Nokia

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Innovate Or Die

Ask a European about Nokia and a faraway look will come into their eye, a wistful tone creep into their voice. During the late 1990s and early 2000s the 147-year-old Finnish company became a global technology star: the world’s No. 1 mobile maker and the first brand of phone everyone owned. In some emerging markets, so the story goes, the word ‘Nokia’ became a generic term for ‘mobile phone.’ But becoming synonymous with phones is where it all went wrong. There can be little doubt that Nokia’s mobile glory days are behind it. Korean electronics giant Samsung now occupies the once Mighty Finn’s former throne at the top of the global mobile tree, while Google’s Android OS is the dominant smartphone platform (Android overtook Nokia’s legacy smartphone OS Symbian at the end of 2010, according to Canalys). In Q3 this year, Android was on an average of three out of every four smartphones sold worldwide (IDC’s figure). In October, IDC also noted Nokia’s exit from its top five global smartphone vendors – the first time the Finnish company had dropped out of the top five since IDC started tracking vendors in 2004. Even if Nokia’s strategy of switching from its legacy smartphone platform, Symbian, to Microsoft’s Windows Phone OS — a strategy it outed in February 2011 — ends up being relatively successful, in terms of profitability and device shipments, the company will never hold sway over the industry as it once did. Now it’s just a passenger on Microsoft’s train. However many fancy apps Nokia adds to Windows Phone, the underlying platform is directed in Redmond, not Espoo.

FROM HERO TO ZERO
The Nokia of today is a very different, much diminished company compared to the giant of the mid 2000s. If not a spent force, then certainly a much reduced one: smaller, less profitable, with fewer assets, and resources at its command — and dwindling cash reserves (net cash fell to €3.6 billion by the end of Nokia’s Q3 2012, down from €4.2 billion in its Q2). It doesn’t even own its own headquarters any more: earlier this month it agreed to sell and lease back the building to raise €170 million. Rumours of Nokia being an acquisition target continue to swirl — helped by the company’s historically low share price (currently around $3-$4, it has dropped as low as $1.33 this year) — with Microsoft and even Apple named as potential buyers. Since Nokia’s first non-Finnish CEO, Stephen Elop, was appointed in 2010, job cuts have been a regular headline story for the company. Nokia now has 44,630 employees in its mobile and location division — down from 60,995 in Q3 last year. The company’s changing shape is the result of Elop ‘realigning’ the business to fit the new strategy of using Microsoft’s OS, rather than developing smartphone platforms in house — leading to various in-house software efforts to be discontinued from Qt, to Meltemi, to Maemo/MeeGo. But Nokia’s CEO has also had to slash costs as profitability plunged. Nokia swung to an operating loss of €1.073 billion 2011 and has reported a string of quarterly operating losses this year: €1.34 billion in its Q1; €826 million in its Q2; and €576 million in its Q3 – with a “challenging” Q4 expected. A full-year 2012 loss of more than €3 billion looks likely. Combine those losses with dwindling cash reserves — and Nokia’s apparent failure to ignite significant consumer interest in its Windows Phone-based Lumia line of smartphones and the company’s very survival looks to be at stake. Nokia hasn’t broken out sales of its new Windows Phone 8 devices yet, but sales of WP 7.x devices have been unimpressive to date: Nokia reported 2.9 million Lumia sales in its Q3; 4 million in its Q2; and more than 2 million in its Q1. (For context, worldwide sales of smartphones rose to 169.2 million units in Q3 alone this year, according to Gartner.) Yet wind the clock back five years and Nokia was riding high as master of its own mobile hardware and software, and a hugely profitable business (its...
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