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Nokia leads the way on a bumpy road

By Eljas Repo, January 2011

© Nokia
Through the looking glass: According to research firm Gartner’s recent statistics, Nokia sold more smartphones than anyone else in the third quarter of 2010 (pictured here: Nokia N8).

Every day, 1.3 billion people communicate using Nokia's mobile devices. The company's road to success has been paved with much work and many achievements – and some misfortunes as well, writes Eljas Repo, editor-in-chief of Arvopaperi, Finland's leading magazine for stock market investors.

As the world's mobile communications market leader, Nokia has an impressive impact on the human race. In September 2010, however, Nokia's board was forced to admit a mistake as it sent CEO Olli-Pekka Kallasvuo packing.

In his place it named a software expert, Stephen Elop, the head of Microsoft's Business Division. The Canadian Elop is the first non-Finn ever to lead Nokia, by far Finland's biggest corporation.

© Nokia
Click to enlarge the picture
Change of scene: New Nokia CEO Stephen Elop and his family are acclimatising to life in Finland after moving from Canada.

The problem is not that Nokia does not know how to make phones. Technically Nokia's phones are probably better than those of its rivals, while its distribution systems are more efficient. For these reasons, Nokia has fared better in developing countries and lower price categories.

Industry analysts say that Nokia's key problems are diminishing profits, operating system usability and a lack of imagination in smartphones. During the recession year of 2009, Nokia's turnover slumped by a fifth, with profits plunging. In 2010 Nokia's sales grew slightly, while profits rose briskly. The share price remained record low, which brought pressures for a change in leadership.

Market share dips but Nokia leads

When the Gartner research firm issued its November 2010 analysis of mobile phone market shares, based on third-quarter figures, Nokia remained the clear market leader with a 28.2 percent share. However, this was its smallest share since 1999. Though its market share slipped, it sold more phones. In the third quarter, Nokia sold 117 million mobile phones, more than ever before.

The mobile phone market has become more fragmented, with both number two Samsung and number three LG losing market share as well. Last year brought an influx of smaller, little-known manufacturers onto the market.

Another phenomenon in 2010 was the forward march of smartphones. According to Gartner, third-quarter smartphone sales soared by 96 percent compared with a year earlier. Nokia, which relies on the Symbian operating system, is the largest smartphone retailer. In second place are smartphones running on the Google-owned Android operating system, which features exclusive Google apps.

In third place is Apple with its iPhone, which runs on Apple's own iOS software. The iPhone has yet to become a mass-market product, but drummed up remarkable profits for Apple. The company reaped richer profits than Nokia last year, though the Finnish firm outsold it by 100 million phones.

Record-low shares

© Nokia
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Weathering fluctuations: These phones are being tested for humidity resistance.

From a shareholder's point of view, Nokia has been a disappointment. Expectations and the stock value have dropped from their previous heights. The share price slid to rock-bottom during the financial crisis and has yet to bounce back despite the general recovery in the world economy.

In December, the Nordic region's biggest bank, Nordea, listed Nokia as the only Finnish share with a "strong buy" recommendation. In Nordea's analysis, at 7.30 euros, "the valuation of the Nokia share is already rather low, considering the company's position as the market leader in the mobile phone market, its renewed smartphone range and the growth potential in emerging markets in particular." By early January NOK had gained nearly a euro in value.

The financial crisis and the downturn that followed were rough on Nokia. The company aggressively reorganised and closed several facilities. Yet Nokia's overall workforce grew in 2010, with jobs being shifted to India, China and Brazil.

Half of employees in networks

Nokia and the German company Siemens merged their network units in 2007, forming Nokia Siemens Networks (NSN). Nokia and Siemens own it 50/50, but according to the contract Nokia is responsible for leading NSN. The Finnish firm also has majority control of NSN's board.

Though the network side remains largely unknown to consumers, it is a major employer. About half of Nokia's 130,000 employees work for NSN. The company's first four years of operations have been fraught with all kinds of difficulties, but NSN seems to have finally made a profit in the past year.

Since 2009 NSN has been led by Rajeev Suri of India. NSN operates on all continents, but most of Suri's management team is based in Espoo, just west of Helsinki.

Most employees in Finland

Nokia has had particular success in India, controlling more than half of the mobile market in the world's second-largest country. In India, the word Nokia has become synonymous with "mobile phone." In Finland, meanwhile, the name refers to both the corporate behemoth and the small town near Tampere where it was founded nearly a century and a half ago.

A majority of Nokia's employees are still in Finland, nearly 22,000 at the end of 2009. The second-largest number is in India, followed by China. Measured in euros, China is Nokia's biggest market, with India in second place.

© Nokia
Click to enlarge the picture
Nokia maintains factories in nine countries, including this one in Salo, Finland.

Nokia phones are sold in 160 countries, with phone manufacturing plants in nine (Brazil, Britain, China, Finland, Hungary, India, Mexico, Romania and South Korea). The company boasts the sector's most sizeable R&D staff, with 37,000 people working in 16 countries.

Finns have long worried that Nokia would move its headquarters away from Finland. That fear is unfounded, at least according to board chairman Jorma Ollila. He reiterated soon after Elop's appointment that Nokia would remain based in Finland. Ollila noted that world business history offers mostly bad examples of what happens when big corporations move their headquarters.

Nokia's roots are in Finland and so should its head office be, says Ollila, who is also chairman of the board of Shell. Elop announced immediately that he was moving to Finland with his family.

Elop has made few public appearances as Nokia CEO, but when announcing third-quarter results in October he said: "Our company faces a remarkably disruptive time in the industry, with recent results demonstrating that we must reassess our role in and our approach to this industry."

Nokia has a future, but it will certainly be different from its past. With Elop at the helm, Nokia will redefine its role in an ever-changing market. Nokia's strong position in China and India will certainly be reflected in its new self-definition. China and India are growing rapidly – just what the new Nokia seeks to do.

 

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