Nokia closes big factory in Romania, moves production to Asia

A 'manufacturing capacity reduction', as corp-speak might have it, was always going to be a consequence of the Elop Windows strategy (indeed, of any strategy to get Nokia to a viable next generation smartphone platform) because of the sales hiatus between the ditching of Symbian and the arrival of Nokia's Windows.

 

Better management and PR might have eased the transition and shallowed out the dip, of course, but as things stand Nokia's catastrophic sales decline clearly demands a cut in manufacturing capacity  if and until Nokia climbs back up the slope to claim a significant share of the global smartphone market.

And that's what Nokia has started to do with this announcement. 

The 3,500 job cuts, which represents 6 per cent of the global Nokia workforce, result from the closing of a factory in Romania.  Nokia says that work will be transferred to more efficient (cheaper) plants in Asia.

Nokia already announced a 12 per cent cuts programme in April, initiated soon after its tie-up with Microsoft was announced.  Since then the company has seen its share price halve as it announced the ditching of Symbian and then suffered a huge loss in the second quarter as sales consequently collapsed and it slashed prices to clear its inventory (who wants to buy an obsolete smartphone?)

And not just smartphone sales either  -  Nokia's entire line-up seemed to suffer by association, with the company experiencing a price squeeze on its low-end phone products as competition bit. According to Gartner's latest figures, in Q2 last year Nokia still held a commanding 30.3 per cent share of the total global market for mobile phones; but by Q2 this year, that had slipped way down to 22 per cent and the gainers were not the close competitors like Samsung and LG (who also slipped slightly) but the likes of ZTE, Huawei and HTC.  The biggest gainers, according to Gartner, were the 'Others' who increased their share from 28 per cent to nearly 36 per cent. This is a market that is opening up to let new players in.

Clearly then, Nokia needed to restructure its entire operation and trim a lot of the accumulated fat if it was to compete with low-cost Asian manufacturers.

The Romanian Cluj-Napoca plant which is to close in fact produces low-end phones, not smartphones, and Elop says this production will be transfered to China and South Korea.

The latest cuts, of course, come on top of cuts already announced and ongoing through to the end of 2012. In all, Nokia says it intends to slash the 9, 000 workforce by 18 per cent through next year - so there's more pain to come.

Meanwhile, one window closes and another opens...   observers think there's a good chance that Nokia will announce its first 'Mango' phones at its investor conference in  London on October 26, just in time for the holiday gift season.  With Apple also poised to launch smartphones, the landscape may look very different in about four weeks' time.