Nokia will shut down its Chennai manufacturing plant from November 1 as Microsoft has terminated mobile phone sourcing agreement from the factory.
Incidentally, the $7.2 billion deal between Nokia and Microsoft did not include the Chennai plant in Tamil Nadu, India.
Chennai unit is not the first casualty. Earlier, Nokia closed down the Masan facility in Korea which employs approximately 200 people.
In addition to the Chennai unit, Masan manufacturing unit in Korea was not part of the Microsoft-Nokia deal which was originally announced on September 3, 2013.
Interestingly, one of the strategies of Microsoft was to add manufacturing sites. As per the deal, Microsoft added more than 130 sites across 50 countries, including several factories that design, develop, manufacture, market and sell smart devices, mobile phones and services.
Nokia says an asset freeze imposed by Indian tax authorities prevents it from exploring potential opportunities for the transfer of the factory to a successor. There were media reports that HTC could be looking at the Chennai plant.
“Microsoft has informed Nokia that it will be terminating the manufacturing services defined in the agreement with effect from 1 November 2014. In absence of further orders from Microsoft, Nokia will suspend handset production at the Sriperumbudur facility from 1st November,” said Nokia in a statement.
In September 2013, Nokia announced it would sell its devices and services (D&S) business, including assets in India, to Microsoft for $7.2 billion by March 2014.
The deal was completed on April 25 but Chennai facility could not be transferred to Microsoft because of legal issues related to tax demand by Indian government, PTI reported today.
Nokia started manufacturing in Chennai in January 2006 and exported to markets including in the Middle East and Africa, Asia, Australia and New Zealand from there.
In March, the Tamil Nadu government served a Rs 2,400 crore notice on Nokia, saying the device firm had also sold products from the Chennai manufacturing plant in the domestic market instead of shipping them overseas.
In a separate tax case, the Supreme Court had ordered Nokia India on March 14 to give a Rs 3,500 crore guarantee before it transfers the plant to Microsoft.
As a consequence, Nokia entered into a transitional services agreement with Microsoft to address their immediate production needs and keep the factory operational.
“Unfortunately, the continuing asset freeze imposed by the tax department prevents Nokia from exploring potential opportunities for the transfer of the factory to a successor to support the long term viability of the established, fully functional electronics manufacturing ecosystem,” said the Nokia statement.
Nokia said that it will be informing all stakeholders including the Labour Commissioner about the suspension of the production unit.
“As a responsible employer, Nokia is currently evaluating options to minimize the impact on existing employees at the manufacturing facility. It will share further information once details have been finalized,” said Nokia.
The exact number of employees at present in its Chennai factory could not be ascertained but in March out of 6,600 permanent employees, about 5000 had opted for Voluntary Retirement Scheme offered by Nokia.