Nokia to close Santa Rosa division
February 12, 2003
By TED APPEL
THE PRESS DEMOCRAT
Finnish telecom giant Nokia told workers Tuesday it is shutting its 240-employee Santa Rosa division, becoming the largest and highest-profile company to pull out of Sonoma County's shrinking Telecom Valley.
The company will wind down its operations in Santa Rosa over the next two months and move its Broadband Systems Division to Finland early this spring, managers told employees Tuesday. Nokia spokeswoman Laurie Armstrong, however, said the exact timing of Nokia's departure is still being determined.
Nokia adds to an exodus of jobs from Telecom Valley that shows no sign of slowing as the tech recession enters its third year. Local telecom equipment companies have eliminated more than 3,900 jobs over the past two years since the Internet bubble burst and telephone companies slashed spending on networking equipment.
"This is not going to be the end of it. Times are tough," said George Hawley, a veteran telecom entrepreneur who co-founded Diamond Lane Communications, the Petaluma startup that became the core of Nokia's operations in Sonoma County. "I think there is still a lot of shakeout here left."
The Nokia shutdown is a particularly hard shock to Telecom Valley. It comes just four years after the Finnish cell phone maker paid $125 million to acquire Diamond Lane, a small but growing company that had developed a versatile technology to provide high-speed DSL connections to the Internet.
Nokia's decision to invest in Petaluma in 1999 helped to dispel the city's reputation in tech circles as a sleepy cow town and legitimized Telecom Valley as a global supplier of equipment to connect homes and businesses to the central telephone network. A series of telecom buyouts of increasing magnitude followed in its path.
Over the next two years, Cisco Systems, JDS Uniphase, Texas Instruments and Marconi acquired other local telecom equipment companies, fueling an explosion of high-paying tech jobs that made Sonoma County one of the fastest-growing regional economies in the United States.
At their peak in early 2001, the county's 30 telecommunications equipment companies employed more than 12,500 people in Telecom Valley and became the base of employment in the county's various technology industries. Many of the companies, including Nokia, were staffed largely by engineers making $80,000 or more a year -- more than double the county's average wage last year of $38,000.
But with the onset of the tech recession, almost a third of the county's telecom companies have shut their local offices or gone out of business entirely. Many of the survivors have cut their work forces by 25 percent or more, dragging the Sonoma County economy into recession.
Like many of its rivals in Telecom Valley, Nokia said it must cut costs in response to a drop in spending on its networking equipment. Annual sales at its troubled Nokia Networks unit tumbled 13 percent last year to $7 million, while operating profits plunged 61 percent to $447,000.
"Nokia does not expect conditions in this industry to markedly improve during 2003," the company warned last month.
In response, Nokia has cut 8,500 jobs over the past two years, shrinking its global work force to 51,750 employees.
Nokia, the world's largest maker of cellular telephones, had hoped its acquisition of Diamond Lane would give it a strong entry into the market for high-speed equipment in the traditional telephone network. In 2000, Nokia picked Sonoma County to become global headquarters of its Broadband Systems Division - the only Nokia division managed outside Nokia's traditional power base in Finland.
The company set off a firestorm later in 2000 when it announced plans to leave Petaluma and build a new campus in Cotati that could eventually house up to 1,000 workers. Critics argued the 35-acre project would damage wetlands, drive up housing prices and irrevocably alter the character of the town.
As the Cotati project stalled under political pressure, Nokia began to question whether it needed a campus that large and struck an agreement with Santa Rosa developer Simons & Brecht to move into the Santa Rosa Corporate Center in late 2001.
The 130,000-square-foot building -- about the size of a Wal-Mart -- is comprised of two wings joined by a glass-faced, skylighted atrium featuring birch trees, which are prevalent in Finland.
Workers were stunned Tuesday when Nokia managers announced the decision to close their almost-new offices.
"It was somber. People just swallowed, and that was it. It was shock," said one Nokia employee who was laid off Tuesday.
"That is certainly going to put a hole in the community," said Chet Stephens, a co-founder of Diamond Lane who retired from Nokia last year. "It is really sad, but with all the pressures in communications, and especially in that segment of the market -- broadband -- they don't have much choice but to consolidate and cut their losses."
Nokia will continue to develop and sell the high-speed DSL equipment created by its Santa Rosa unit, spokeswoman Armstrong said. Technology developed by the Santa Rosa division is used to provide broadband service over 2 million telephone lines, she said.
"This doesn't necessarily indicate the end of Nokia's broadband access business. We have a strong installed base in broadband access, which will continue to provide the company with business opportunities in the future," Armstrong said.
Nokia will consolidate development work in Finland and rely on partnerships with other telecom companies, such as Redback Networks, to maintain a presence in the market, Armstrong said.
Employees in Santa Rosa will be given opportunities to apply for jobs at Nokia facilities in Mountain View and in Espoo, Finland, Armstrong said.
Despite the ongoing contraction of Telecom Valley, most tech executives remain confident the region will slowly emerge from the tech recession and remain a major hub for telecommunications equipment companies.
"It is going to come back. But when? How fast? Nobody knows," said Hawley, who now serves as chief executive at another Petaluma telecom startup, Valo Networks.
You can reach Staff Writer Ted Appel at 521-5288 or tappel@pressdemocrat.com.
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