Nokia: Connecting People (With Mandatory Furloughs)

Not two months into 2009 and already the year is turning out to be the weakest the industry has seen in some time. With the economic downturn slowing growth in developing markets, consumers delaying cellphone purchases and retailers destocking them, cellphone juggernaut Nokia (NOK) is scaling back production at its key Salo plant in Finland.

This morning the company said it will temporarily lay off the plant’s entire staff of 2,500 on a rotational basis, with between 20 percent and 30 percent of staff furloughed at a time. “With these plans, we aim to scale down Salo production to reflect reduced market demand, while operations in the factory continue uninterrupted,” Juha Putkiranta, Nokia’s SVP of demand supply network management, said in a statement. “This is one of the measures we are taking to adjust our global demand supply network to the current situation.”

Another such measure: the shuttering of Nokia’s research and development site in Jyväskylä, Finland, which will be phased out by the end of the year.

A grim, but expected announcement. Nokia shipped 113 million handsets world-wide in the fourth quarter of 2008, down 15 percent annually. And in January, the company warned that world-wide sales in ’09 are likely to fall 10 percent year-to-year. As CEO Olli-Pekka Kallasvuo put it at the time, “the macro environment is challenging and, we believe, will remain so in 2009.”

Truer words, apparently. And a somber warning for Motorola (MOT) and Samsung. With 40 percent of the market, Nokia is a bellwether for the industry. If it’s closing R&D facilities and dialing back production for 2009, one can only imagine what sort of ugliness the year has in store for the likes of Motorola.