Nokia's ENORMO factory in India axed after Microsoft-shaped hole appears in order book

Finland's Nokia says it is shutting down its massive mobile phone factory in Chennai, India, now that Microsoft has terminated its manufacturing contract with the firm.

The Chennai facility has had a troubled history, owing to a protracted tax dispute with the Indian government that led authorities to freeze its assets.

Nokia's inability to reach a deal with the government meant it couldn't include the factory as part of its $7.1bn sale of its mobile phone division to Microsoft. Instead, it has been operating the plant as a contract manufacturing facility, with Redmond as its only customer – until now, that is.

"Microsoft has informed Nokia that it will be terminating the manufacturing services defined in the agreement with effect from 1 November 2014," Nokia said in a statement obtained by the Times of India on Tuesday. "In absence of further orders from Microsoft, Nokia will suspend handset production at the Sriperumbudur facility from 1st November."

The Finnish firm stopped short of saying it would sell the plant. Although Taiwan's HTC has been named as one potential suitor, Nokia's ongoing legal troubles in India have tied its hands.

"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," Nokia's statement said.

The Chennai site's assembly lines first began rolling in 2006 and it quickly became one of Nokia's most important factories, manufacturing around 13 million devices per month. About half of those were sold to the Indian market and the rest went to Africa, Asia, the Middle East, and Australia and New Zealand.

But Microsoft reduced output at the factory after its acquisition of Nokia's handset business closed, and job cuts soon followed. Nokia began offering "voluntary retirement" packages to the plant's estimated 6,600 workers in April, and since then some 5,000 have reportedly taken it up on the offer.

What will become of the rest of them once the factory goes dark is not yet clear.

"As a responsible employer, Nokia is currently evaluating options to minimize the impact on existing employees at the manufacturing facility. It will share further information once details have been finalized," the company said. ®