Future of Nokia's Chennai plant uncertain as Microsoft deal nears closure

Nokia said on Monday that it expects the EUR 5.44 billion deal with Microsoft for sale of its Devices & Services to conclude on April 25 and expressed the hope it would continue to operate the disputed Chennai plant under a service agreement.

"Nokia today announced that it expects the transaction whereby the company will sell substantially all of its Devices & Services business to Microsoft to close on April 25, 2014. The transaction is now subject only to certain customary closing conditions," Nokia said in a statement.

The future of Chennai plant, which employs 6,600 people and is entangled in tax disputes with Indian authorities, is uncertain.

"With Chennai, it is worth remembering that we have said we will consider a services agreement with Microsoft should our Indian assets not be able to transfer at the close of the global deal," a Nokia spokesperson said.

A Nokia official told PTI the company is still exploring the option of operating the plant by getting into a services agreement, which would allow it to continue as a contract manufacturer for other companies.

"The situation is a complicated one, and Nokia is continuing to weigh its options. As there is still time before the closing of the deal, we cannot speculate on possible outcomes at this point," the spokesperson added.

In March, the Tamil Nadu government had slammed a Rs. 2,400 crore notice on Nokia, saying the company had been selling products from Chennai plant in domestic market instead of shipping overseas.

On March 14, the Supreme Court ordered Nokia India to give Rs. 3,500 crore as guarantee before it transfers the plant to Microsoft.

Last September, Nokia had announced it would sell a substantial part of its devices and services (D&S) business, including assets in India, to Microsoft by March 2014.

The handset and other asset components under the deal will be handed over to Microsoft's Finnish entity Microsoft Mobile Oy.

(Also see: Nokia's phone business to be renamed Microsoft Mobile, but the 'brand' will live on)

The company has often indicated that the transfer of the Chennai plant may be adversely impacted if the tax dispute remains unresolved.

According to Nokia India Employees Union Honorary President, A Soundararajan, the Chennai plant, which was producing about 1 million mobile handsets per day, witnessed a steep decline and production now stands at just 0.4 million handsets.

Recently, the company offered a voluntary retirement scheme to its employees in Chennai and about 700 trainees are learnt to have opted for it.

The spokesperson declined to confirm the number.

Meanwhile, employees at the Chennai plant have started boycotting canteen services from Monday in protest against the recently announced voluntary retirement scheme, which they allege is being forced on them.

Meanwhile, union President M Saravana Kumar said nearly 2,500 employees in one shift resorted to a 'hunger strike' at the factory by boycotting the canteen services.

"About 10 employees fainted and were administered first aid. We will continue our protest in other shifts but we will continue to work as usual", he said.

The Union would decide its future course of action within the next two days, he said.