New Delhi: Telecom gear maker Nokia on Tuesday said that it will shut down its Chennai plant from November 1 as Microsoft has terminated mobile purchase agreement from the factory and it is left with no business.
"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," Nokia said 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.
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 firm had also sold products from the Chennai 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 provide 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," the statement said.
Nokia said that it will be informing all stakeholders including the Labour Commissioner of the suspension.
"As a responsible employer, Nokia is currently evaluating options to minimise the impact on existing employees at the manufacturing facility. It will share further information once details have been finalised," Nokia said.
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 a voluntary retirement scheme (VRS) offered by Nokia.
According to union officials, majority of employees at the factory are women. The plant was also providing employment to 10,000 people indirectly in the Sriperumbudur region.
The plant became one of the landmarks in the Sriperumbudur industrial belt as it was one of the few companies apart from auto maker Hyundai Motor India to set up plant, employing large number of people.
"Production of phones like Asha range has shifted to other countries and the plant which was operating in three shifts has come down to two shifts," union sources said.
The factory also witnessed tense moments post the deal with Microsoft as several employees who were working at the unit since it began operations in 2006 staged protests urging the management to include them on the payroll of Microsoft.
About 3,000 employees affiliated to Nokia India Thozhilalargal Sangam (Nokia India Employees Union) staged a one-day fast in Chennai early this year, seeking to draw the attention of the central and state governments to their plight.
Nokia also offered 'Bridge initiative' offering consultancy services and employment outlook training besides providing the VRS.