Corporate Concerns

Nokia Corp. announced the largest cuts in the company's history, with significant employee reductions globally. Meanwhile, SAP AG reported that its profits missed analyst projections, and Research in Motion Ltd. (RIM) cut its outlook for the fiscal first quarter.

Focal Points:

 

• Nokia will eliminate 7,000 jobs across the board, in an effort to cut 1 billion Euros ($1.46 billion) in costs. Office closures will follow in Denmark, Finland, and the U.K., Nokia added. According to the company, 4,000 jobs will be eliminated in research and development (R&D). The remaining 3,000 jobs will be eliminated in the Symbian unit, a total of 12 percent of the unit's workforce, and will be transferred to Accenture Plc. Symbian software development-related activities including maintenance will continue within Accenture for as long as needed, Nokia announced. Nokia also said that its portfolio of Symbian devices will be reduced gradually and eventually discontinued, in favor of devices based on the Microsoft Corp. Windows Phone platform. Additionally, the company told staff that the majority of MeeGo activities are planned to be discontinued by the end of June 2012. Nokia said its decisions on where to cut jobs were made on the basis of existing concentrations and the close proximity of suppliers. Despite Nokia's large cuts, its Beijing office will expand, and will become the core site for Nokia's new Featurephone (S30 and S40) product development.
• SAP reported that net income after tax for the first quarter rose only a modest four percent year-over-year to 403 million Euros. Earnings per share were 44 Euro cents, below the 47 Euro cents that analysts had estimated. SAP also reported that total revenues for the quarter rose 21 percent compared to the same period last year to 3.04 billion Euros. Of that, software license revenue amounted to 583 million Euros, a year-over-year increase of 26 percent. Software and software-related services revenue, such as installation and maintenance, made up the lion's share of total revenues at 2.34 billion Euros, an increase of 20 percent compared to last year. SAP's operating profit margin rose 26 percent year-over-year to 779 million Euros, said the company. This number is below analyst expectations; however, company executives blamed the miss on increased costs for employee stock compensation. SAP maintained its full-year guidance for software and software-related services revenue to rise 10 percent to 14 percent. The company also expects an annual operating profit of 4.45 billion Euros to 4.65 billion Euros, up from 3.94 billion Euros in 2010.
• RIM said in a statement that it is expecting earnings for the fiscal first quarter to be $1.30 per share to $1.37 per share, lower than the $1.47 per share to $1.55 per share it had forecasted last month. The company added that revenues for the quarter will be "slightly below" the $5.2 billion to $5.6 billion range. Wall Street analysts were expecting first-quarter earnings of $1.48 per share on revenues of $5.44 billion. According to RIM, this shortfall is primarily due to shipment volumes of BlackBerry smartphones. Shipments are now expected to be at the lower end of the range of the 13.5 to 14.5 million forecasted in March. Additionally, RIM attributed the shortfall to a shift in the expected mix of devices that were shipped. There is currently a trend towards handsets with lower average selling prices. RIM was also sure to note that shipments of the BlackBerry PlayBook are in line with expectations, and that there have not been any supply chain disruptions due to the Japan earthquake. Despite the first-quarter outlook, RIM maintained its earnings target for the fiscal year of $7.50 per share, banking on its new products as well as big third and fourth quarters.

Experton Group believes Nokia's elimination of jobs is not surprising, given its commitment to the Microsoft platform. Executives and users should not expect Accenture to keep development and maintenance of the Symbian products for too long. Without Nokia's strong support Symbian devices will rapidly disappear, which means Nokia needs to shift gears and deliver Windows phones fairly rapidly. While SAP may not have met Wall St. expectations, top line growth in licenses, revenues, software and software-related services were quite strong. The company is keeping pace with Oracle Corp., much to that firm's dismay. In addition, the company is starting to demonstrate it understands the software-as-a-service (SaaS) market and may successfully transition small and mid-sized businesses (SMBs) to the offering. On the other hand, RIM does not seem to understand the changes that are occurring in its markets. Apple Inc. has transformed the smartphone market and defined the tablet space. RIM is yet to show it has a vision to compete with Apple and its other aggressive competitors in the space. Android and iPhone devices will leave BlackBerries in the dust before the year is out unless RIM moves rapidly, which is not likely. Plus the PlayBook may have met company expectations but it will not become a major contender unless RIM makes the tablet more appealing. The smartphone and tablet spaces remain in flux and will undergo massive changes over the next few years. The paradigm shift that is occurring in the mobile environment will force IT to change its methodologies to securing data and data access. IT executives should revisit their policies on ownership and use of these devices as well as privacy and security as relates to mobile computing.