Nokia's $3.7 Billion In Savings Won't Be Enough To Help The Company

| About: Nokia Corporation (NOK)

Nokia (NYSE:NOK) announced that it will be laying off 10,000 workers and will be shutting down several plants by the end of 2013. The plan is to cut costs by $3.7 billion (3 billion euros).

While the costs cutting may initially help the company maintain a slight profit, the company's net income will still remain in a downward trend. The company expects operating margins to be around -3%, which means that the high fixed costs are making it difficult for Nokia to make a profit.

Management believes the cost cutting will help the company survive, but I don't believe that will cure the problems over the long-term. This is has been a long road for the trouble smartphone maker as competition from companies such as Apple (NASDAQ:AAPL) has put pressure on sales.

Nokia used to be the largest cellphone maker in the world until user adoption of the iPhone caused Nokia's sales to tank. Last quarter, the company posted more than a 1 billion euro loss. If Nokia's sales continue to tank, then the losses will be so high, that not even the proposed cost cutting strategy will be enough to put the company in the black.

Nokia is trying to engineer a turnaround through cost cutting. Last year, it laid off 7,000 employees to try and save a billion euros. It seems those savings have not been enough to outweigh the loss in sales. Nokia is in a tough position, but the fact that management believes the savings will help is wrong. If Nokia plans to compete with Apple in the smartphone market, then they need a great product.

The company has negative margins as fixed costs are simply too high. Competition from companies such as Apple are causing Nokia's sales to tank. The company is in between a rock and a hard place and at this point, its unclear if the company even has a long-term strategy. Its best that investors stay away from the company at this point.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.