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Nokia Plans for Growth Despite Dropping Sales

Does {complink 3847|Nokia Corp.} need another manufacturing facility, considering the embattled company is embarking on a major restructure that will involve big headcount cuts? Should Nokia even seek to expand its manufacturing footprint in an environment where industry observers expect shipment of its mobile handset devices to continue dropping ahead of the launch of Microsoft's Windows operating systems-based products later this year? The answer from Helsinki is yes.

Nokia is adding a new manufacturing plant in Vietnam as part of its plans to remain one of the major suppliers of connectivity products to consumers in emerging markets worldwide. The company predicts more than one billion people will gain access to the Internet over the next few years; it wants those people to have its products. The new facility being developed near Hanoi in northern Vietnam would require an initial investment of 200 million euros, or about $290 million, plus additional capital equipment spending. Nokia says the new plant will open 2012.

If you are puzzled by this move from a company whose market share is fast eroding, you are not the only one. Numerous questions popped into my mind when I saw the report; perhaps the folks at the Nokia headquarters in Helsinki have lost their minds. Nokia's custom baseband revenue had declined 53 percent in the span of two quarters, and sales in the devices and services business were forecast to fall 10 percent, in addition to expectations for low-single digit operating margin before restructuring costs, as EBN Editor-in-Chief Bolaji Ojo has reported. (See: Nightmare in Helsinki.)

Read further, though, before you join the crowd in condemning Nokia's latest manufacturing initiative. The company may be troubled, but it appears the senior executives are looking beyond the current problems to develop a manufacturing strategy for future growth and to meet continued increase in product demand.

Nokia’s manufacturing network currently consists of ten major facilities in Europe (Finland, Hungary, Romania, and the UK), Latin America (Brazil and Mexico), and Asia (China, India, and Korea). You'd think these facilities would be more than enough to cover the production of handsets Nokia currently sells. However, the company sees demand for connectivity products like smartphones surging in the near future as more people worldwide seek access to the Internet. Nokia does not want to be overwhelmed by the expected increase, executives say.

Esko Aho, Nokia’s executive vice president, said in a press release: “Only about 30 percent of the world's population is currently online, and we believe we can play a major role in connecting the next billion not just to their first phone but to their first Internet and application experience.”

Still curious about how the planned Vietnam facility fits into the company’s manufacturing strategy, I went straight to the source. Nokia's media relations spokesperson Henna Pelkola gave me some answers. She confirmed what Aho had said in the press statement and added that the addition of the Vietnam plant does not indicate the company plans to shutter any of its current facilities.

I asked Pelkola whether the Vietnam plant was part of a strategy for not being held captive by possible problems in China. “No. As we said when announcing the plan to establish a plant in Vietnam, it is a part of our strategy to connect the next billion people to the Internet. The plant would add to our manufacturing network,” Pelkola said.

Despite the forecast for lower sales, Nokia seems to be preparing for growth, rather than for decline. “Our focus is moving forward with our strategy — and one pillar of that strategy is to connect the next billion people to the Internet through our mobile phones business,” Pelkola said.

Nokia has had a close relationship with Vietnam since 1996. Vietnam now can offer both the location and developing infrastructure to expand Nokia’s manufacturing network. “I am extremely excited about this opportunity and about the support and commitment that Vietnam has offered to Nokia,” said Juha Putkiranta, Nokia's senior vice president.

Interesting things are happening in the mobile world, and Nokia obviously aims to remain a major force in the market. The Vietnam plant potentially could make the company a stronger competitor in the wireless devices market. I only wish I could say the same about its plans to dump its Symbian operating system for Microsoft's Windows OS.

38 comments on “Nokia Plans for Growth Despite Dropping Sales

  1. FLYINGSCOT
    June 17, 2011

    Maybe Nokia is flushed with cash after its huge settlement with Apple whereby it gets a royalty for many past and future Apple phone sales 😉

  2. AnalyzeThis
    June 17, 2011

    Well… at least Nokia is optimistic about its future, unlike the rest of the industry.

    Nokia is kind of in a no-win situation at the moment, if they closed a factory, this would be a “look at Nokia failing!” article. Instead they open a new factory, and it becomes a “look at silly Nokia thinking they aren't failures!” article.

    Really, it's a pretty good time for them to make such an investment and basing out of Vietnam is probably a good idea as well. While I don't think Nokia has much reason for optimism at the moment, at least they're not giving up.

