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Nov 12, 2013 (3 years and 8 months ago)

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Nokia

Company Description


Business and
Industry Paper

David H Quadrato Jr.

Company Description


Business and Industry Paper









Quadrato


University of Connecticut


School of Business (MBA Program)





Page
1


Introduction

Nokia Corporation is a Finnish multinational communications corporation that is headquartered in
Keilaniemi, Espoo. Nokia is
a

manufactur
e

of mobile devices and
is
in
the process of
converging Internet
and communications industries, with over 132,000 employees in 120 countries, sales in more than 150
countries and global annual revenue of over €42 billion and operating profit of €2 billion a
s of 2010. It is
the world's largest manufacturer of mobile phones: its global device market share was 23% in the
second quarter

of

2011.

Nokia produces mobile devices for every major market segment and has
several joint venture programs with Siemens; No
kia Siemens Networks produces telecommunications
network equipment, solutions and services.


Nokia is also engaged in providing free digital map
information and navigation services through its wholly owned subsidiary Navteq.

Nokia has sites for research an
d development, manufacture and sales in several countries; as of
December 2010, Nokia had R&D presence in 16 countries and employed 35,870 people in research and
development
. Additionally,
Nokia operates a total of 9 manufacturing facilities located at Sa
lo, Finland;
Manaus, Brazil; Cluj, Romania; Beijing and Dongguan, China; Komárom, Hungary; Chennai, India;
Reynosa, Mexico; and Masan, South Korea.

Nokia is a public limited
-
liability company listed on the Helsinki, Frankfurt, and
the
New York stock
exch
anges.
The company

plays a very large role in the economy of Finland; it is by far the largest Finnish
company, accounting for about a third of the market capitalization of the Helsinki Stock Exchange.

In an effort to better compete with Apple and Droid

phones,
On February
11,
2011
,

Nokia announced a
partnership with Microsoft where all future Nokia smartphones will be powered by the Windows Phone
7 (WP7) operating system.

Vision and Strategy

Nokia’s mission is simple, Connecting People.

Our strategic
intent is to build great mobile products.

Our job is to enable billions of people everywhere to get more of life’s opportunities through mobile.

New operational structure

Company Description


Business and Industry Paper









Quadrato


University of Connecticut


School of Business (MBA Program)





Page
2


Nokia has recently outlined its new strategic direction, including changes in leaders
hip and operational
structure to accelerate the company’s speed of execution in a dynamic competitive environment.

Major elements of the new strategy include:



Plans for a broad strategic partnership with Microsoft to jointly build a new winning

mobile ecosystem.



A renewed approach to capture volume and value growth to connect “the next billion” to the Internet in
developing growth markets.



Focused investments
in next
-
generation disruptive technologies.



A new leadership team and organizational structure with a clear focus on speed, results and
accountability.

“Nokia is at a critical juncture, where significant change is necessary and inevitable in our journey
forward,” said Stephen Elop, Nokia President and CEO.


“Today, we are accelerating that change through
a new path, aimed at regaining our smartphone leade
rship, reinforcing our mobile device platform and
realizing our investments in the future.”

The strategy

Nokia’s strategy is about investing in and ensuring Nokia’s future.


“I have incredible optimism because I
can see fresh opportunity for us to innovate
, to differentiate, to build great mobile products, like never
before, and at a speed that will surpass what we have accomplished in the past,” Elop said.


“We are
going forward. We are not going backwards.


We have a strategy.


We have a path.

We have a
future.


And we can deliver great mobile products.

And despite all of these changes, we remain true to our
mission, that of Connecting People.”

Regaining our leadership in the smartphone space

Nokia plans to form a broad strategic partnership with Microso
ft to jointly build a global ecosystem that
creates opportunities beyond anything that currently exists.

It brings together highly complementary
assets and competences.


The Nokia
-
Microsoft ecosystem targets to deliver differentiated and
innovative produc
ts with unrivalled scale in product breadth, geographical reach, and brand identity.

Company Description


Business and Industry Paper









Quadrato


University of Connecticut


School of Business (MBA Program)





Page
3


Nokia would adopt Windows Phone as its primary smartphone platform, helping drive and define the
future of the platform by leveraging its expertise on hardware optimizatio
n, software customization,
and language support.

