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Will Nokia Rise Again?

Finland may have to find another wildly successful company to serve as its national image booster. {complink 3847|Nokia Corp.}, once the most celebrated corporate champion for tiny Finland (population 5.3 million), is fading fast in the mobile device market, facing the prospect that turning its fortune around may take years… or not happen at all.

In the first quarter of the year, Nokia's mobile handset market share plunged to 29 percent, from as high as 37 percent in 2007 and at its peak slightly above 40 percent. The trend for the company is downward, especially in the smartphone market, and it may be at least two years before Nokia establishes a strong beachhead in the segment. Additionally, while Nokia is struggling to put its house in order, rivals are pulling strongly ahead, paced by {complink 379|Apple Inc.}, which today represents one of the most disruptive forces in the mobile devices market.

The decline is reflected in Nokia's market value. As of Monday, April 25, Nokia's market capitalization had fallen to $33 billion, down 41 percent in only the last year and almost 80 percent since 2007, according to Morgan Stanley. The stock still faces pressure in the future as the company transitions products from its in-house operating system to Microsoft Windows OS. Once the undisputed leader, Nokia is now chasing the fleeing tail of a nimbler rival.

“Apple redefined the market in 2007 and now dominates the market. Nokia is still trying to catch up with its answer only due by 2012 if it can execute seamlessly,” said Patrick Standaert, an analyst at Morgan Stanley in a report. “However, the risk is that the eco-system may have transformed.”

That negative perception about Nokia's ability to improve its fortunes in the near future represents the most challenging problem the company faces. It is still a solid enterprise with billions in sales but is no longer considered one of the most innovative OEMs in the industry. Nokia's growth rate is unremarkable, as rivals like Apple have vaulted ahead. In 2010, for instance, Nokia's sales rose a bit sequentially to €42.5 billion (US$62.2 billion) from €41 billion but were down sharply from as high as €51 billion in 2007.

As sales have declined, though, operating expenses have stayed stubbornly high, rising to 95 percent of revenue in 2010 from 84 percent in 2007. By comparison, Apple's operating expenses as a percentage of sales in its fiscal year ended Sept. 25, 2010, was 72 percent, down from 82 percent three years earlier.

Apple's fiscal 2011 sales are forecast to surge to $103 billion, a staggering 58 percent jump from the prior year and quadruple the $24.5 billion the company reported in fiscal 2007. Nokia, meanwhile, is forecast to report sales of $60.3 billion in 2011, up 7 percent from the preceding year.

A major challenge for Nokia is the nagging investor concern that it may not be able to successfully reorganize operations: In addition to the alliance with {complink 3426|Microsoft Corp.}, the company must cut costs and roll out winning products. It currently lacks an offering in the tablet computing market and has not announced whether it plans to get into that hot segment.

I am personally intrigued by Nokia's transformation efforts. CEO Stephen Elop believes he made the right call in teaming up with Microsoft and has called it a “win-win” partnership. Transitions, though, are a staple of the electronics industry, and Nokia's story, though fresh, is only a repeat of an old adventure. Many years ago Motorola was riding the crest of the mobile handset wave until a Finnish upstart came along.

Nokia ended Motorola's reign, and, despite years of reorganization and the introduction of somewhat successful products like the Droid phone and the Xoom tablet PC, Motorola Mobility is today a faint shadow of its former parent, with a market value of approximately $7 billion — compared with Apple's $325 billion.

Is that the future awaiting Nokia? And is there a lesson here for Apple?

26 comments on “Will Nokia Rise Again?

  1. SunitaT
    April 26, 2011

    Bolaji,

     I feel Nokia will rise again, because to me Nokia + Windows represents a very good alternative to iPhone and Android phones. People who use windows on laptop/Desktop would love to own a win-nokia mobile, because they are used to windows environmet. Needs to be seen how nokia plans to build applications base for win-nokia mobile similar to Android apps.

  2. AnalyzeThis
    April 26, 2011

    I won't attempt to predict Nokia's future, but I feel very strongly that they shouldn't even try to compete with Apple. Don't try to do a tablet and add to the glut of products there, don't worry on trying to make a fancier iPhone… don't even attempt to play in Apple's league.

    I feel that Nokia needs to keep things simple, focus on competing in the lower-end of the market. The partnership with Microsoft should actually help to facilitate this nicely.

    I don't think Nokia will ever be the undisputed leader in this space ever again. But that's OK. There is still plenty of opportunity for success.

  3. saranyatil
    April 26, 2011

    I still feel Nokia will hit back onto the road in the couple of years. Despite their market value is ocming down eveyday they are still coming out with great mobiles all the time. But they are actually going unnoticed due to the strong followers of apple phones recently. Nokia needs a leader who can work hard with long term vision with the right strategies to make them number one in next five years again. They should ivest inpeople who can build a right frame work to deliver useful applications to the users mobiles.

  4. Ms. Daisy
    April 26, 2011

     Tirlapur:

    I fully support a “win-nokia mobile”. I love my Windows operating systems and would to own a compatible phone and tablet.

  5. Eldredge
    April 26, 2011

    There was a time, not that long ago, when it looked like Apple was on the ropes, so recovery is possible. But it won't be easy, and it won't be soon.

