Nokia

This podcast is based on Nokia; it will evaluate their performance, reasons for their performance and potential
recommendations.

Nokias current performance in the market is a significant threat to their existence, this is due to the dramatic
downturn of sales of Nokia handsets and the emergence of strong competition. Nokia were the largest mobile phone
manufacturer for 14 years, before being overtaken by Samsung. A report from the Guardian stated Nokia is burning
cash, has closed factories and research centres and laid off thousands of staff in the last year after sales of its more
basic phones collapsed and the Finnish company lost its position as the world's biggest manufacturer of handsets to
Samsung.

The fact that Nokia have closed down some of their production centres and laid off thousands of staff indicates that
as a company, they are facing an uphill battle with their competitors as their rivals are becoming increasingly
dominant.

The IDC report on worldwide mobile phone markets found that Samsung shipped more smartphones than any
other vendor during 2012's first quarter with 42.2 million units. This further demonstrates the emergence of
Samsung as the leading manufacturer.

Recently, figures reveal losses in excess of 1.41 billion as smartphone sales fell by 34% with chief executive Stephen
Elop admitting that the company were facing greater than expected competitive challenges".

Nokia are falling behind their competitors and this is further indicated by a report released by the financial times
where it states that Samsung has sold 93.5 million handsets compared to Nokias sales of 82.7 million phones

Interestingly, Bloomberg have announced that Nokia has debts which equates to 5.2 billion euros, and due to the
decrease in sales and slump of share price, it is looking increasingly difficult to see how Nokia will repay that debt.
Nokias main strength is the fact that they currently have net cash of 4.2 billion euros which stabilises the company in
the short term, but the decrease in sales and slump of share price could have a substantial effect on their
profitability in the long term.

The reason for Nokias current performance is the threat of their competitors. Apple, Samsung and Research in
Motion have produced innovative products that meet the requirements of their consumers and therefore Nokia
have not been able to keep up with the quality of the products manufactured by their rivals. For example, the
release of the iPhone 5 from Apple, the Samsung S3 and the Blackberry from RIM have clearly outshone the Lumia
smartphones released by Nokia. It is evident that Nokia has been vastly affected by their competitors as Shares of
Nokia have plunged more than 90 per cent since Apple introduced the iPhone in 2007. They declined 4.4 per cent to
1.47 euros.

A potential weakness was that Nokia were very reliant on the Symbian operating system, whilst their competitors
were doing exceptionally well working with Microsoft. Nokia were solely dependent on Symbian till it entered into a
partnership with Microsoft recently. But its shift to Windows was considered a little too late as by then Apple and
Samsung had established their dominance; Stephen Elop has admitted 'Symbian has proven to be non-competitive
in leading markets.

Furthermore, Nokia did not react or respond as fast as it competitors to changes in the technological environment as
well as competitors like Apple, Samsung and Research in Motion who did and developed innovative products that
met the requirements of their consumers, for example the first iPhone was released in 2007 and Nokia still do not
have a product to match it, this lead to Stephen Elop stating that the company is currently standing on a burning
platform. Former Nokia CEO Jorma Ollila stated It mostly began with the weakness of our software platform
capabilities and the fact that it was not a European strength. We identified this ten years ago, towards the end of the
90s, at the beginning of 2000 that this should become Nokias strength, but we were not able to build it. This
confirms the fact that Nokia are still behind their competitors in terms of innovation as problems that were
identified ten years ago have still not been rectified, therefore giving the competitors of Nokia the edge in the
market.

Economic factors such as the recession had an impact on Nokia as they reported a 69 per cent drop in profit and a
19 per cent drop in sales. Consumers were consistently purchasing products from competitors such as Apple and
Samsung as they were still releasing products that customers required. This emphasises the superiority that Nokias
competitors have, as customers were still purchasing their products through the economic downturn.

Nokia have previously experienced legal difficulties as they went to court with Qualcomm due to patent rights,
however a 15-year deal put an end to extensive litigation between the worlds leading wireless chip producer and
the largest handset maker. This has allowed both companies to use each others patents and this could result in the
production of more innovative products for their consumers.

Nokia had foreseen an opportunity in the form of announcing that they are releasing a new handset which recharges
wirelessly, this is an attempt to bring back the customers as inductive charging may offer the company a unique
selling point into the market. Unfortunately for Nokia, this idea of differentiation has proven to be unsuccessful as
Samsung have recently launched a charger that powered the smartphone wirelessly for their Galaxy S3. This will
have a significant effect on Nokia as their unique selling point has proven ineffective because Samsung now have the
upper hand by applying this aspect of technology to their already extremely popular smart phones.

Nokia have attempted to differentiate themselves from their competitors by releasing a handset that charges
wirelessly, this links to Michael Porters theory on differentiation because he believes A firm that can achieve and
sustain differentiation will be an above average performer in its industry, however sustaining this competitive
advantage was ended by the release of wireless technology products by Samsung.

Recommendations

According to Michael Porter, One source of decline is substitute products created through technological
innovation, therefore I believe Nokia should place more emphasis on their Research and Development department.
This is because this would allow Nokia to release more innovative products to match their competitors which could
potentially result in Nokia gaining a bigger market share.

The CEO Stephen Elop has hinted that they may be looking to release products such as a tablet PC and laptops,
putting these ideas into practice could be the start of something new for Nokia. We have not announced any
tablets; the opportunity is very clear since Nokia customers increasingly are looking for a common digital experience
between their smartphone and tablet, with a PC.

Alternatively, it may be a good idea for Nokia to diversify into a different field as the advances in technology of the
research and development departments of their competitors has made it increasingly difficult for Nokia to have any
sort of market share.

It may also be a good idea for Nokia to think about forming a partnership with one of their competitors, this would
give them a market advantage as both companies could combine their research and development departments and
release new innovative products. Although Nokia are losing customers in terms of smartphones, they operate in
other markets such as car accessories and audio equipment; therefore this could be a potential selling point to their
rivals when trying to negotiate a partnership. An example of a successful partnership is Orange and T-Mobile,
currently operating under the name of EE (Everything Everywhere), they have the upper hand over their rivals as
they have become stronger by combining with each other, and they currently have the biggest customer base with
over 28 million customers.

References

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http://www.aljazeera.com/business/2011/02/201129144053920207.html, accessed 1 November 2012

BBC. (2012) Nokia losses deepen to 1.4bn euros in last quarter, BBC News, 19 July, available from http://www.bbc.co.uk/news/business-
18898121, accessed 3 November 2012

Constantinescu, S. (2012) Former Nokia CEO: 10 years ago we knew we had to work on our software, but we didnt,
Into Mobile, 6 May, available from http://www.intomobile.com/2012/05/06/former-nokia-ceo-10-years-ago-we-
knew-we-had-work-our-software-but-we-didnt/, accessed 31 October 2012

Garside, J. (2012) Nokia's Windows 8 phones fail to impress the markets, The Guardian, 6 September, available from
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2012

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Porter, M. (2004) Competitive Advantage, 1st edition, New York, Simon & Schuster

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Rahn, C. (2012) Nokia Debt Rating Cut to Junk at Fitch, Bloomberg, 20 July, available from
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2012

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