Nokia and Microsoft would also combine services assets to drive innovation.
Nokia Maps, for example, would be at the heart of key Microsoft assets such as Bing and AdCenter, and
Nokia’s application and cont
ent store would be integrated into Microsoft Marketplace.


Under the
proposed partnership, Microsoft would provide developer tools, making it easier for application
developers to leverage Nokia’s global scale.

While Nokia transitions to the Windows Phone p
latform, Symbian will continue to offer considerable
value to Nokia, to our customers, developers and consumers.

200 million people use Symbian globally,
and Nokia will modernize the platform through investments in completely new devices with new
features
, hardware improvements such as GHz+ processing capabilities and significantly increased
graphics speed, as well as software improvements.

Maintaining our volume and value leadership in the mobile phones space

In feature phones, Nokia’s strategy is to leve
rage its innovation and strength in growth markets to
connect the next billion people to their first Internet and application experience.


By providing
compelling and affordable, localized mobile experiences, particularly to the emerging markets, our
ambit
ion is to bring the next billion online.

We will continue the renewal of our Series 40 platform in
QWERTY, touch

&

type, dual SIM, Nokia services, including Maps, Browser, Life Tools, Web apps and
Money.


We are also investing in the future; developing as
sets (platform, software, apps), which will
bring a modern mobile experience to the mobile phone consumers and enable business opportunities
for developers.


These investments will be especially focused on growth economies.

Sustaining our future as the wor
ld’s leading mobile manufacturer

To make sure we get ahead of the game on industry innovation evolution, our MeeGo efforts will
transition into an ongoing long
-
term market exploration of the next generation of devices, platforms
and user experiences.

New l
eadership team, operational structure and governance to drive the change in strategy

Company Description


Business and Industry Paper









Quadrato


University of Connecticut


School of Business (MBA Program)





Page
4


This new strategy is supported by significant changes in Nokia’s leadership, operational structure and
approach.


The renewed governance will expedite decision
-
making and
improve time
-
to
-
market of
products and innovations, placing a heavy focus on results, speed and accountability.


The new strategy
and operational structure are expected to have significant impact to Nokia operations and personnel.

Structure


Smart Devices

Nokia’s
Smart Devices

team focuses on the creation of smartphones.

We are continuing to deliver on
our

commitments to Symbian with new models and software updates; we have launched the Nokia N9,
the outcome of efforts from our MeeGo program; and we are planning to further strengthen our
smartphones portfolio with the launch of our first products on the Win
dows Phone platform.

Mobile Phones

Our
Mobile Phones

team’s focus is on bringing a modern and affordable mobile experience to people
around the world.

In particular, the team is leveraging its innovation and strength in growth markets to
bring people affo
rdable access to the internet and applications and


in many cases


provide them with
their first ever internet experience.

Location & Commerce

Company Description


Business and Industry Paper









Quadrato


University of Connecticut


School of Business (MBA Program)





Page
5


Our
Location & Commerce

team is developing a new class of integrated social location products and
services for consumers, as well as platform services and local commerce services for device
manufacturers, application developers, internet services providers, merchants, and advert
isers.

Th
is

team is behind
the
Nokia Maps

project
, which gives people access to world
-
class mapping and
navigation, and is also responsible for the development of NAVTEQ, which is the leading provider of
comprehensive digital map information and related l
ocation
-
based content and services for mobile
navigation devices, automotive navigation systems, Internet
-
based mapping applications, and
government and business solutions.

Markets

Our
Markets

team

is responsible for selling products, executing compelling

marketing and
communications

initiatives
, creating a competitive local ecosystem, sourcing, customer care,
manufacturing, IT and logistics across all Nokia products.

Nokia Siemens Networks

J
ointly owned by Nokia and Siemens,

our Networks division

is one of the leading providers of
telecommunications infrastructure hardware, software and professional services globally.


Production Units

Networks technology


China

Finland

Germany

India




Mobile devices and technology



Brazil

China

Finland

Great Britain

Hungary

India

Mexico

Romania

South Korea



Company Description


Business and Industry Paper









Quadrato


University of Connecticut


School of Business (MBA Program)





Page
6


Quarterly & Annual
Information (Nokia in Q2 2011, July 21, 2001)

The challenges we are facing during our strategic transformation manifested in a greater than expected
way in Q2 2011.

However, even within the quarter, we believe our actions to mitigate the impact of
these c
hallenges have started to have a positive impact on the underlying health of our business.

