Nokia to stop India handset production after Microsoft cuts off orders

The handset plant in Chennai was not transferred to Microsoft because it was frozen in a tax dispute

Nokia will stop production at its mobile handset manufacturing facility near Chennai in south India after a deal with Microsoft to manufacture phones fell through.

The factory was among Nokia assets frozen by Indian federal authorities in a dispute over taxes for mobile phone software licenses. It was supposed to have gone to Microsoft as part of its acquisition of Nokia's phone business in April this year.

As a result of the freeze, the company was not in a position to transfer the facility and its manufacturing operations to Microsoft. Nokia instead entered into a "transitional services agreement" to meet Microsoft's immediate production needs and keep the factory in operation.

A Microsoft spokeswoman wrote in an email that the company is in the process of realigning manufacturing operations as part of its mobile devices strategy announced in July. The company has decided that it no longer required the manufacturing services offered by the Chennai factory and is ending the agreement with Nokia on Oct. 31.

In an email in July to employees, Microsoft devices group head Stephen Elop said the company would focus phone production mainly in Hanoi, with some production to continue in Beijing and Dongguan in China.

"In absence of further orders from Microsoft, Nokia will suspend handset production at the Sriperumbudur facility from 1st November," Nokia said in a statement Tuesday.

Nokia is evaluating options to minimize the impact on existing employees at the manufacturing facility. The factory had some 7,000 staff as of December last year, which was reduced drastically as Nokia offered voluntary retirement programs.

John Ribeiro covers outsourcing and general technology breaking news from India for The IDG News Service. Follow John on Twitter at @Johnribeiro. John's e-mail address is john_ribeiro@idg.com

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