Sharks circle around Nokia

17 Jun 2004

Remember the telecoms crash? The 3G blow-out? The debt mountain facing mobile operators? It’s not so long since the mobile communications industry was in crisis but this seemed like a distant memory at the Nokia Connections annual conference in Helsinki this week. The message from the world’s largest mobile communications firm was that the mobile market was back with a bang and Nokia was still numero uno.

The evidence that Nokia CEO Jorma Ollila (pictured) presented is certainly hard to argue with. The global mobile subscriber base is approaching 1.5 billion and is expected to breach the two-billion barrier by 2007, driven by accelerating demand in four huge emerging markets: Brazil, China, India and Russia. Nokia is the market leader for handsets in all four.

“We see the global mobile device market growing at a healthy rate this year. We have just upgraded our forecast and now expect the mobile device market to reach 600 million units in 2004,” Ollila said confidently.

While many of these phones will be entry-level devices serving the markets of the developing world, higher-tech devices are gaining ground too. One in three handsets sold in the world this year will be a camera phone, while sales of smart phones, which combine phone and PDA features, are expected to top 20 million units.

In keeping with its prolific track record, Nokia will launch no fewer than 35 handsets this year. Five of them were unveiled at Helsinki, including a new 3G-compatible camera-cum-smart phone.

Nokia had good news on the network equipment side too. An industry that was dealt a savage blow by the telecoms crash is expected to grow again this year and be worth somewhere in the region of €40bn. Ericsson leads this market with a 28pc market share but Nokia comes in a strong second with 15pc.

Moreover, according to Sari Baldauf, general manager of Nokia Networks, Nokia’s networks business has got off to a roaring start in 2004, signing more radio network contacts so far this year than Ericsson – 24 compared to 21 – and inking more than 100 deals in core network services technologies. Its service business was also booming, she said. “Operators are looking at ways to optimise their capital expenditure and they want partners that can help them achieve operational flexibility and reduce cost.” Professional services such as managed network contracts now account for a quarter of the company’s network revenues.

Another fast-growing part of Nokia’s business is Enterprise Mobility Solutions, which consists of products and services that allow corporate customers to connect their employees to email, contacts and key business applications using wireless technology. Susan Macke, marketing vice-president EMEA for Enterprise Solutions, said opportunity lies in the fact that only about 5pc of employees are fully connected to corporate information while on the move. “If you mobilise the entire enterprise, the organisation gets a higher return on investment,” she pointed out.

The trouble for Nokia in all of this is that while there are opportunities aplenty right across the business, the performance of its ‘bread-and-butter’ handset business has been patchy at best. Intense competition from rivals has caused its market share to drop from 38pc to 32pc in recent months, according to Nokia’s own estimates, and down to about 29pc, according to Gartner. It has also been accused of failing to pay sufficient attention to surging demand for clamshell-design phones, a mistake that arch-rival Motorola did not make. The problem has been exacerbated by the success of low-cost manufacturers in East Asia such as Samsung, which have put Nokia’s margins under pressure in certain market segments.

On both issues, Ollila insisted that Nokia was taking the necessary remedial action. Nokia, he said, would have five clamshells on the market by the end of the year. Three of them were launched at the conference: the 6710 MMS phone aimed at the mid-price market; the 2650, Nokia’s first entry-level phone to feature a colour screen; and the 6260, a high-end business handset that includes push-to-talk instant communication as well as email and Bluetooth connectivity.

To face down the competitive threat, Nokia had recently undertaken a major review of its handsets, he said. “We have pruned our product portfolio, added some new products and accelerated some others. During this process we have even killed some product plans. As a result of this, I feel we will have a much sharper and more competitive product range to meet the expectations of both consumers and operators.”

Despite these assurances of positive action, there is a sense that Nokia too often reacts to events rather than shapes them in a number of areas. For example, for more than two years there has been a clear desire by European mobile operators to emulate NTT DoCoMo in Japan’s success with iMode by offering own-branded mobile services to their customers, Vodafone Live! being an obvious example.

While at this week’s event Ollila professed to be “comfortable with this trend”, he admitted that only in recent months had the company responded by putting resources into the technology platforms that would support the service differentiation strategies of mobile operators. The suspicion is that the Finnish company is still concerned about the impact on its own brand profile of Vodafone Live! and other such operator-branded offerings. Its relationship with operators remains a delicate balancing act.

It is too early to tell whether the various clouds on Nokia’s horizon collectively constitute a crisis. Certainly the company would not describe it as such and executives such as Ollila exude an almost unnatural air of calm. It is confidence born, perhaps, of the knowledge that the growth of the mobile market is virtually unstoppable and that one particular Finnish multinational is still very much top of the heap.

By Brian Skelly