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Nokia Cuts Networking Unit by 10%

Nokia is cutting its workforce in response to continued weak demand for its networking product from the troubled telecommunications sector.

The handset and networking provider said it would trim 1,800 jobs, or more than 10 percent of employees in its networking division, known as Nokia Networks.

The cuts were not a surprise. Just last month the Finnish telecom company said it was taking steps to return its networking unit to profitability.

Most of the cuts will take place in its Finland operations, which would bring the total number of employees in its networking unit to 15,000 from 17,300 at the end of 2002.

"These decisions were taken against the backdrop of the market guidance given by the Company on 11 March that Nokia Networks would post a substantial loss for the first quarter of 2003, as well as general market conditions in the network infrastructure business," Nokia said in a statement.

Nokia will report its first quarter financial results next week, and there are concerns the telecom company will not meet its previously announced estimates. Some analysts believe the company is making these additional job cuts, in part, because it has yet to see a rebound in demand for its wireless telecommunications products.

While Nokia's networking unit only provides a fifth of the company's total sales, the division has become a drag on the company's overall earnings picture for several quarters. Nokia has said it is expecting a decline of up to ten percent in the networking market in 2003; some analysts have noted that the shortfall could be as much as fifteen to twenty percent.

Nokia's mobile handset business is much larger than its networking division. But continued weak demand in networking is a concern for the company along with all the major telecom equipment companies since major global carriers have slashed spending over the past few years. In addition, Ericsson , Motorola , Lucent and Nortel have pulled back on spending and trimmed staff in the face of a three-year downturn in the telecommunications sector.

Some analysts have speculated that Nokia, which consistently earns praise from Wall Street as a well-run company, could exit the networking business. But much of that guesswork depends on when, and to what degree, the market for telecom begins to turn around.