Nokia share plummet 15% on major shake-up announcement

Krystal Peak · June 14, 2012 · Short URL:

Struggling Nokia makes a dozen changes to its business from sales to acquisitions, still in trouble

Nokia has announced some serious, and diverse changes to its mobile phone business Thursday. The Finnish company is cutting some 10,000 jobs, closing factories and other facilities, shifting its management team, selling off its luxury phone company Vertu and buying Scalado. Geesh, I'm exhausted just writing about it. 

If that isn't enough, the company also warned investors that its loss in the second quarter would be higher than it previously forecast. It wasn't surprising that Nokia shares (NYSE:NOK) plunged 15% following the announcement to a low $2.32.

Nokia has had a rough go for the last two years as higher end smart phones from Apple taking a lion's share of the high-end market and Google Android phones appealing to the price-conscious. 

Nokia's Chief Executive Stephen Elop said Nokia's transition to a new phone software is taking longer than he initially thought and he stressed that all the changes under way are vital for the company's future.

The 10,000 job cuts are aimed to help Nokia reduce costs by a further €1.6 billion ($2 billion) by 2013 and are on top the 14,000 job losses announced last year.

Nokia will also close one research and development site in Germany, and another in Canada but will leave the R&D team in Salo, Finland. 

Nokia also dropped a number of executives on its payroll including  head of markets and sales Niclas Savander, mobile phones head Mary McDowell, and the recently appointed chief marketing officer Jerri DeVard. Each of these executives will be out of the company by month's end.

The fledgling Nokia held €4.87 billion in net cash by the end of the first quarter this year, down €709 million from the end of the fourth quarter and down 24% from the same time last year.

All of these factors came into play when Nokia started shopping around for a buyer of its luxury phone brand Vertu earlier this year. Today Nokia said it has sold its independently run Vertu luxury handset business to private-equity firm EQT for an undisclosed sum. 

And, while the financial terms are not being disclosed, Nokia snapped up the enhanced imaging service Scalado. But there seems to be a small chink in this deal -- it's not buying the company outright. This could be some legality nuance since Scalado has contracts with HTC and RIM but I'm sure Nokia will clarify the purchase soon. Scalado will continue operating in Lund, Sweden.

The updated Nokia statement clarified that: 

"Nokia is not acquiring Scalado AB, which will continue to exist. All present customer agreements and obligations will remain with Scalado AB. The main task of Scalado AB will be to continue to work with its customers honoring existing delivery and support obligations and fulfilling any and all obligations in relation to its existing customers. It will not be seeking new work with existing or new customers.

What Nokia is acquiring is all of Scalado's technologies and IP, along with 50-60 talented mobile imaging specialists from Scalado; they'll remain in Lund which will become a key site for us in mobile imaging, alongside Espoo and Tampere in Finland. This will enable Nokia to expand beyond capturing just images to capturing moments and emotions that can be relived in many different ways. We look forward to welcoming the team to Nokia when the transaction closes, expected in Q3."

The Lund site is planned to become a key site for Nokia's imaging software for smartphones, in addition to Nokia's existing locations in Espoo and Tampere, Finland.

"This is a great opportunity for many of our people to show their leadership in imaging and to continue to build its future," said Håkan Persson, chief executive officer of Scalado AB. "Doing this as part of Nokia, already a leader in mobile imaging, will reinforce the strength of the technologies and competences developed at Scalado. We are very excited about this opportunity, which is a natural next step in our longstanding relationship with Nokia."

The transaction, which is subject to customary closing conditions, is expected to close during the third quarter of 2012. 



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