Nokia pullback to cost subcontractors $5 billion: iSuppli

HELSINKI Fri Mar 27, 2009 5:52pm EDT

The corporate logo hangs on a wall at Nokia world headquarters in Helsinki, July 9, 2008. REUTERS/Bob Strong

The corporate logo hangs on a wall at Nokia world headquarters in Helsinki, July 9, 2008.

Credit: Reuters/Bob Strong

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HELSINKI (Reuters) - Nokia's (NOK1V.HE) pull-back from using subcontractors in phone-making will shed more than $5 billion in revenue from electronics contract manufacturers, research firm iSuppli said on Friday.

The world's top cellphone maker Nokia said on Thursday it has fully stopped using subcontractors in manufacturing of its mobile phone engines, which include the phone and software that enable its basic operations.

"This announcement clearly illustrates just how severe the situation in the mobile handset market really is," iSuppli analyst Adam Pick said in a statement.

The overall cellphone market is expected to contract by about 10 percent this year, hurt as consumers rein in spending and handset sellers try to clear out unsold phones.

Due to Nokia's decision, iSuppli said it would cut its view for the electronics subcontracting market, which it has earlier forecast to shrink 10 percent in 2009 to $270.8 billion.

In 2008, Nokia outsourced about 17 percent of the manufacturing volume of its mobile phone engines, which include the phone and software that enable its basic operations.

Nokia's key subcontractors have been Foxconn (2038.HK), China's BYD (1211.HK), Jabil Circuit (JBL.N) and Elcoteq ELQAV.HE.

Nokia has not decided to stop using outsourcing for good, said a spokeswoman for Nokia, adding that the firm decides on a continuous basis on the need for outsourcing based on demand an own capacity available.

Nokia said in January it aimed to cut annual costs at its key handset unit alone by more than 700 million euros to counter plunging demand.

(Reporting by Tarmo Virki; Editing by Gary Hill)

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