Nokia Could Cut $5B In Outsourcing

SAN JOSE, Calif. — In a reverse-outsourcing move, Nokia will stop using external companies to assemble its handsets, cutting a whopping $5 billion in contract manufacturing business, according to an estimate from market watcher iSuppli Corp. Nokia's response to the economic recession stands in contrast to other big systems companies including IBM that are stepping up layoffs and outsourcing. Nevertheless the handset maker is under intense pressure and recently announced layoffs of 1,700 employees. "Amid the global economic recession and slowing sales of mobile handsets, Nokia in recent months had begun the process of shifting some of its assembly operations away from contract manufacturers and back inside the company," said Adam Pick, a principal supply chain analyst at iSuppli . The move comes in response to the severity of the downturn in handsets, Pick said. Late last year Nokia and analysts predicted the handset market would decline ten percent in 2009. Last year Nokia outsourced the manufacturing of about 17 percent of its mobile phone assemblies to companies including Foxconn International Holdings, BYD, Elcoteq and Jabil Circuit. "Nokia's pull-back will shed more than $5 billion in revenue from electronics contract manufacturers," Pick said. The market researcher will revise downward its forecast for the contract manufacturing market based on Nokia's move. Previously, iSuppli predicted the sector would shrink by 9.9 percent in 2009 to reach $270.8 billion, down from $300.7 billion in 2008. The news is a good step for Nokia, showing the company's operational flexibility despite its size, Pick said.