Nokia cuts 10,000 more jobs as losses deepen
PARIS (Reuters) - Nokia plans to cut 10,000 more jobs, bringing the total to one in three staff, as it loses market share to cellphone rivals Apple and Samsung and burns through cash, raising new fears over its future.
In a second profit warning in nine weeks, Nokia said on Thursday that its phone business would post a deeper-than-expected loss in the second quarter due to tougher competition, which it expected to continue.
Once the world's dominant mobile phone provider, Nokia was wrongfooted by the rise of smartphones and is struggling to keep up with Apple, Samsung and Google. It is also losing market share in cheaper, more basic phones.
Chief Executive Stephen Elop is placing hopes of a turnaround on a new range of smartphones called Lumia, which use largely untried Microsoft Corp software. But Lumia sales have so far been slow, exasperating investors who have seen its stock crash more than 70 percent since it announced the software switch in February 2011.
"The job cuts and profit warning underline the seriousness of the challenges Nokia is facing, particularly in light of the eye-watering competition from Apple and Samsung," said Ben Wood, head of research at CCS Insight.
Nokia, whose cash position is increasingly scrutinized by investors, also said restructuring-related cash outflows would be around 650 million euros in the remaining three quarters of 2012 and around 600 million in 2013.
With the cost of Nokia's debt rising, the most bearish of analysts in a Reuters poll last month said the company could even be at risk of default if it fails to slow its cash burn.
Over the past five quarters, the onetime darling of mobile telcoms has eroded its cash pile by 2.1 billion euros - a rate that would wipe out its entire 4.9 billion reserves in a couple of years.
Analysts at JP Morgan said on Thursday they expect operating losses, combined with restructuring outflows, to leave Nokia with 1.63 billion euros cash at the end of next year.
"This is not a comfort zone for a company as large as Nokia," the analysts said.
Nokia's five-year credit default swaps (CDS) were at a new all-time high of 933 basis points on Thursday according to Markit. This means it costs $933,000 annually to buy $10 million of protection against a Nokia default using a five-year CDS contract and implies a default probability of 55 percent.
Bernstein analyst Pierre Ferragu said he expects the company to have minimal net cash position at the end of its restructuring.
"We therefore see continued potential downside to the recent stock price and maintain our underperform rating," Ferragu said.
Shares in Nokia were down 16 percent to 1.87 euros, below the psychologically important 2 euros mark, not seen since 1996.
Analysts have said that even with the dramatic fall in the share price, the worsening outlook made it hard to judge how much lower the shares could go.
"I won't comment on the stock price anymore, since it's been seen over and over, that there is no definitive bottom," said Evli analyst Mikko Ervasti.
"People are worried over Lumia sales. I think expectations for the third quarter will be cut," said Nordea analyst Sami Sarkamies.
The 10,000 job cuts, which include the closure of Nokia's only plant in its homeland Finland, bring total planned cuts at the group since Elop took over as chief executive in 2010 to more than 40,000 staff, or every third worker.
Of the latest job cuts, 3,700 will take place in Finland, where the firm will also close its plant in Salo - the last major cellphone manufacturing site in western Europe, the cradle of the global industry.
"This is a major blow. This is due to the operational mistakes made already during the previous CEOs. Maybe the signs of success are running low for Elop too," said Antti Rinne, chairman of labor union Pro.
Nokia said it expects its operating margin in the second quarter to be below the negative 3 percent level reported in the first quarter due to pressure on its smartphone business. It previously forecast it would be similar to or below that level.
On average analysts forecast the second-quarter phone unit margin to be at -4.6 percent, narrowing to -2.2 percent in the third quarter.
Nokia also said it would sell luxury phone business Vertu to venture firm EQT and revamp its management team. ($1 = 0.7953 euros)
(Additional reporting by Eero Vassinen and Terhi Kinnunen in Helsinki; Editing by Erica Billingham)
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