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Nokia and the Global Mobile Phone Industry

By:Amanpreet Kaur (46)

Ruchi Dhawan (70)

Ruhi Chadha (71)

Surbhi Bhatnagar (80)

Swati Jain (84)

Yashu Gupta (90)



CHARACTERS

Jorma Ollila, CEO of Nokia, in mid 2004.

Jack Gold, vice president of meta group, consulting firm in 2005.

Jussi Hyoty, an analyst at securities form FIM Securities.

Fredrik Idestam, a mining engineer.

Carl Henrik Lampen, a shopkeeper J. E. Segerberg, an engineer(FRW).

Yrjo Neuvo, head of R & D at nokia.

Olli Pekka Kallasvu, nokia¶s CFO in 2000.

Anssi Vanjoki, head of Nokia¶s multimedia operations.

Carolina Milanesi, an anlyst at Gartner. Rick Simpson, CFO in 2004.

Mary McDowell, headed enterprise solutions division.



PO SITIVE SIGNS The announcement of Nokia corporation¶s quarterly results in April 2005 was a much awaited

event as far as the global mobile phone industry was concerned.

The company, which had emerged as an industry leader in the late 1990¶s, had run rough

weather in 2003-2004, with sales and earnings falling below expected levels.

However, Nokia was not ready to throw in the towel quite so easily.

It introduced several new models, modified designs, and aggressively promoted products with

a view to increasing its market share, which had fallen to a low of around 28% in early 2004

from an average of 35% over the previous 3 years. The company announced satisfactory results for the 4th quarter of 2004 and market share for

the year 2004 also stabilized at 32% by the end of the year.

In the first quarter of 2005, Nokia¶s sales increased 17% over the corresponding quarter of the

previous year to $9.65 billion.

Net profit also rose 18% to $1.1 billion.

Global handsets sales rose 11%, prompting Nokia to increase its estimate of the size of the

global handset market in 2005 by 100 million to 740 million.

Despite these positive signs, several analysts wondered whether Nokia would ever be able to

dominate the industry as it did in the late 1990s and the first two years of the new century,

especially in light of the aggressive competition posed by several new Asian companies as

well as more established players like Motorola and Sony Ericsson.



BACKGR OU ND The company was first set up on the banks of the river Nokia in southwestern Finland in 1865

by Fredrick Idestam, who was a mining engineer. The original Nokia was a forest industry

enterprise that primarily manufactured paper.

Nokia¶s history of mobile phones started in 1981, when the company manufactured the first

car phones for NMT, the world¶s first international cellular mobile telephone network.

The company was also the original producer of the first hand portable phones in 1987, which

revolutionized the portable phones market that had only seen huge, bulky models until then.

The company entered new markets and adopted new technologies by acquiring other companies working in those areas.

In the early 1980s, Nokia acquired Mobira, Salora, Televa and Luxor of Sweden to strengthen

its position in the Consumer Electronics and Telecommunications markets.

In 1987, it acquired the consumer electronics operations of the German Company, Standard

Electric Lorenz, the French consumer electronics company, oceanic, and the Swiss cable

Machinery company, Maillefer. In the late 1980s, Nokia acquired the data systems division of Ericsson to become the Largest

Scandinavian information technology company.

Nokia Divested itself of its other businesses and sharpened its focus on telecommunications.

The company also made the critical decision to manufacture phones that could be sold

anywhere in the world, thus adopting the GSM technology standard, which was a nascent

stage that time.



Over the 1990s, Nokia became one of the most successful mobile phone manufacturers in the

world and began to enter non-Scandinavian markets as well.

In 1998, Nokia overtook Motorola to become the largest mobile manufacturer in the world.

In that year Nokia¶s workforce increased by almost 30%, its sales rose by 51% and operating

profit increased by 71%.Table I:Nokia¶s Popular phone models up to 2000

Model Number Year of

Launch

Unit Sales (in

millions)

101 1992 12

2100 1994 205100 1998 100+

3200 1999 45

8200 1999 35

3300 2000 70+

Company 2002

Sales (in

thousan

ds)

2002

Market

Share

(%)

2001

Sales (in

thousan

ds)

2001

Market

Share

(%)

Nokia 151421.8 35.8 139672.2 35.0

Motorola 64640.1 15.3 59092.2 14.8

Samsung 41684.4 9.8 28233.5 7.1

Siemens 34618.0 8.2 29752.8 7.4

Sony

Ericcson23112.9 5.5 26955.9 6.7

Others 107941.4 25.5 115876.6 29.0

Total 423418.5 100.00 399583.2 100.00

Table II: Market Share of major Players in Mobile Phones

The company hits its peak between 2000 and 2002, when it held market share of around 35%,which was considerably higher than that of its nearest competitor.

