Nokia Reshuffle Will Cut Jobs and Research

As well as announcing a partnership with Microsoft on smartphones, Nokia has laid out a set of organisational changes, which will see the company cutting down on jobs and reducing its research.

The main goal is to make Nokia faster and more responsive, said CEO Stephen Elop in a press conference today, and savings will come from replacing its Symbian development expenses with a greatly reduced operating system effort around Windows Phone.

It’s all about ecosystems

“Our operational expenditure is too high and research and development as a percentage of revenue is too high,” said Elop. Nokia also plans to reduce its use of “outsourced talents at very high rates,” he said.

Nokia has reorganised its products into two major groups: smartphones under Jo Harlow and mobile phones (lower-end devices) under Mary McDowell.

Where tablets might fit was not clear, though Elop repeatedly hinted that Nokia might get involved in rumoured plans by Microsoft to develop a new tablet-focused version of Windows.

Despite using an operating system that is also used by other vendors, Nokia still expects to be able to make ten percent margin on its smartphones, and this is one of the main reasons for adopting Windows Phone, rather than Android, said Elop: “Android is driving profits out of the handset and over to Google.”

The job losses have not been given in detail, and will be distributed round the world, but some senior executives will go, and Symbian developers will be moved to a smaller Windows Phone development effort.

The move is already causing concern, and prompted a statement from the Finnish government “This is the biggest structural reform which has ever impacted new technology in Finland,” Finnish economy minister Mauri Pekkarinen said.

“We will have to invest in the right areas for innovation, while we reduce investment in areas where we are not getting the return,” said Elop.

Among other changes, the company upgraded its intellectual property division, under Louise Pentland,  to report directly to the CEO. “Taking advantage of our IPR portfolio is becoming more important,” said Elop, adding that Nokia will enncourage people to take advantage of it “for fair rates.”

Finances to change faster

“We did not meet our targets,” said Nokia CFO Timo Ihamuotila in the financial part of the presentation. “It is time for Nokia to change faster.”

The economics of Nokia’s phone business will be changing, admitted Ihamuotila: “We will be making royalty payments to Microsoft, which will result in a higher cost of sales.” However, he argued that Nokia would also get substantial support from Microsoft and its ecosystem.

Overall, Nokia will have lower research and development costs in the long term, through not having to develop a mass-market operating system from the ground up, said Ihamuotila. “Our expected investments in Windows Phone [in the long term] will be substantially less than last years investments  in Meego and Symbian combined.”

This year, Nokia’s targets are to grow faster than the market and to make ten percent operating margin on the phones and devices it sells, said Ihamuotila.

Both he and Elop conceded that this might be difficult, given that there will be no Nokia Windows Phone devices this year – the first will ship in 2012 – so operators are being asked to ship a platform which has been essentially “end-of-lifed”.

As to the changes in Nokia itself, Elop said that far from alienating workers, the frank approach exhibited in his “burning platform” memo was winning support, and that workers are motivated by management that “tells it like it is.”

“I’ve received litteraly thousands of emails from employees saying thank you,” said Elop.