Nokia to cut R&D expenditure - expects to save hundreds of millions by 2007
Mobile telephone handset manufacturer Nokia announced on Thursday that it will cut back on its research and development expenditure, bringing R&D spending down to 9-10 percent of net sales by the end of 2006.
Last year Nokia spent 3.8 billion euros on R&D, which amounted to 12.7 percent of the company’s net sales. The cut of 3-4 percentage points will save Nokia hundreds of millions of euros.
Analyst Hannu Rauhala from investment bank Opstock believes that the reductions will be targeted at network operations, and more specifically, at the development of third generation networks.
Nokia Chairman and CEO Jorma Ollila stated already last summer that the company’s R&D expenses had grown to too high a level. At the time, he mentioned that no dismissals were in store in the near future. The majority of Nokia’s research and development is located in Finland.
On Thursday, Ollila commented that Nokia will continue to make investments, but with more focus than one year ago. Ollila was also confident that Nokia will continue to be the global market leader in mobile handsets.
Nokia has increased its marketing expenditure considerably this year.
Nokia executives met analysts and the press in New York on Thursday at the company’s annual Capital Market Day. The company estimates that mobile handset sales will grow by ten percent from this year’s level in 2005. Nokia expects this year’s global sales to total 630 million mobile phones.
According to analyst Rauhala, Nokia’s view of the market’s growth is in line with the figures of other manufacturers.
Nokia reported on Thursday that its goal is to achieve a growth rate in both mobile handsets and networks that slightly surpasses the market growth rate. The company aims to keep the operating profit of the mobile phone business at 17-18 percent of net sales. In networks, the target margin is 14 percent.
Nokia plans to launch forty new handset models next year. This year’s tally will be 35 models. Two thirds of next year’s models will be equipped with cameras.
Mobile operators interviewed by Helsingin Sanomat report that Nokia now listens more closely to their wishes when designing phones.
The market research company IDC estimated on Thursday that Nokia’s market share has once again topped thirty percent. According to IDC, Nokia’s market share in the third quarter was 31.3 percent, up from 29.6 percent in the second quarter.
Nokia press release