Summary



Net sales of EUR 9,275 million (EUR 10,003 million in Q2 2010)



Reported operating loss of EUR 487 million (operating profit of EUR 295 million)



Reported EP
S (diluted) of EUR
-
0.10 (EUR 0.06)

Net sales by reportable segment Q2 2011


EUR(mil)

% of Total Net Sales

Devices & Services

5
,
467

59
%

Smart Devices

2
,
368

26
%

Mobile Phones

2
,
551

27
%

D&S Other

548

6
%

NAVTEQ

245

2
%

Nokia

Siemens

Networks

3
,
642

39
%

Nokia
Group

9
,
275

100
%


Personnel by reportable segment June 30, 2011

Devices & Services

57
,
722

Nokia Siemens Networks

74
,
887

NAVTEQ

5
,
710

Group Common Functions

315

Nokia Group

138
,
634


Company Description


Business and Industry Paper









Quadrato


University of Connecticut


School of Business (MBA Program)





Page
7



Nokia outlook (July 21, 2011)



Nokia targets Nokia Group net cash and othe
r liquid assets at the end of 2011 to be above the EUR 3.9
billion balance at the end of the second quarter 2011.



Due to limited visibility, Nokia is providing a wider than normal range for its Devices & Services non
-
IFRS
operating margin outlook for the
third quarter 2011.


Nokia expects its non
-
IFRS Devices & Services
operating margin in the third quarter 2011 to be slightly above breakeven, ranging either above or below
this level by approximately 2 percentage points.


This outlook is based on our expec
tations regarding a
number of factors, including:

o

Competitive industry dynamics

o

Nokia’s actions to intensify its focus on retail sale
s marketing to drive net sales

o

Improved competitiveness in our Mobile Phones unit due to t
he ramp up of Dual SIM devices

o

Timi
ng of our new product shipments

o

The macroeconomic environment

o

Nokia is accelerating its plans to reduce its Devices & Services non
-
IFRS operating expenses and
Nokia now targets to exceed its previous Devices & Services non
-
IFRS operating expense reduc
tion
target of EUR 1 billion for the full year 2013, compared to the full year 2010 Devices & Services
non
-
IFRS operating expenses of EUR 5.65 billion.



Nokia and Nokia Siemens Networks expect Nokia Siemens Networks net sales to be between EUR 3.2 billion
and EUR 3.5 billion in the third quarter 2011.



Nokia and Nokia Siemens Networks expect the non
-
IFRS operating margin in Nokia Siemens Networks to be
between
-
3% and breakeven in the third quarter 2011.



Nokia and Nokia Siemens Networks continue to target
Nokia Siemens Networks net sales to grow faster
than the market in 2011.



Nokia and Nokia Siemens Networks continue to target Nokia Siemens Networks non
-
IFRS operating margin
to be above breakeven in 2011.



Nokia and Nokia Siemens Networks continue to targ
et Nokia Siemens Networks to reduce its non
-
IFRS
annualized operating expenses and production overheads by EUR 500 million by the end of 2011, compared
to the end of 2009.



The outlook relating to Nokia Siemens Networks includes the impact of the acquisitio
n of Motorola
Solutions’ networks assets. This is an update to the previous outlook that did not include the impact of the
acquisition of Motorola Solutions’ networks assets.

Company Description


Business and Industry Paper









Quadrato


University of Connecticut


School of Business (MBA Program)





Page
8


Nokia in China

Nokia opened its first office in Beijing in 19
9
5.

Initially the
mobile phone base was slow to develop; the
number of users in 1992 was less than 50,000. This was due in part to the cost of mobile phones, and
the lack of proper functioning mobile phone networks. Between 1992 and 1995 the number of mobile
phone subscri
bers grew by 400%. The rapid growth of a new middle class was a sign for the mobile
phone manufactures.

Currently, China is the second largest market for Nokia after the U.S. Nokia has two manufacturing units
in China producing mobile phones. One unit l
ocated in Beijing and the other in Dongguan. In addition,
the company offers a broad range of mobile phone products to accommodate different needs and
tastes. Nokia has also developed an extensive reseller network with well over a thousand outlets
throug
hout China. To compliment its mobile phones, Nokia also manufactures mobile base stations,
controllers, mobile switches, access equipment, digital switching and transmission equipment, and
various handsets in China.