  6. DataCrunch
    April 26, 2011

    Nokia makes a variety of smartphone devices and still is a market leader, especially outside the US.  Nokia is not what it used to be, but the company still has a loyal following.  Apple on the other hand has had a meteoric rise and only one kind on smartphone.  What is the likelihood Apple can maintain this kind of growth?

  7. Jay_Bond
    April 27, 2011

    One of the positives Nokia has going is its sales outside of the U.S. Though their market share has dropped significantly, they still do a large amount of sales outside of the U.S. I still feel that Nokia will continue to be a player in the handheld business, though I doubt they will overtake Apple at any point. Apple should definitely take a look at Motorola's past and try to get a system in place to make sure they don't end up with the same fate. There are plenty of companies out there just waiting to knock the giant off its perch.

  8. Eldredge
    April 27, 2011

    Both good points. Apple has set a pace that is almost impossible to maintain.

  9. Himanshugupta
    April 27, 2011

    Hard times are the actual test of a good company and great leadership. Many companies have turned their fortunes in the past and Apple is a good example here. There was a time when analyst wrote down Apple and now we are going ga-ga over this company. Also better to compare Nokia not only to Apple but also to other smartphone and mobile set manufacturers. I would like to see how Nokia is faring wrt to others.

  10. mario8a
    April 27, 2011

    I Agree Nokia has a very strong prescence in EMEA, let's hope Apple doesn't launch another champion product on smart phone market, that will be very bad news for Nokia.

  11. electronics862
    April 28, 2011

    The trouble with being number one in any industry is that you have nowhere to move but down… hope Nokia will launch an extraordinary product to compete with Apple..

  12. Taimoor Zubar
    April 29, 2011

    Apple started with computers and made it's way into the cellphone market through smartphones, whereas, Nokia confined itself to the cellphone market only. The gap between the two industries is getting narrower and narrower. I think Nokia needs to realize this and 'move up' to cater towards smartphones, tablets and ultimately the PC and laptops markets.

  13. electronics862
    April 29, 2011

    Yes,that's true..Between Apple and Nokia, I would rather, by far, pick Apple. The firm has a growth story and is innovating every year…

  14. Backorder
    April 29, 2011

    Nokia still does not have a response to the tablet iPad. This is astounding and discouraging sign for Nokia's future. It will set Nokia at the tail of the growth story that tablets will become. Unless Nokia can surprise the world with a revolutionary new product, which changes the market like iPhone/iPad did, its hard to see how nokia will ever jump back!

  15. electronics862
    April 29, 2011

    Yeah.. nokia has to comeup with new innovations..not only in mobile market.. it has to start innovations in PC/Tablet markets also..

  16. bolaji ojo
    April 29, 2011

    True. But if you were once No. 1 and lost the title, it may be possible to start planning your return to the top spot again since everyone might just be focussed solely on the new market leader. It may take a generation, though, for a former leader to regain its mojo by which time the market might have moved in a different direction. Apple didn't become No. 1 in PCs, it became a leader in different sectors by reinventing the market for digital music players, smartphones and tablets.

  17. t.alex
    May 2, 2011

    I think the problem with Nokia is its complacency with mobile phone/smart phones for so long. It should have try out other products as well. With Microsoft partnership, will it produce just-another-smart-phone?

  18. Eldredge
    May 2, 2011

    Agreed – it will take some innovation on Nokias' part to rebound.

  19. Susan Fourtané
    May 2, 2011

    Backorder,

    Nokia has never been a computer/tablet company. Nokia is a mobile phone company. Why Nokia would change into a computer company all of a sudden? 

    -Susan 

  20. t.alex
    May 7, 2011

    Mobile phone is becoming more of a commodity. Nowadays what really differentiate them are the operating system which support wide variety of apps running on it. 

  21. Susan Fourtané
    May 8, 2011

    Yes, Alex. But not only an OS that supports the applications but also that works well and responds as a perfect OS. Do you think Windows OS is the perfect OS for Nokia? 

    -Susan 

  22. t.alex
    May 14, 2011

    Susan,

    The question can be more generic “Is Windows mobile OS good fit for mobile phone?” I guess the answer can be based on  the current market share of Microsoft in mobile world..

  23. Susan Fourtané
    May 14, 2011

    Good point, Alex!

    Let me put it this way, what would you think if tomorrow Nokia annouces that it's going to launch a Nokia computer? 

    The traditional competition has been Apple vs. Microsoft. As Apple has the iPhone it seems like Microsoft needs to compete there, too, with a mobile OS. 

    -Susan 

  24. Kunmi
    May 18, 2011

    There is still room for diversification in business if they have the means to do it. One product line may not last for eternity but to remain a viable company, Nokia has to explore other sources.

  25. Susan Fourtané
    May 19, 2011

    Kunmi, disregarding on what other sources Nokia might explore, the company's original principles and values should remain the same. That was always a good charactistic about Nokia. Nokia is looking at bad examples. 

    -Susan

  26. t.alex
    May 28, 2011

    Susan, nokia computer? My reaction was 'no way' 🙂

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