Nokia is cutting two thirds of its German workforce as part of a major restructuring that will move production to Eastern Europe after the closure of a manufacturing plant.

A total 2,300 staff will lose their jobs when the plant in Germany's Bochum is closed, including 1,800 employees in assembly and 500 people in R&D, software development and other support operations, the world's largest phone manufacturer said.

Nokia said cost-cutting had become necessary because of the "the lack of competitiveness" of the location, adding that the plant's production is likely to be absorbed by a facility in Komorom, Hungary, and a second being built in Cluc, in Romania.

Separately, Nokia said that it was in talks to sell an R&D firm based on the Bochum site where the plant is being closed to Sasken Technologies, the German mobile phone software maker, and that it was also looking to sell its German-based 'line fit automotive business', which makes equipment that allows mobiles to be attached to the dashboards of cars.

It declined to say how much money would be saved by the move.

Veli Sunback, an executive vice president at Nokia, said: "Due to market changes and increasing requirements for cost-effectiveness, production of mobile devices in Germany is no longer feasible for Nokia.

"It cannot be operated in a way that meets the requirements for global cost efficiency."

Nokia said that it was "looking at opportunities" to employ its Bochum-based staff elsewhere and that it expected the plant would cease production by the middle of the year.

Nokia's German workforce is its third largest in Europe - roughly on par with the UK, with just under 3,500 staff. Only Finland, with 14,000, and Hungary, with just over 6,000, have more.

The focus of the remaining 1,000 staff in Germany - including a sales team in Dusseldorf and another R&D group in Ulm - will be on the company's new 'internet services' strategy, which is seeking to supplement the core handset business with sales of music downloads and games, much in the way Apple's sales of iPods are complemented by iTunes, its online music store.

The announcement surprised analysts, who said that that unlike some other industries, assembly accounted for a very low proportion of the cost of making mobile phones, meaning that keeping production in European countries, which had other benefits such as reliable infrastructure, was more viable.

"If anything, Nokia has been expanding its manufacturing," Richard Edwards, an analyst at Execution, said.

"Having said that given the volumes involved - Nokia will make 430 million this year, of which 100 million or so will be sold in Europe -if you can save half a euro or so per unit in assembly then the numbers do add up, and you may consider shifting your operations," he added.

Nokia's manufacturing strategy has to keep production centres close to the markets for which they product stock.

The US market is typically served by facitilies in Mexico and Brasil, while phones sold in Asia are made in China and, more recently, India and those sold in Europe are made in Hungary, Finland, Germany and, soon, Romania.

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