    That being said, do I think Nokia will rebound and restore itself to its former glory? No, I do not.

  3. Nemos
    June 17, 2011

    I have heard a maxim that says “There are many ways to go forward, but only one to stand still” . As Nokia “moves” there always will be in the “right” path. Although  it facing decrease in sales took the decision to implement a costly plan such as the manufacturing of a new factory is.

  4. Houngbo_Hospice
    June 17, 2011

    @DennisQ

    “That being said, do I think Nokia will rebound and restore itself to its former glory? No, I do not.”

    Maybe not so soon. But who ever knows. A little more than a decade go, we would say the same thing about Apple. Now Apple's comeback is partly due to a change of strategy by Steve Jobs who didn't hesitate to ask for Microsoft's help and it seems to have worked fine. Do you remember MSFT's  150 million investment in Apple  in 1997? History can repeat itself. You never say never….

  5. eemom
    June 17, 2011

    You've got to give Nokia props for sticking with their strategy to the extent of investing in it with a new manufacturing facility.  Hopefully the facility will help them realize long term cost savings.  I am sure part of their strategy of starting a new facility is to have more control over manufacturing so they have the ability to implement their strategies without being susceptible to worldwide issues with supply.  If they believe the demand will be there, then this is their way to insure that their supply will continue uninterrupted.

  6. t.alex
    June 18, 2011

    Is it true once the plant in Vietnam is up and runnung, it will cut down on other plants?

  7. Susan Fourtané
    June 18, 2011

    Flyingscot,

    It seems pretty likely. 608 million USD is a nice amount of money for investment, including a big opening party. 🙂

    -Susan

  8. RistoNi
    June 18, 2011

    Yeah, exactly what I thought t.alex.

    But $290 million investment takes a while to pay back, even with cheap cost structure in Vietnam.

  9. Wale Bakare
    June 18, 2011

    Time will tell whether the new Nokia manufacturing in Veitnam can resurge the company back to its hay days. At least it worthwhile to continue investing in technology and in areas where atmosphere is conducive to make return on investment (ROI).

  10. Susan Fourtané
    June 18, 2011

    DennisQ, 

    I like the positive view in your subject line. 🙂 

    if they closed a factory, this would be a “look at Nokia failing!” article. Instead they open a new factory, and it becomes a “look at silly Nokia thinking they aren't failures!” article.”

    This tells a lot about the human nature, always wanting the opposite of what they have or get. 

    I have to admit that I have been having mixed thoughts about this situation with Nokia lately. It is not new to this board and its readers what I think about all the Microsoft deal and about Elop or about having dumped Symbian.

    However, I kind of like the attitude of showing that not because things are not going so well, Nokia has to sit and wait until the Nokia empire falls down. The fact that they don't seem to be giving up is what I like from all this situation. As a rule, not giving up brings good results, most of the time. 

    This attitude, at this precise moment, makes me think of the Finnish Sisu. Something that I admire every time I encounter a case of Sisu in a Finn or a Finnish company, in this case. With clear certainty I can tell you, if this is a case of Sisu, we could see Nokia emerging like a Phoenex. If it is not, well, we will continue following a never ending story in the manufacturing world. 

    Cultural note: Tough, Not Flexible (The Finns and their Sisu-attitude), extract from From Finland With Love by Roman Schatz.  

    “Sisu means doing things until they're done, not because they're important, but because they neet to get bloody well done and because you just don't bloody leave anything unfinished. It's not about what others might say if you don't do things properly; it's about what you think yourself. 

    Sisu is about being tough, not flexible. It means to never give up, to find more energy as the situation turns more desperate, to become stronger as the odds get worse. It's much like a turbo charger that kicks in when the going gets tough: In order to evoke it, you have to put the Finns against the wall, corner them, put them in a hopeless situation. First they'll go all white and silent, then they'll pump themselves up with that mythological force that enables them to endure the unendurable, bear the unbearable and tolerate the intolerable.”

    Can you see Nokia in the description? 

    Can you see why all this new manufacturing plant project, despite dropping sales, keeps me thinking? 

    -Susan 

  11. Susan Fourtané
    June 18, 2011

    RistoNi, 

    There is not a last word about that. Do you have some thoughts on the situation in Salo in particular?

    -Susan

  12. Susan Fourtané
    June 18, 2011

    Hi, Nemos

    That's a good one. Look at what I replied to DennisQ and tell me what you think.  