By 2003 analysts estimated that Nokia had manufactured about one-thirds of the mobile phonesin use around the world.

Things changed suddenly for the company in 2003,when it experienced falling market share and poor financial performance



THE RISE T O THE T OP Nokia was the first mobile manufacturer to realize in 1990¶s that phone no longer

played only a functional role but they were becoming as fashion symbols.

Previously mobiles phone were bulky , heavy devices with an external antenna and

with a standard keypad. But later on Nokia paid greater emphasis on design and

looks.

So the company worked on the design aspect and launched its 8210 handset and it

was a tremendous success and later came a whole bunch of 8200 series and then therewas no looking back.

All these handset were considered as design marvels and impressed customer a lot .

Nokia realized that innovativeness was an essential attribute if it was to remain in the

forefront as far as design and technology were concerned .

Many of nokia¶s most successful innovations came from the employees . As they were

free to express their ideas and many of these ideas were incorporated into phones if they

were found functional .

like the feature that allowed users to send text messages to each other in a chat

room over their mobile phones.

Implementation of NAVIKEY which radically changed user interface system

Another is removal of some of the dispensable keys by combining their functions

in a single key.



another instance is management support led to the development of phones with

internal antennae in year 1996

Models with internal antennae distributed in Nokia 8800 series and were an instantsuccess.

Nokia in order to facilitate and promote innovation in best manner possible manner Nokia

adopted the unconservative R&D structure.

Nokia¶s R&D operations were scattered across the world in nearly 70 sites. The reason

for establishing research centers around the world was to get a wider perspective of the

market .The engineers ,designers and sociologist whom manned these centers were given a

complete freedom to operate and develop their own ideas over and above their officially

designated research projects.

By 2000-2001 NOKIA was firmly established at the top of the mobile phone industry ,

controlling around 35% of share .

The company believed that Nokia¶s preeminence would last well into the future.

But company began to stumble in the year of 2003-2004 and the reason included

misinterpretation of market signals and design backwardness two factors that had played an

important role in the company¶s initial success.



THE FALL

1. In the early 2000s, Microsoft announced its decision to enter the mobile phonesmarket which set alarm bells ringing for Nokia as Microsoft had a reputation of

being an aggressive competitor.

2. Preoccupied with warding off the possible competition from Microsoft, Nokia

failed to read market signals like growing demand for clamshell phones, color

monitors and camera options while players like Samsung, LG, Sharp, Motorola

& Sony- Ericsson quickly introduced new models with these features.

3. Nokia focused on phone size and ease in use while competition focused on

color richness and screen size.

4. Results from 1st quarter of 2003 to 1st quarter of 2004 :-

Nokia estimated an increase in unit sales of handsets by mere 12%.

Nokia¶s global market share fell by around 6% whereas all the rivals¶ recorded

an increased market share.



5. Results from 2nd quarter of 2003 to 2nd quarter of 2004 :-

Sales increased 11.8%.

Revenue fell by 5%.

Operating margin fell by 8%.

6. Reasons for Nokia¶s poor performance:-

Excessive investment in high-end phones and complicated softwares.

Disappointment caused by N-Gage cell phone¶s performance.

i. N-Gage was priced considerably higher than many other gaming devices in the

market.

ii. It had some basic design defects.

iii. Loading the games¶ software into the system was a long and complicated process.

iv. For a person to listen and speak it had to be held in an awkward angle. Nokia invested heavily in the development of advanced software, such as S60

Operating System, but the market was actually not ready for this technology.

Nokia failed to see some of the emerging trends such as clamshells or flip phones.

Nokia was the only manufacturer that did not offer clamshells in 2004.



Its backwardness in adapting to new trends.

Innovation tapered off around 2003-04.

