Nokia Corp. said on January 15 2008 it may slash as many as 2,300 manufacturing jobs in Germany as it moves production to lower-cost European countries such as Romania, according to The Wall Street Journal.
The world's largest maker of mobile phones said the decision to close its production plant in Bochum, Germany, by mid-2008 was based on its lack of competitiveness. It stressed the move was "tough" but "necessary" to secure Nokia's long-term position.
"Due to market changes and increasing requirements for cost-effectiveness, production of mobile devices in Germany is no longer feasible. ... [Bochum] cannot be operated in a way that meets requirements for global cost efficiency and for flexible capacity growth," said Veli Sundback, chairman of the supervisory board of Nokia GmbH.
The Finland-based company, which started manufacturing phones at Bochum in 1989, said it will start consultations with employee representatives as soon as possible. Financial costs associated with the restructuring would be disclosed later in 2008, the company said.
Nokia currently produces phones at two other European plants -- one in Finland and a bigger one in Hungary -- and is ramping up production at a Romanian factory, with the first handsets expected to come in the first quarter. A spokeswoman for Nokia said much of the production currently done at Bochum will be moved to Romania.
Richard Windsor, analyst at Nomura International, said it makes sense for Nokia to shift production to lower-cost locations.
"They're a global company; they can produce phones wherever they want, but with the high wages and costs in Germany, it doesn't make a lot of sense to continue operations there," he said.
Also Tuesday, Nokia announced that it plans to sell its business that makes car kits and that it's in negotiations with Sasken Technologies over the sale of research-and development operations related to adaptation software located at Bochum.
The decision to shut down Bochum comes as Nokia holds an unprecedented position of strength, having bolstered its leading position in the mobile-phone industry over the last few quarters as Motorola Inc., its closest competitor, faltered.
The company, much admired in the industry for its execution, has managed over recent quarters to preserve its margins despite an increasing proportion of its sales coming from emerging markets, where people sometimes spend as little as $20 for a phone.
In the third quarter, Nokia posted a forecast-beating 85% jump in profit. Analysts at the time emphasized that the biggest surprise was the strength of the operating margin in the device division, which advanced to 22.6% from 13.1% a year earlier. The margin improvement came even as the average selling price of a Nokia phone continued to decline.
