Nokia says India plant 'unlikely to be part of Microsoft deal'

Company may be able to run plant as a contract manufacturer for 12 months

Tags: IndiaJob cutsMergers and acquisitionsMicrosoft CorporationNokia Corporation
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Nokia says India plant 'unlikely to be part of Microsoft deal' Stephen Elop, executive vice president, devices and services at Nokia and former Microsoft CEO Steven Ballmer.
By  Helen Gaskell Published  April 24, 2014

Nokia has said that due to an ongoing tax dispute, its Indian mobile phone handset plant was unlikely to be included in the closing of the deal tomorrow with Microsoft, Reuters reported.

A spokeswoman for the Finnish company's Indian unit said on Thursday that Nokia will instead operate the factory as a contract manufacturing unit for Microsoft after the deal.

"It's highly unlikely that the plant will transfer, given that the [deal] closing with Microsoft is tomorrow," the spokeswoman said. "If the asset doesn't get transferred, we are entering into a service agreement with Microsoft."

According to Reuters, Nokia has yet to agree to the conditions set by the Indian court, including payment of a guarantee for potential tax dues in a dispute with Indian authorities, before it transfers the plant to Microsoft.

Nokia lawyers have previously told the Delhi High Court that the company can run the plant as a contract manufacturer in case it is not allowed to be transferred to Microsoft, but not beyond 12 months after closing their $7.5 billion global deal.

The Economic Times, India, reported that this temporary solution, of the Chennai factory becoming a contract manufacturing unit for Microsoft leaves many unanswered questions such as at what capacity will the factory operate? How many workers will it need? How long will this arrangement continue?

Described by the ET as an ‘orphan factory' that neither Nokia or Microsoft want, the plant, which is one of Nokia's biggest factories globally, is down from producing 13 million handsets a month at its peak to two to four million handsets and production lines are down from 20 to 10.

Employee, Arivazhagan was originally told about the handset factory, which was the first in India, eight years ago while he was searching for a job. He told the ET:
"Whenever we used to go home, our friends would say, 'what a cool job you have. Now, your life is settled'. Now they don't even come to meet us."

Hemalatha, who discontinued her studies and took up a job at the company said: "They said we are part of one family- the Nokia family. And suddenly, that 'family' has disappeared."

Earlier this month, Nokia India announced a voluntary retirement scheme (VRS) for 5,200 workers (who are part of the Nokia India Employees' Union) and over 700 trainees. It offered permanent employees a compensation equivalent to three months of salary per year of employment, with a cap of five years.

Several industry observers see the VRS as the first step towards Nokia India cutting costs and eventually closing the plant. "It came as a shock to us," says Lakshmi, one of the factory's first workers. "They [the management] told us they have done all they could to resolve the issues, and with no way out, they have offered the VRS."

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