total 3,500 job cuts announced on Sept. 29, 2011"

    I thought I came to this article for news, not for history. What a waste.

  • Report this Comment On December 01, 2011, at 11:37 AM, kimsky5 wrote:

    Yeah... breaking news, the Eurozone is in trouble...


  • Report this Comment On December 01, 2011, at 12:43 PM, ajaykc wrote:

    Didn't he mention iPhone and iPad revolution. Nobody is buying his crap what he bought at $420 and now below $400. Another apple fanboy bashing Nokia for a reason...keep it up.

  • Report this Comment On December 01, 2011, at 12:54 PM, techy46 wrote:

    Smart phone and tablet costs and revenue are going to comecrashing down in 2012-13 and Nokia is positioning itself to eliminate software costs and leverage Microsoft's huge developer base. Hopefully they can gain 20-25% market share at 25-30% drop in costs. How will that work out for Apple and others?

  • Report this Comment On December 03, 2011, at 11:58 PM, melegross wrote:

    Good luck to Nokia. It will need it!

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