Will Nokia’s global strategy win?

If
you believe the publicity, the battle for mobile supremacy is solely between Apple and Blackberry
maker Research in Motion (RIM), with Nokia nowhere in the picture.


Yet, in 2009 Nokia shipped 432
million mobile phones, 68 million of which were smartphones
, while Apple only sold 20 million units.
Globally, Nokia is still in the lead.

So what’s going on?

“The world’s media is focused on the United States.

When the iPhone4 was launched, it made headlines
across all the US media, and much of the world.

When

the Nokia N3 was launched in 10 Indonesian
cities which drew massive crowds, it went largely ignored in the US,” said Dr Dan Steinbock at the
Malaysian launch of his book,
Winning
Across Global Markets: How Nokia Creates Strategic Advantage
in a Fast
-
Chan
ging World

last Wednesday at the residence of the Finnish ambassador in Kuala Lumpur.

Steinbock, who is also the research director for international business at the India, China and America
Institute which is headquartered in Atlanta and a fellow at the
Shanghai Institute for International
Studies, argued that Apple’s dominance is almost purely in the US, whereas Nokia leads in the world’s
Company Description


Business and Industry Paper









Quadrato


University of Connecticut


School of Business (MBA Program)





Page
9


developing markets.


“Apple draws 59% of its revenues from the US, its launch of the iPhone in India and
China


two
of the world’s largest markets


were largely a failure at the beginning,” said Steinbock.

According to Steinbock, in China, Apple’s tie
-
up with mobile service providers backfired as most Chinese
prefer prepaid to contracts.

While pre
-
orders of the iPhon
e4 in China amounted to 200,000 (compared
with the six weeks it took to sell 100,000 units of the iPhone3Gs in 2009), it’s still a drop in the ocean of
China’s market of 800 million mobile users.

In India, when the first iPhone was launched its high price
point worked against it.

“Apple and Airtel
stuck to the US

$700 price tag for the phone in India.

In relative terms, the price in India was about 68%
of the annual GDP per capita.


In the US, the GDP per capita is US

$46,400.

Now, would YOU pay US

$31,5
00 for an iPhone?” asked Steinbock.

On the other hand, although Nokia’s market share in both India and China has been declining, they
remained at 36% and 35% respectively in 2009 (according to research firm IDC).


China represented US

$8.6 billion in reve
nue for Nokia last year, about 16% of Nokia’s total sales, while India generated US

$3.8 billion.

“Nokia’s market share is eroding, but not collapsed,” pointed out Steinbock.

Ultimately, argued Steinbock, the winners of the smartphone war will be determin
ed by global success.
Nokia has a global strategy whereas other players like Apple and Blackberry have a largely US
-
centric
one.


“It’s quite a contrast.

Nokia entered the developing markets by customizing their phones to each
market.

Apple, on the other

hand, creates for the US and leverages on its popularity there for the rest
of the globe,” he said.

But the US still matters

In an article written as a follow
-
up to his book, Steinbock said Nokia has learnt the hard way that the US
market is not one they
can afford to ignore any longer.


Its recent top management shake
-
up and the
appointment on Sept 21 of its first non
-
Finnish CEO, Stephen Elop, former president of Microsoft’s
business division, indicate that the mobile manufacturer is poised for change.

“When former Nokia CEO Olli
-
Pekka Kallasvuo was appointed in 2006, he pledged to increase its market
share in the US.

At the time, it was 20% and today, it’s less than 8%


ranking behind not just RIM and
Company Description


Business and Industry Paper









Quadrato


University of Connecticut


School of Business (MBA Program)





Page
10


Apple, but also Samsung and LG,” said Steinbock, a
dding that Kallasvuo’s failure to meet his promises
led to his leaving.

But with Nokia’s global strength, does the US market really matter so much?


For Nokia, one reason the
US does matter is that 40% of its shares are held by US investors.


“Many invest
ors don’t understand, or
don’t see Nokia’s success in developing markets.


They read the news and listen to US and UK
-
based
analysts.


The media is so strong in the US that it shapes global perceptions,” said Steinbock.

There is also the matter of brandin
g.


If Apple is anything to go by, success in the US leads to great brand
presence worldwide.

“Nokia has lost its sizzle,” admitted Steinbock.

“Nokia needs to succeed in the US
if it is to ensure its long
-
term global success.”