    -Susan

  13. Susan Fourtané
    June 18, 2011

    Hi, Hospice 

    Thanks for the historical trip. 

    Here is the link to Microsoft's 150 million investment in Apple in 1997 for those who would like a little time travel. 

    I keep on thinking they are just a big family. 

    -Susan

     

     

  14. DataCrunch
    June 18, 2011

    Hi Susan, I believe that Microsoft sold its Apple shares (18.2 million shares, which they had originally acquired at a $8.31 per share) years ago.  Still they were able to achieve a healthy profit from the “loan”, but not nearly as much as if they had held onto it for several more years.

  15. Nemos
    June 18, 2011

    I liked very much what you have written, especially the “sisu” part focusing at this phrase “It means to never give up”. Never give up, always we must try for our best regardless of what would be the result.

  16. Anna Young
    June 19, 2011

    Susan, having read all comments on this article, it is abundantly clear that each view holds either admiration or mix emotion over Nokia's move to expand and establish a manufacturing plant in Vietnam.

    I'm a staunch supporter of Nokia resurrecting itself and I believe it's possible for Nokia to turn itself around again. I particularly admire the spirit of “it's not over until it's over” shown by Nokia in this instance. If the strategy to expand makes economic sense to Nokia's executives in the face of adversity, then I wish Nokia the very best and hope the strategy yield good results.

  17. Susan Fourtané
    June 19, 2011

    Hi, Dave

    That part of the Apple-Microsoft history was revived by Hospice, who thinks the story may repeat. (See comments below) I then posted the link to bring the case back, but I was not following the story in detail more than ten years ago. 

    You feel free to bring more info to add to the discussion, if you wish. 🙂

    -Susan

  18. Susan Fourtané
    June 19, 2011

    Thanks, Nemos. 

    “Never  give  up,  always  we  must  try  for  our  best  regardless  of  what  would  be  the  result.”

    Exactly. And never listen to discouraging words which can put us down. 

    -Susan

  19. Susan Fourtané
    June 19, 2011

    Anna,

    “Susan, having read all comments on this article,  it is abundantly clear that each view holds either admiration or mix emotion over Nokia's move to expand and establish a manufacturing plant in Vietnam.” 

    You brave girl for reading all the comments! 🙂 Thanks. 

    To your observation I would like to add that no one has shown disbelief or thoughts against this new plant in Vietnam. This is good for Nokia, as it represents encouragement and support, good energy so much needed in hard times. 

    -Susan


  20. Daniel
    June 20, 2011

    Susan, we had a time that mobile phone means Nokia and Alcatel. That time there were not that much competition and these two hold major share in market. Later when more players entered in to market and tough competition made Nokia’s worldwide market share drop considerably. Now also if we considering only Asian and nearby regions, then also they are the leading players. I think certain mismanagement had happened in top level management and that could be one of the reasons for decline in market share. May be part of their endeavor to re gain the market, they are planning for the new in Vietnam.  Moreover, diversification can help them to customize the market requirements.

  21. Taimoor Zubar
    June 20, 2011

    I think the critical issue here is the difference between forecasts made by Nokia and the one made by experts. There seems to be a great conflict where Nokia is expecting the demand for its phones to rise in the upcoming years while the experts are predicting otherwise. While only time can tell whose predictions comes out right, I think Nokia should also give respect to predictions made by independent experts and respond to them.

  22. Anand
    June 20, 2011

    Despite the forecast for lower sales, Nokia seems to be preparing for growth, rather than for decline.

    Good to know that  despite the forecast for lower sales, Nokia seems to be preparing for growth because Win-Nokia mobile might boost Nokia sales. Infact acquisation of Skype by windows has raised hopes for Nokia.

  23. Ms. Daisy
    June 20, 2011

    Good Point! I suppose insanity is doing the same thing over and over and expecting different results. May be Nokia has a new definition.

  24. Tim Votapka
    June 20, 2011

    Could also be Nokia is applying a fundamental formula to its condition.

    1. Promote – make things known.

    2. Change your operating basis.

    3. Economize (which by the way doesn't necessarily mean cut back on investments. It means “don't waste resources.”

    4. Prepare to deliver.

    5. Stiffen discipline.

     

    I'm light years away from the scene, but this seems to be what's going on. If so, we'll see those sales increase on the statistics.

