Nokia posts profit in Q1, forecasts 20% cost cuts over three years

To the surprise of many analysts, Nokia managed to report a €344 million profit for its first quarter as sales rose 9 per cent to €10.4 billion. The results were boosted by strong growth in China and Latin America, with operating margin at the critical handset unit being 9.8 per cent, compared to the 12.1 per cent 12 months earlier.

But the company was not shy about its prospects, and expected the second quarter to be "more challenging." It forecast that its handset unit would contribute sales of between €6.1 billion to €6.6 billion for the quarter, but with operating margins sliding even further to range between 6 and 9 per cent.

Nokia CEO Stephen Elop said the company has worked to mitigate supply chain disruptions related to the March disaster in Japan, but that the company's second-quarter outlook--which forecasts weaker sequential devices and services sales--reflects the ongoing turmoil related to the disaster. However, he said that by the third quarter he expects fewer disruptions. 

Nokia also said that it planned to cut its annual operating expenses within its core devices and services business by €1 billion to €4.65 billion by the end of 2013. The costs cuts, Nokia said, will "come from a variety of different sources and initiatives, including a reduction in the number of employees and normal personnel attrition, a reduction in the use of outsourced professionals, reductions in facility costs, and various improvements in efficiencies."

Commenting on this action, Elop declined to speculate on the number of jobs that might eventually be cut until the company had held talks with its labor representatives. Those talks are expected to take place this week. However, the planned cost cutting of nearly 20 per cent is thought to threaten the jobs of thousands of Nokia workers as it pushes forward with its Microsoft alliance--which has now been formally agreed.

Mikko Ervasti, an analyst at Evli Bank, a private bank in Helsinki, said that the cost reductions were required to bring Nokia's expenses in line with it rivals, which currently spend 50 per cent less on R&D than the Finnish vendor. This could, according to Ervasti, lead to a headcount reduction within R&D of 6,000 employees, or approximately 38 per cent of the total staff within Nokia's handset division.

"These cuts were needed and are in line with what the market was expecting," Ervasti told the New York Times. "This is a direct consequence of the Microsoft agreement, and Nokia's own need to trim expenses."

For more:
- see this NY Times article
- see this Marketwatch article
- see this Telegraph article

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