“Problems Deepen at Nokia.” That was the headline I first thought of when I started writing this blog. Then it struck me that the current market situation is reflecting more than just problems at the world's (still) biggest wireless handset manufacturer.
A major upheaval is occurring right in front of us, and it features a readjustment of market share, sales, products, and technologies in the communications industry. Nokia's travails represent an entire chapter in the unfolding saga, and the conclusion is inevitable: The era of Nokia is over.
I wouldn't call what is emerging the Apple era, either. Despite Apple's astonishing success in the MP3, smartphone, and tablet PC markets, the company does not yet have a lock on these sectors, and competitors are steadily, albeit laboriously, whittling down its leadership. Also, the market is in flux; Samsung is shipping competitive smartphones and tablets; Motorola Mobility is no longer on a downward slope; HTC is hitting good shots; and, most importantly, Google — even though it doesn't itself make wireless phones — is angling strongly for a leadership position with its Android operating system.
And then, there is Nokia. Once the smartest kid on the block, it is now seen mainly as a plodding player in a market it helped to turn into a global phenomenon. Today, Nokia revised downward its second-quarter and full year 2011 outlook for its Devices & Services section. The company said “multiple factors are negatively impacting Nokia's Devices & Services business to a greater extent than previously expected.”
Here are Nokia's three reasons for the current situation:
- The competitive dynamics and market trends across multiple price categories, particularly in China and Europe
- A product mix shift towards devices with lower average selling prices and lower gross margins
- Pricing tactics by Nokia and certain competitors
Is anyone surprised at this development? I would consider it strange for Nokia's executives not to have anticipated the sales slump, anyway. The company is making major strategic changes in its operations, and president and CEO Stephen Elop's decision to discard the Symbian operating system in favor of Microsoft's Windows OS was bound to have some negative impact. (See: Nokia Details First Steps in Road to Recovery and Nokia/Microsoft Alliance Carries Downside for Cell Phone Giant.)
Elop should have anticipated a lull in sales as consumers, developers, and partner telecom service providers stand aside while Nokia sorts out its problems. If he didn't, somebody should ask for his scalp. But Elop might not have been alone in not anticipating the trouble ahead. Disappointed investors today dumped the company's shares, and its ADR fell about 15 percent on the New York Stock Exchange by midday on Tuesday, May 31.
Hold on to your seat. It's going to get really bad at Nokia before it starts getting better. All indications are that the company is embarking upon a years-long reorganization that will initially leave it with a much smaller share of the mobile handset market and crimp its future ability to dominate the sector. Rivals are not standing still while Nokia resolves internal issues. In a market that moves at the speed of light, Nokia made several strategic mistakes: It didn't give customers more than they were used to, and it grew complacent.
Elop compounded the problem, in my opinion, with the decision to dump Symbian. If Nokia had instead said it would offer both Symbian and Windows without putting a time limit on the older operating system, it would have retained the market and sales that are now fast slipping away. That action has already doomed the company, at least for the next several years. By the time Nokia bounces back, the world will have moved in a different direction, much as it did when Motorola fell into a funk.
The Nokia era is over, but who is taking on the leadership mantle?