UPDATE 5-Nokia to cut 3,500 jobs, close Romania plant

Thu Sep 29, 2011 10:01am EDT

* To close Romania plant with 2,200 staff cuts

* To cut 1,300 jobs in Location & Commerce unit

* Flags cuts at Finland, Mexico, Hungary plants in 2012

* Jesper Ovesen to replace Kallasvuo as chairman of NSN

* Nokia and Siemens inject 500 mln euros each in NSN (Adds comments from Romania president and analyst, details on NSN)

By Tarmo Virki, European Technology Correspondent

HELSINKI, Sept 29 (Reuters) - Nokia Oyj , the world's largest cellphone vendor by volume, is cutting 3,500 jobs in its second major restructuring in six months as it struggles with falling sales and profits.

Chief Executive Stephen Elop, who took over at Nokia a year ago, unveiled the plan on Thursday which includes a factory closure and a new executive chairman for telecom gear joint venture Nokia Siemens Networks .

The company said it would close the Cluj plant in Romania which opened just four years ago and manufactured more simple cellphone models, leading to 2,200 job losses.

"Just as I received with satisfaction the news of Nokia investing in Romania ... we must accept that such type of investment carries the risk that we've seen today," Romanian President Traian Basescu told reporters.

The plant's turnover was comparable to 1.3 percent of Romania's GDP last year, but eastern European investment group Avaron said due to large component flows the value created at the plant was only around 0.25 percent of GDP.

Nokia said a further 1,300 jobs would be cut at its Location & Commerce business unit, which includes the world's largest digital mapping business Navteq.

Nokia said it was also evaluating the future of its plants in Finland, Mexico and Hungary and this would result in job cuts next year.

"Nokia is a rather bloated company and it undoubtedly needs to continue to make tough decisions to streamline its business to make it more agile and able to react to a rapidly changing market," said analyst Tim Shepherd at research firm Canalys.

The latest redundancies come on top of cost cut plans set out in April, which included laying off 4,000 staff. Thursday's cuts are included in Nokia's savings target of more than 1 billion euros, which was unveiled in July.

"This is very shocking. As if they had no policy at all in human resources, only lay-off talks rolling all the time. I wonder how people can work there, how people can focus at all," Pertti Porokari, chairman of the Finnish engineers' union said.

TOUGH YEAR

Nokia has struggled with falling sales and profits after the group said in February it would switch to Microsoft Corp software for its smartphones, but the first of these models will reach the market only later this year.

"We are seeing solid progress against our strategy, and with these planned changes we will emerge as a more dynamic, nimble and efficient challenger," Elop, Nokia's first foreign chief executive, said in a statement.

Nokia shares has halved since it announced the Microsoft deal on worries the group will lose so much market share before the new phones come out that it might never make up lost ground.

Nokia's quarterly phone sales to end-June dropped 20 percent at a time when the market grew 10 percent, and its 15-year reign at the top of the smartphone market ended as both Apple Inc and Samsung Electronics surpassed it.

"Now the volume has come down, clearly Nokia is looking for new saving targets," said analyst Jari Honko from Swedbank in Helsinki. "I hope this extensive review does not mean that Nokia has lost so much scale that in-house production will no longer be competitive. It has been the most important strengths of Nokia."

The shares were 1.7 percent higher at 4.25 euros by 1317 GMT, outperforming a flat sector.

Separately, Nokia supplier Digia said it was cutting 250 jobs or 22 percent of its Finnish staff.

Nokia also said it and Siemens AG (SIEGn.DE) will both inject 500 million euros ($680 million) into their 50:50 telecom gear joint venture Nokia Siemens Networks (NSN) to strengthen its financial position.

Jesper Ovesen would take over as executive chairman of NSN, replacing former Nokia CEO Olli-Pekka Kallasvuo.

Ovesen, 54, has worked as chief financial officer at many top Danish firms. He helped turn Lego around during his spell as CFO of the toy group in 2003-2007 and took telecoms operator TDC public late last year.

"We view the 500 million euros capital injection as negative for Nokia given that they are losing share in handsets currently and profitability of Devices and Services has declined substantially to just about break-even," said analysts at JP Morgan Cazenove in a note.

Siemens and Nokia would like to take NSN public at some point, but the company has struggled to report profits, battling against rivals Huawei and Ericsson (ERICb.ST). ($1=0.735 Euros) (Additional Reporting by Terhi Kinnunen and Jussi Rosendahl in Helsinki, Radu Marinas and Luiza Ilie in Bucharest; Editing by David Holmes and Elaine Hardcastle)

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