It is 'succeed or die' for Nokia,
observers say
By Dennis Mitzner | AFP – Sun, Jun 17, 2012 06:28 BST
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Nokia (Stockholm: NOKI-SEK.ST - news)
's surprise announcement of massive new spending cuts and 10,000 more layoffs
had observers cautioning the beleaguered mobile phone giant is at a crossroads
that will determine if it sinks or swims.
Nokia, which only recently lost the world number one ranking
it had held for 14 years, dramatically changed its strategy a year and a half
ago when the then new chief executive, Stephen Elop, warned it was
"standing on a burning platform" and needed to immediately shift
course.
But after the company on Thursday suddenly said new big
spending cuts and another 10,000 job cuts would be needed on top of the some
12,000 layoffs already announced since the shift, some observers said the
company appeared to be slowly committing suicide.
"Nokia jumped from a burning oil platform and sank like
a stone," the STT news agency said, summing up Thursday's announcement.
The Finnish company's new strategy involved phasing out its
Symbian smartphones in favour of a partnership with Microsoft (NasdaqGS: MSFT - news)
.
That alliance has produced a first line of Lumia
smartphones, which Nokia is counting on to help it survive in a rapidly
changing landscape marked by stiff competition from RiM's Blackberry, Apple
(NasdaqGS: AAPL - news)
's iPhone and handsets running Google (NasdaqGS: GOOG - news)
's Android platform.
"I believe it was the wrong strategy from the
beginning," Andalys Oy analyst Ari Hakkarainen told AFP, stressing though
that now that Nokia had shifted course it was too late to turn the tanker
around.
"They have chosen this strategy and they have invested
everything that Nokia has in the new strategy. Basically, they must succeed or
die," he said.
"They are at a crossroads," agreed Pohjola Bank
analyst Hannu Rauhala, adding that it was hard to predict Nokia's future since
"the visibility of the business is very poor."
The company, which in 2008 enjoyed more than 40 percent of
the global mobile phone market, was already struggling to maintain its leading
position when it entered the Microsoft partnership.
Since that deal it has been bumped by Samsung as king on the
hill and reportedly has just around 20 percent market share.
"Nokia took a calculated risk and they knew that (the
shift) would be very painful and that Nokia would lose market share in the
short term, but in the long term of course, they have the reasoning that Nokia
will bounce back," Hakkarainen said.
The company's announcement Thursday that it would implement
an additional 1.6 billion euros ($2.0 billion) in cost cuts by the end of 2013,
shutting down factories in Germany, Canada and Finland and letting go 10,000
more employees was meanwhile taken as a bad sign by many.
"Perhaps they should have enacted these reforms
earlier. Investors who are looking for long-term profit are not convinced that
Nokia is a company that can deliver in the future," Dividend House analyst
Arje Rimon told AFP.
Nokia's stock price plunged by as much as 16 percent
Thursday and on Friday, ratings agency Moody's downgraded the company's
long-term credit rating to junk status, following in the footsteps of Fitch and
Standard and Poor's.
"Today's rating action reflects our view that Nokia's
far-reaching restructuring plan ... delineates a scale of earnings pressure and
cash consumption that is larger than we had previously assumed," Moody's
said, adding though that it thought the restructuring was "positive and
necessary."
Analysts too were caught off guard by the scope of
Thursday's announcement.
"I thought it would be smaller... This shows the market
situation is worse than we thought," Rauhala said.
Many observers meanwhile applauded Nokia for its decision to
slim down in a bid to improve its competitiveness.
Juhani Risku, previously in charge of Nokia innovation, told
AFP he thought it was "an excellent move to make the company
smaller."
"Hopefully, it will make the company more competitive,
as it will have to sell fewer phones to cover its fixed costs," agreed
Nomura Securities analyst Richard Windsor.
At the end of March, Nokia counted 122,148 employees
worldwide, including the nearly 70,000 working for Nokia Siemens Network, but
those numbers do not take into account the tens of thousands of layoffs
announced but not yet put into effect.
As Nokia continues to trim down and in light of its share
price -- which since Elop announced the strategy shift has fallen from above
8.0 euros to below 2.0 euros -- has meanwhile made the company a prime takeover
target, observers say.
"That's certainly possible," Rauhala said,
mentioning Samsung, Microsoft and Facebook as names circulating as potential
buyers.
"Nokia has many interesting assets (and) its brand is
still very good," he said.
According to Andalys Oy analyst Hakkarainen, however, the
company's brand might be so strong that it would frighten off its direct
competitors, which might not want to pay the price for another brand or want
the hassle with regulators.
"But if I was an Asian, or let's say a Chinese
manufacturer, I would be very interested," he told AFP.
TILL THE END!
Nokia is my dream
mobile. I did reach there and owned two. I am still using the last. I am also
proud to have used the one in ‘X-Files’! With an impressive history,
achievement and mobile user-friendliness, it is very sad to read such negative
news ToT My heart and loyalty still goes out to Nokia and pray that they pull
through stronger. As with the present system, ‘majority rules regardless of
consciousnesses'. That being written, my loyalty is my satisfaction that I am
doing the right thing. I was with Nokia when they were growing and up. I shall
be with them till the end!!! To hell with all other mobiles!!!
Bibliography
Reference
Cited
IT
IS ‘SUCCEED OR DIE’ FOR NOKIA, OBSERVERS SAY (2012) [Online] Yahoo! Available
from:
[Accessed:
19 JUN 2012]
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