It lost a considerable chunk of the market to competitors.

Huge gap in nokia¶s product line-up.

Very little to offer in the mid price segment of phones.

Company¶s tardiness in introducing customized, operator-specific handsets.

Nokia underwent an internal reorganization in late 2003,timing of reorganization was

wrong, which indirectly resulted in its losing focusing of the market. Nokia was divided into 4 new major business groups i.e. mobile phones, multimedia,

networks, enterprise solution.



EFF ORTS AT RECO VERY The company cut prices on certain handsets to increase its market share, and also fine-

tuned its portfolio to adjust products to meet the market needs.

It killed some outmoded models and brought forward the launch of several others,

including a number of clamshell phones.

In June 2004, Nokia launched 5 new models of phones, out of which 3 were clamshells.

Nokia¶s new models were the 6260 model, a clamshell whose cover not only flipped open but also swiveled, the 6630, which Nokia claimed was the world¶s smallest camera phone,

designed for 3G networks, another clamshell, the 6170, and two low end models, the 2650

and 2600.

Models like the low end 1100 model for emerging markets and the 6230 mid-range model

were also marketed aggressively and became popular in 2004.

The company also postponed until 2005 the launch of the 7700, a much hyped µmediadevice¶ that it announced in late 2003. The 7700 was designed to be a phone-cum-media

player, featuring a wide color screen and a µjukebox shape¶. The phone had the capability

to play FM and MP3 files as well as show digital videos and digital broadcast TV.



Nokia¶s launch of 5 new models received mixed responses in the market. Some analystswere positive about the new models while others were skeptical, pointing out that Nokia¶snew models had to compete with a broader line up from its rivals.

The company also gave in to operator customization in late 2004, realizing that it riskedlosing its market presence if it did not cooperate with powerful operators.

However, despite giving into customization, Nokia stayed with software customizationrather than customizing hardware.

The company launched software that was compatible with different operator¶s news,

music and gaming services, without having to modify the hardware. By late 2004, Nokia¶s market share had improved considerably, bringing up the annual

market share figure to 32%.

Nokia was making efforts to dilute its Finnish character to help the company adapt to anincreasing global scenario. It was finalizing a plan to open a second headquarter in NewYork in the future.

The company also began hiring non-Finnish employees for top level positions in 2004.Some of them were Rick Simpson who became Nokia¶s CFO, & Mary Mc Dowell whoheaded the enterprise solutions division.



A CHALLENGING F U T URE

Despite Nokia¶s laudable efforts in the direction of recapturing its lost market position-company¶s detractors believed that NOKIA had lost its competitive advantage in the

mobile phone market

In the early 2000s , mobile phones were expected to perform a variety of functions. Nokia

competitors had understood this and were in the process of launching several models that

were style statements in themselves.

Sony Ericsson also become the first company to launch a µswivel phone¶ with a jack knife

style of operations. Then other companies like LG were also fast developing 3G mobile

phones . Although NOKIA believed that the market was not completely ready for a 3G

model, in the fourth quarter of 2004 , it started shipping the 6630 3G phone , which

received a positive initial response.

The global mobile industry was also becoming increasingly volatile and several Asian

players were entering in the market. These players were not only the more established ones

from Japan and South Korea , but also come from emerging countries like Taiwan and

China.



A major challenge for Nokia in the future was to identify new avenues for growth in amarket that was becoming increasingly saturated. Analysts said that Nokia would do well toconcentrate on developing countries , which still offered for mobile penetration.

Mobile phones designed specifically for business users presented another possible option.The company primarily focused on mobile corporate e-mail, where it expected to have themaximum potential for growth. Nokia estimated that less than 10% of employees hadmobile and e-mail and hence the potential market was large.

Multimedia and gaming devices were also under consideration. However, before launchingnew devices in this area , Nokia was concentrating on improving N-Gage and warding off competition in the form of the SONY PSP and the Nintendo DS models

Considering Nokia¶s past performance and its capabilities ,analysts said the company hadthe potential to remain a major phone industry in the future. However, few believed that the

company would regain the undisputed leadership it enjoyed in the late 1990s and in the2001-2002, despite Nokia¶s ambitious target of capturing 40% of the global market in thefuture

nokia nd the global mobile phn--ruhi

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