At the Salo end of Nokia's deep crisis

Nokia CEO Stephen Elop looks on during the company's news conference in Espoo, June 14, 2012.

Credit: Reuters/Kimmo Mantyla/Lehtikuva

By Eero Vassinen

SALO, Finland | Fri Jun 22, 2012 8:37am EDT

SALO, Finland (Reuters) - Nokia workers in Salo thought chief executive Stephen Elop signaled that their plant, Europe's last major mobile phone factory, would survive when he visited in February, but last week he announced its closure anyway.

This final chapter in Nokia's long goodbye to manufacturing in Finland will claim about 850 jobs, on top of 1,000 announced earlier in the year, and rob the town of 90 percent of its tax revenue.

Once the world's dominant mobile phone provider, Nokia has been bested in a smartphone war by Apple and Samsung and other phones running Google software. It is also losing share in the market for more basic phones.

Its strategy to reverse its fortunes, abandoning its own Symbian smartphone software in favor of a largely untested alternative from Microsoft, Elop's former employer, has limped from setback to setback.

Sales of Nokia's new Windows Phone models, the Lumia series, have been slow to pick up, while the bottom has fallen out of the market for old phones running dead-end Symbian.

As recently as this week, Microsoft revealed that a new version of its software won't run on the existing Lumia range, and a Wall Street analyst said the software giant was looking at making its own phones in direct competition with its new partner.

Over two years, workers at Nokia have become familiar with bad news, but are still not inured to it.

"During my whole time, 15 years and 10 months with Nokia, someone was always saying Nokia will abandon Finland. But it was still a surprise," said Katja Taskinen, who took a buyout offer in an earlier round of cuts this year.

Rivals have long been focused in Asia, and analysts had said Nokia should do the same, but the workers believed they had been made an exception.

"We were promised continuity," said Anne Malm, head shop steward of the Salo plant, which was set up in the 1970s and often held up as a model for other Nokia factories around the world.

"Salo is where it all began. Salo has been the benchmark. If there were troubles at other factories, Salo has been the place from where teams were sent to extinguish those fires."

PROMISES, PROMISES

Some are hoping for government intervention.

"The government promised us that they'll use all the instruments available to help us," said Antti Rantakokko, Salo's mayor.

Jukka Roos, a local member of the Social Democratic Party and former lawmaker, said the government should not allow the country's flagship technology company to make such drastic cuts.

"The government and unions should react and put pressure on Nokia," he said. "What the hell are they doing?"

At its peak, Nokia accounted for around 4 percent of Finnish GDP and supported an eco-system of suppliers and technology start-ups in an economy previously focused on forestry and metalworks. Now it accounts for less than 1 percent, according to analysts.

Its problems have had a knock-on effect on Finnish electronics companies, including Elcoteq, which filed for bankruptcy last October after Nokia turned to cheaper Asian suppliers.

In Salo, local unemployment is around 11 percent, already above the national average of 8 percent, and the city expects it to spike to around 20 percent once the Nokia jobs go.

The government has said it will accelerate an existing program in which it plans around 300 million euros in capital spending and tax breaks for research and development during its term, which ends in 2015.

But beyond that, there was little Prime Minister Jyrki Katainen could promise when he visited Salo on Wednesday. He had cancelled a trip to a United Nations conference in Brazil to visit Salo and Oulu, another town affected by Nokia lay-offs.

"I completely understand the outcry," he said. "But we also have to keep in mind that Nokia brought us enormous wealth in the past."

He rejected suggestions that the state should buy Nokia shares, which have fallen over 50 percent since the start of the year.

While the state holds stakes in companies considered crucial to its national interests, including forest and chemical companies, and is a majority shareholder in airline Finnair and energy company Fortum, owning shares doesn't help beat global competition.

While Finland is one of a dwindling band of triple-A rated countries in the euro zone, its exports have been declining, with old industries like forestry also struggling to compete with lower-cost rivals.

Its current account slipped into the red last year, and the central bank expects the deficit to continue through at least 2014, by which time analysts say Nokia could be short on cash if it continues to burn through reserves at the current rate.

While analysts have begun to think the unthinkable, Finns find it hard to contemplate the loss of a company that has become integral to national pride.

Harri Niinisto, coincidentally a cousin of Finnish President Sauli Niinisto, also a Salo native, remains hopeful, though he took a redundancy package from Nokia this year and set up his own consulting firm.

"At the moment, we can't see what will end up happening," said Niinisto. "Still, I want to keep believing in Nokia."

(Writing by Ritsuko Ando; Editing by Will Waterman)

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