Nokia (NOK) shares are up 14 cents, or 2.6%, at $5.70, after the company this morning said it will “realign” itself, involving the cutting of 3,500 jobs in various facilities around the world.
The company plans to close its manufacturing plant in Cluj, Romania this year and may also shutter factories in Finland, Hungary, and Mexico, it said. Nokia also intends to close Bonn, Germany and Malvern, Arkansas, ffices that have been used for mapping applications. The company also said it appointed a new executive chairman to its money-losing Nokia Siemens Networks unit.
CEO Stephen Elop promised a “more dynamic, nimble and efficient challenger” as a result.
Michael Walkley with Canaccord Genuity this morning reiterates a Hold rating on Nokia shares. The moves are “the important changes CEO Stephen Elop is helping implement in order to make Nokia more competitive longer term,” especially the company’s decision to cut the Romanian plant where it now makes “feature phones,” which are fast going the way of the buggy whip.
Walkley thinks the company will probably cut further next year as it winds down more of its smartphone operations: after all, its partnership with Microsoft (MSFT) to build Windows Phone 7 phones will not have heavy volume right out of the gate.
“Given Nokia�s changing smartphone mix and strategy, we believe Nokia must also adjust its manufacturing of smartphones. As such, we anticipate Nokia will make additional headcount reductions during 2012,” writes Walkley.
Walkley’s not prepared to get more bullish on the company until he starts to see the Windows effort bear fruit:
We believe Nokia remains on track for initial sales of Nokia WP7 devices during Q4/11 in select European markets, and we believe Nokia will ramp Windows smartphones for additional markets and multiple price tiers throughout 2012. However, given our belief Nokia will not ramp a full Windows portfolio until mid-2012 and the overall risk of ???Windows emerging as a third viable ecosystem longer-term versus the strong iPhone and Android ecosystems, we maintain our HOLD rating.
Likewise, Tavis McCourt with Morgan Keegan writes that he expects Nokia can shave 4 to 7 Euro cents a share from annual operating expenses this way.
But, “They can’t cut their way to success,” he writes.
“We would still hold off on getting aggressive until there is some sign that the Windows Phone bet is working.”
Michael Genovese with MKM Partners today reiterates a Neutral rating on shares of Nokia, though he’s inclined to be “incrementally more positive.” In fact, there’s potential upside to current Q3 consensus estimates as Nokia continues to ship low-cost “feature phones” into India, China and elsewhere. His estimate is for Nokia to ship 96 million devices this quarter, but the company could ship as many as 100 million, he thinks, while consensus is only 90 million.
Genovese is also heartened by the company’s announcement it will develop a Linux-based operating system called Meltemi for feature phones, which may be a way to “add value,” he thinks.
And the partnership is now more interesting with Microsoft’s announced settlement yesterday with Samsung Electronics (SSNLF) regarding royalties for Android-based devices:
We find it interesting that Samsung agreed to the deal with Microsoft before the Google-MMI acquisition closes, as the close of that transaction might weaken Microsoft�s claims against Android. Perhaps Samsung�s fighting spirit is drained by its ongoing intellectual property slugfest with Apple? Or maybe Microsoft offered Samsung attractive terms on Windows Mobile, which Samsung is now more interested in for a hedge since Google is buying Motorola?
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