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Nokia Re-Invents Itself Amid Radical Change

Mon, 04/14/2008 - 6:37am
Brad Smith

It may be one of the largest consumer electronic device manufacturers in the world but Nokia spent much of 2007 acting like an entrepreneurial company, undergoing a complex reorganization and remaking itself. All this while increasing its dominance in its core business.

Under the guidance of CEO and President Olli-Pekka Kallasvuo, who took over from Jorma Ollila in mid-2006, Nokia last year reorganized itself, merged its networks business into Nokia Siemens Networks, started offering broad Internet services and made a number of strategic acquisitions to position itself for the future of wireless telecommunications.

For its accomplishments in 2007, which included increasing its handset market share to 40% in the final quarter, Nokia was selected to receive a Wireless Week Excellence Award for special industry recognition.

Part of the reorganization saw Mark Louison, who had been head of Nokia’s networks business in North America, named as president of Nokia Inc., the North American arm of the company. Louison reports directly to Kallasvuo, who used to run the North American business himself.

All of the activity that Nokia undertook in 2007 might send some heads spinning, but Louison says it’s the kind of change that is embedded in Nokia’s culture. “We’re used to doing lots of things on a big scale,” he says. “Having activities going on in all these different areas is not unfamiliar.”
Everyone at Nokia is comfortable with the company’s new directions because they know the changes have been well-thought-out and can be accomplished with a focus on execution, Louison says.

Company Parts
Measured by size, the biggest move Nokia undertook last year was the completion of its network merger with Siemens, which was announced the year before

Nokia_Combo

Nokia’s customized 6555 was designed specifically for AT&T (left), and the 2135, the handset maker’s first CDMA device, which it created for MetroPCS.

It brought 60,000 people together to form one of the top infrastructure companies globally. The integration is continuing, but Nokia Siemens Networks (NSN) broke even in the fourth quarter of 2007.

The NSN merger led to a broader reorganization, which was completed Jan. 1, 2008. The company’s main business units now are Devices, Services & Software, and Markets, with a Corporate Development Office added to focus on future strategy and growth across all of the units.

On the acquisition side, Nokia last year purchased or started the acquisition of the media-sharing company Twango, the mobile advertising company Enpocket, the digital mapping company Navteq, and early this year acquired the software company Trolltech. NSN is acquiring the subscriber data technology company Apertio.

It also launched a number of new or enhanced services, led by Ovi, an Internet-based Web services unit that can be used by handset owners to download games, maps and music. Telecom Italia Mobile, Vodafone and Telefonica signed on for Ovi initially. Other initiatives included “Comes With Music,” which provides a year’s free music downloads to device buyers, and Nokia Video Center and an Internet Radio client for its N-Series phones.

Earlier this year, Nokia and another large European carrier, Orange, announced the intent to partner on value-added services such as location based services, maps, mobile advertising and gaming.

Gargantuan Growth
And don’t forget about its handset success. In the fourth quarter, Nokia sold about 1.5 million phones every day – a total of 133.5 million units that gave it about a 40% market share globally. Its sales increase in the fourth quarter surpassed the total combined increase in sales of the other top five handset OEMs – Samsung, Motorola, LG and Sony Ericsson. Nokia alone sold almost as many phones as all the others in that group combined.

“With its mammoth market share and gargantuan growth, Nokia truly is the monster of the mobile handset business,” says Tina Teng, an analyst with iSuppli.

Louison says Nokia’s success can be attributed to its broad portfolio of devices, the advantages its scale provides, a supply chain that ranks among the best in the world, a brand recognized as one of the top five most respected globally, a solid financial position and an investment in research and development that is second to none in telecommunications.

Plus, he says, Nokia has been very good at anticipating the market and building for the future.
The only blemish in Nokia’s performance has been North America, where it has struggled because it hasn’t had a CDMA presence, especially since it ended a CDMA joint venture with Sanyo in 2006. Louison aims to change that.

“We want to take our global assets and apply them locally,” he says. In the United States, that means building customized products for carriers like AT&T and T-Mobile USA, which it started doing last year, and then getting back into CDMA. Nokia’s first new CDMA phone, the 2135, started selling on the MetroPCS network last year.

This year will see more CDMA phones in the United States, including some for Verizon Wireless, Louison says without going into detail.

Global/Local
Nokia also has opened offices near the headquarters of the North American carriers it works with, so it can be closer to its customers. It also has converted its R&D operation in San Diego to a facility aimed at making handsets specifically for the North American market. San Diego had been Nokia’s CDMA headquarters, but now about three-fourths of its 600 employees work on GSM handset design.

The San Diego facility designs GSM and UMTS/HSPA handsets on a customized basis for AT&T and T-Mobile USA initially. The first phone out of that effort was last year’s Nokia 6555 for AT&T, which went on sale in mid-September. Louison says Nokia also designed phones for T-Mobile USA that included customization for the operator’s MyFaves user interface and is working on a dual-mode model for the carrier’s Hotspot at Home service.

It’s an open question how much better Nokia can do in North America, says analyst Tuong Nguyen of Gartner. Nokia started losing share in the region in 2004, falling from the mid to high 20% market share to 10.5% in the fourth quarter. Nguyen says the Finnish company has made obvious moves to ratchet up its North American numbers and could benefit from the decline in Motorola’s handset fortunes.

“Nokia is definitely working harder,” he says. “They acknowledge this is a weak point and they are trying to get more of what consumers want.” He adds Nokia is working more closely with the North American operators, who largely determine which handsets will be sold on their networks, and also are spending more on branding.

What are Nokia’s goals in North America? Louison declines to specify any market share goal, but says the company wants to be the market leader. That would mean it would have to sell about 30% of the phones purchased by American consumers, which is possible only if it grabs a bigger share of the CDMA market. Of course, it also is planning devices to run on Sprint Nextel’s WiMAX network as well.

“We’re investing a huge amount in this marketplace,” Louison says. “We have the aspiration to be the market leader.” 

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