What went wrong?

In the ear
ly 1990s, Nokia was the darling of Wall Street.


It had stolen a march on the inventors of the
mobile phone, Motorola, by focusing on developing phones with digital GSM (Global System for Mobile
communications) which could carry both voice and data traffic
.


Motorola on the other hand was
convinced that what customers wanted were smaller, better analogue or voice
-
only phones.


“Forty
-
three million analogue customers can’t be wrong,” said Motorola’s chief Robert Weisshappel to his top
executives in 1995.


In contrast, a Nokia top executive boasted “We will never be like Motorola”, said
Steinbock.

Yet the Finnish company’s shares have dropped by 60% since Apple introduced the iPhone in 2007.

“Apple changed the game and Nokia was admittedly complacent.


Th
ey thought that their success in the
US was guaranteed by their success in Europe.

What worked in the EU must work in the US


they
were wrong,” said Steinbock.

One of the areas that Nokia failed to work on was its relationship with the US mobile service

operators.

“In the US, the operators own the customers. LG, Motorola and Samsung were customizing their units
specifically for the operators, Nokia didn’t,” said Steinbock.


“Their success in Asia and South America
was due to extensive research and a wil
lingness to customize.

They didn’t bring that into the US.”

Company Description


Business and Industry Paper









Quadrato


University of Connecticut


School of Business (MBA Program)





Page
11


Furthermore, Nokia’s management was so collective that initiatives were not conveyed with sufficient
urgency.


“I’ve told Nokia’s leaders that they are simply too bland and that being more visibl
e would
help.

They shouldn’t be Steve Jobs who is one man and has come to mean as much or more than the
company he leads.


But they need to be more visible,” said Steinbock.

“It was a good idea to appoint
someone who comes from the market they most need
to grow in,” he added, referring to Elop.

Will the N8 save Nokia?

In September, Nokia announced the launch of its multi
-
touch smartphone

(
the N8
)

that would hopefully
compete with Apple’s iPhone4.

“It’s had great feedback so far and is more affordable th
an the iPhone.

Nokia has a lot riding on it. But is it too late?” queried Steinbock.


“They need to back it up by focusing
on developer communities and apps for its operating system (OS)


Symbian3.


Their appointment of
Elop, who comes from a software ba
ckground at Microsoft, may be indicative of the direction the
company will go,” said Steinbock. Elop, he added, also has a reputation as a change manager.

The N8 is scheduled for launch later this month in Malaysia and currently retails in Europe for €370
(RM1,600).


In Malaysia, the iPhone4 retails at RM2,

690 for the 32GB model and RM2,290 for the 16GB
model.

“The next three to nine months are pivotal for Nokia.


It must launch new and attractive products and
services; decide whether to continue with its
OS, Symbian or invest in Google’s Android; if it should rely
on its app store Ovi or find alternatives; and if it should pursue development via mergers and
acquisitions,” said Steinbock.

“They also need a new design chief


that position is currently vaca
nt.

Apple has proven how important design can be to the success of a mobile phone.”

Capacity for change

Overall, Steinbock is confident of the mobile maker’s survival.

“Nokia won’t collapse overnight


despite the publicity,” he said.


“It retains its br
and promises of affordability, quality and reliability and it
has its strong global presence.”

Nokia is also a firm that has great capacity to accept change, having evolved from its roots as a forestry
and paper mill in 1865, to include rubber manufacturin
g in 1910 and finally, electronics in 1967.

Company Description


Business and Industry Paper









Quadrato


University of Connecticut


School of Business (MBA Program)





Page
12


In his opening speech at the book launch, Tapio Saarela, Finnish ambassador to Malaysia, recalled:
“About 60 years ago, my idea of Nokia was the nice rubber boots I had.


Then a few years later
, they
were the ti
res on my car.


In 1986, I hosted the former Soviet leader, Mikhail Gorbachev, and Nokia
presented him with a mobile phone.

It weighed 1kg but it was mobile and he was very surprised.


Three
years ago, I presided over the opening of a

new Nokia factory in

Bucharest.


It has come a very long
way.”

“Historically, Nokia is strong in innovation and, with a home country of only five million people, it is
strong in globalization.


But it must now win in both the G7 (countries) as well as the BRICI (Brazil,
Russi
a, India, China and Indonesia) nations,” said Steinbock.