Nokia Moves Production In House

Posted by: Jack Ewing on March 26, 2009

Amid a global slump in consumer spending, Nokia has temporarily stopped using outside contractors to produce mobile device “engines,” the software and circuitry that forms the core of a handset, Nokia representatives said, in response to a report by Finnish newspaper Helsingin Sanomat. Last year, Nokia outsourced 17% of its engines to contract producers, which analysts say include China’s Foxconn Technology Group and BYD.

The question is, does Nokia’s decision to bring engine production in house mean that the company has further dialed back its expectations for sales? That’s not clear.

On March 5, Nokia said in a filing to the U.S. Securities and Exchange Commission that it expected the global handset market for all manufacturers to fall by 10%, while also noting that accurate predictions have become extremely difficult. Nokia spokespeople cautioned against reading too much into the company’s decision to move production in house. Nokia had already signaled late last year its intention to reduce use of outside contractors. But a Nokia spokeswoman declined to comment on whether the company will further reduce its sales forecast for the year, citing SEC rules restricting what the company can say ahead of its first quarter earnings report on April 19.

Probably no one should be surprised if the global handset market continues to deteriorate for a while. Even if the economic slump has reached its low point, as stock market investors seem to believe, it will take a while for consumer confidence to recover. At least Nokia, via its use of outsourcers, has a built-in method for adjusting production until the recovery comes.