  25. Ms. Daisy
    June 21, 2011

    Very good strategies for organizational change if that is what Nokia ia embaking on. Their attempt at diversification into Vietnam is another great move. What I am not hearing about are, innovation and organizational accountability. 

    You are right about our being far removed from what is happening on the ground. But like others, outcomes is what we see and new products is what the consumers expect for Nokia to be competitive.

  26. stochastic excursion
    June 21, 2011

    That's true, maybe Nokia knows something the experts don't about projected demand for mobile phones.  Marketing and innovation can make the difference between a “must have” item and a “maybe later if I have the money” item.

  27. Susan Fourtané
    June 23, 2011

    Jacob, 

    Certainly the decisions made by management have influenced and declined the market share. Some of the resignations that were direct consequence from those decisions made by management have had their weight and influence, too. 

    We'll see what the new plant in Vietnam brings and how it will affect the other plants.

    -Susan 

  28. Susan Fourtané
    June 23, 2011

    TaimoorZ, 

    In a total neutral way now, I have to say that every company always holds certain amount of information and details that no expect can have access to. For this reason, when a company's expectations are so different from the experts' (Who?) expectations there has to be a reason. No big company with certain reputations goes around with a mouth full of expectations if there isn't something behind to back up those expectations. 

    How would you like to see Nokia respect and respond to the predictions made by those independent expects? 

    -Susan

  29. Susan Fourtané
    June 23, 2011

    anandvy, 

    Would you say that Nokia's announcement of the N9 smartphone and the three new, more affordable Series 40 mobile phones in Singapore, was in direct reply to the forecast predicting lower sales?

    -Susan

  30. Susan Fourtané
    June 23, 2011

    Tvotapka, 

    A new manufacturing plant, a new smartphone and three new mobile phones might make a difference. All of the above was just announced. Now we need to wait before we can tell more. Let's wait and see what they're going to deliver, or whether they are going to deliver or not. 

    -Susan

  31. Susan Fourtané
    June 23, 2011

    Mr. Daisy, 

    “But like others, outcomes is what we see and new products is what the consumers expect for Nokia to be competitive.”

    What do you think of the new products that were just announced? 

    -Susan

  32. Susan Fourtané
    June 23, 2011

    stochastic excursion,

    “Marketing and innovation can make the difference between a “must have” item and a “maybe later if I have the money” item.”

    Exactly. Especially if the “maybe later if I have the money” item represents a considerable amount of money. 

    -Susan

  33. Tim Votapka
    June 23, 2011

    Agreed! And I don't think we'll have to wait long to see.

  34. Ms. Daisy
    June 23, 2011

    It is too early to say what the impact of the N9 smartphone and the three new Series 40 mobile phones will have. I am however in support of Nokia's attempt to get back in the race with new innovations and expansion of their manufacturing base.

  35. Susan Fourtané
    June 23, 2011

    Tvotapka, 

    This is going to be an interesting summer. 🙂

    -Susan

  36. Ms. Daisy
    June 23, 2011

    Susan:

    It is this management chaos and leadership “vacuum” that compounded Nokia's problem.

  37. Susan Fourtané
    June 23, 2011

    Ms. Daisy,

    “It is too early to say what the impact of the N9 smartphone and the three new Series 40 mobile phones will have.”

    Definitely. My question was about your thoughts on the new devices according to the specs published and the reviews that are already circulating. That was in connection to your previous comment. 

    -Susan

  38. Susan Fourtané
    June 23, 2011

    Ms. Daisy, 

    If you come to think about it, if who is making the decisions and leading the company makes such decisions that are not supported by others who are also in key positions and are valuable for the company, and if this disagreement make people to resign, and these resignations provoke an imbalance in the whole structure of the company, leaving key positions with no direction, how on Earth would you expect a company to perform and deliver accordingly to the demands and expectations of the market? It's simply not possible.

    Since the beginning of Stephen Elop's reign I manifested my distrust that he could do any real good to Nokia. Well, what have we seen so far? Now there is the new plant and the new devices just announced. As we were saying, it's still too soon to see what is going to happen next. I have also said I have mixed feelings and thoughts about the whole issue. This means with some things I agree and I disagree with some others. 

    What I suspect is that someone of weigth in the company has noticed that is Elop's strategy continues making others resign, soon Nokia is going to be a one person company. 

    A good management leads, thinks and decides with intelligence and for the good of the company. A good management doesn't provoke chaos, inestability or people to resign. On the contrary. A good management creates stability, harmony and profit. 

    -Susan

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