Mixed signals from the mobile empire - Nokia - Company Business and Marketing

CommunicationsWeek International, July 16, 2001 by Joanne Taaffe

Jorma Ollila, at the helm of the world's largest mobile phone maker, has taken some knocks recently. But branding and lucrative financing deals will keep the company on top.

Last month, Nokia's chief executive, Jorma Ollila, quashed hopes that the Finnish mobile powerhouse would survive the telecoms downturn with strong growth rates intact. Ollila had previously declared quarterly growth rates of 20% sustainable for Nokia through 2001. Yet in June, Ollila warned that Nokia's second quarter results would show growth of below 10%. In addition, the company's second quarter revenues, due out this week, will take a [epsilon]190-million knock in the form of restructuring and goodwill charges.

"[Nokia has] recently seen a weakening in market conditions to levels below our earlier estimates," said Ollila. "We believe that this slowdown is a result of a general market deterioration--driven by economic uncertainty, the ongoing technology transition and less aggressive marketing by the operators."

Despite this setback, Nokia is still far ahead of the pack in the handset market. The company has managed to continue increasing its share from 32% at the end of 2000 to nearly 40% today, according to Phil Taylor, senior analyst, Yankee Group. Yet, as analysts point out, its success is in part due to the weakness of its competitors.

"They're the best among a poor bunch of brand owners in the mobile space," said Peter Richardson of Gartner Group in Egham, England, Nokia, however, does possess a strength that will be difficult to assail. "But...they're actually very, very good at brand management," adds Richardson.

Many companies pay lip-service to the importance of brand, but Nokia decided--11 years ago--to set out a 20-year brand strategy.

"This was absolutely the right thing to do," said Richardson, arguing that it should have been obvious that the battle for dominance in the consumer phone market would be won on this rather than technological prowess.

Analysts believe that Ollila, who took over as chief executive in 1992, after two years as head of Nokia's mobile phone division, is largely responsible for providing the sharp focus that has been at the heart of this success. "Ollila--whether it was prescience or luck--has really steered the business down a fairly narrow track from where it was 10 years ago," said Richardson.

The emphasis on brand came hand-in-hand with a decision to focus on mobile technology at a time when Nokia was a money-losing conglomerate operating paper and rubber businesses. The gamble transformed Nokia into a European household name.

Yet Nokia has not managed to secure the same success in the network infrastructure market. It accounted for 25% of the company's business at the end of the first quarter this year, but it is still outstripped by Ericsson.

And Ollila, known to be loath to making redundancies, will over-see lay-offs of 1,000 staff in Nokia's network division between now and the end of the year. Nokia, which employs 23,000 people in the division, has not said whether it will announce further staff cuts or restructuring.

Nokia has come under fire from analysts for its network financing deals, undertaken to secure new contracts. This month Dresdner Kleinwort Wasserstein equity research department estimated that Nokia has committed around [epsilon]6 billion in aggregate to vendor financing, which represents about 60% of Nokia's reported shareholders' equity.

Ollila is now facing serious challenges in managing Nokia's handset business. The company surprised the market when it was been beaten to the store shelves with GPRS by Ericsson and Motorola. And analysts are not optimistic that Europe's consumers are ready to upgrade high-end GSM hand-sets to GPRS this year, largely because manufacturers--Nokia included--have failed to add attractive smart-phone features.

"I think it will take a real change in look and feel of handsets before people begin to upgrade," said Yankee's Taylor.

Asian hand-set manufacturers, with strong consumer brands, such as Sony (which has linked up with Ericsson) and Panasonic, are eyeing the European market, potentially undermining Nokia's position. Yet no Asian manufacturer has yet transferred these skills to GSM-based technologies in Europe, and analysts believe, that Nokia's carefully constructed brand may prove enough of a fortress. "On a global scale Nokia will have to work really hard. On a Western European level, there is little chance Nokia will be beaten," said Taylor.