Nokia disconnects from Telecom Valley

BY DAVID SPEAKMAN

Despite alarms that sounded when Nokia Corp. raised the spectre of consolidating operations into its Finnish homeland, the telecommunications company’s Mountain View facility will continue on unscathed.

The same can’t be said for a sister operation up north.

By announcing the closure of its Santa Rosa broadband operations later this year, Nokia Corp. becomes the latest high-tech company to pull up and move out of Sonoma County’s battered Telecom Valley.

The 240-employee Santa Rosa location houses what is left of Diamond Lane Communications, a digital subscriber line startup Nokia bought in 1999 for $125 million. Diamond was renamed Nokia Networks and became Nokia’s first operation headquartered outside of Finland.

Besides becoming a cornerstone of Sonoma County’s burgeoning telecommunications hub, last year the company moved into a custom-built, 130,000-square-foot office complex.

But on Feb. 12, Nokia unveiled a major restructuring of its broadband and research and development operations that will shut down the Santa Rosa building. That leaves Nokia’s massive Mountain View campus as its sole Bay Area research and development facility.

Some Nokia Networks jobs in Santa Rosa will be eliminated when broadband operations are transferred to Finland. Other research and development jobs will relocate to Mountain View.

An unnamed company spokesman told Finland’s largest daily newspaper, the Helsingin Sanomat, that salaries of product development engineers cost three times more in the U.S. than in Finland and the company wants to consolidate research in as few locations as possible.

In all, 550 of the company’s 19,579 research-and-development employees worldwide will be dismissed, with half of those job cuts in the United States. During the past two years, Nokia has dismissed 8,500 workers.

As part of the restructuring, the company is severely curtailing ambitions for its broadband Internet equipment operations, which will be relocated solely in Espoo, Finland.

Nokia did not return telephone calls requesting comment for this article, but in a news release, the company said the move will allow Nokia to focus on its core business — wireless telephones.

“I think that was a great move,” says Casey Ryan, a San Francisco-based analyst with Wells Fargo Securities. “To be honest, I was never a fan of Nokia getting into broadband.”

In a research report written before Nokia’s restructuring, Ryan voiced concern about the prospects for infrastructure equipment sales in 2003 and stated that Nokia’s ability to profit from the unit could end this year. Ryan applauds the company’s decision to close the broadband venture before it caused further damage.

Bailing out of broadband means Nokia will focus research and development on its profitable, wireless and handset markets. There is activity in those sectors. Since the Santa Rosa closure announcement, Nokia announced wireless deals with New York-based IBM and Sun Microsystems Inc. of Santa Clara.

After lackluster holiday sales, some expect an uptick in Nokia’s wireless business.

This quarter, Ryan says, “we believe that Nokia should begin to see some benefits from launching its latest phones with color screen and embedded cameras.”

He recently changed his “sell” rating on the company to a “hold” recommendation.

SoundView Technology analyst Matt Hoffman agrees.

“Underlying phone demand is better than expected, driven by good subscriber growth,” he says.

Hoffman says Nokia recently replaced Motorola Inc. as his “best idea” in the wireless space. He says Nokia’s new products combined with the upcoming trade show season should give Nokia a boost during the next several months.

Nokia is not abandoning its broadband operations completely and plans to hold on to the 2 million telephone lines on which it currently offers broadband service. But, the company said, it may increase reliance on third-party service providers to handle that market.

In addition to leaving Telecom Valley, a Nokia Networks facility in Kista, Sweden will close.