Decline of Empire: Nokia surrenders market to competitors

YEREVAN, July 30. /ARKA/. It seems the leadership of Finland-based Nokia, which called the tune at mobile telephone market for many years, is coming to an end.

 

It has not happened yet, but even the most devoted fans of this company and especially investors, rating agencies and ordinary users are skeptical about Nokia’s future.

 

Users are increasingly showing favor for Nokia’s rivals by buying their phones. Nokia’s desperate moves to put things right produce no effect and look like an agony.

 

The Finnish brand that recently enjoyed the reputation for being highest-quality standard is now dying and its fans are left with no option but to feel nostalgic for its former glory.

 

 

Nokia has a vigorous and diversified business record. The company started in late 19 century by producing paper. Nokia has produced cables, rubber and even TV sets and household devises for 115 years of its activity.

 

In 1990s, the company made a breakthrough from household utensils to telecommunications – Nokia produced own telephone working on own GSM equipment.

 

These Finnish phones started conquering the world. After the famous 3310 model became a symbol, Nokia finally won dominance in the market.

 

The leader of the market released 10 Finnish models. N-Gage, the then revolutionary model, 8800 model and Sirocco, its future modifications, and N smart phones of 2005 and 2006 were among them.

 

Until 2007, the telephone world was divided into Nokia and all other brands, and Symbian operational system was above competition. Its rivals, such as Ericsson A1018, Siemens SL45 and Motorola with thin RAZR, were lagging behind it.

 

There were also exclusive products and those products filling other niches, but Nokia reigned over the market – it sold dozens of millions of phones every quarter.

 

Nokia’s leadership seemed unshakeable.

 

 

At the peak of its glory, Nokia’s administration made a fatal mistake – it decided to relax. But its competitors were on the watch.

 

The first strike came from Apple’s Steve Jobs. In 2007, revolutionary but still unfledged iPhone emerged. It paved a way for development of smart phones and outlined their prospects for many years.

 

This novelty immediately won popularity, and Nokia’s administration could do little more than to kick itself.

 

It was a hard but not deadly strike at Nokia. After all, Apple created troubles to all the competitors. Far more dangerous threat came from Gogle’s Android that appeared a year later. Experts initially didn’t take it seriously and were too skeptical about its ability to outdo market stars, such as Symbian, Windows Mobile and iOS.

 

Nevertheless, things took unexpected twist, and initially frail Android started vigorously gaining strength and mutate under Google’s wing. In addition, free OS made it extremely popular.

 

HTC, Motorola, LG. Sony Ericsson and South-Korean Samsung, Nokia’s main rival, added it to their armoury.

 

Results became visible very soon - Android became the second most popular mobile OS in late 2010, and took lead over Symbian that enjoyed leadership for long years.

 

Initially narrow gap – 33.3 million Android products against 31 million Nokia smartphones – continued widening very swiftly.

 

According to Canalys research company’s data, 35.7 million mobile sets based on Google’s OS were sold in the first quarter 2011 (35% of the market), while Finns sold only 24.2 million against 39% a year earlier.

 

 

Nokia’s officials, realizing that the ground is slipping from under their feet, grew anxious, but it was too late.

 

Attempts to follow Apple’s lead failed – retarded releases of models with touch screen couldn’t remedy the situation – these models were sold amid very tight competition.

 

Nokia failed in its attempt to create iTunes-like environment – OVI Internet shop.

 

Nokia has fired its embattled chief executive, Olli-Pekka Kallasvuo, and turned to a senior Microsoft executive, Stephen Elop, in an attempt to restore its fortunes.

 

However, he couldn’t turn events around.

 

In an effort to retain its positions, Nokia’s administration decided to widen the range of its products at the account of cheap models.

 

This move produced certain results – the number of sold phones grew, but also had side effects – average cost of the sold telephone fell, and the model were viewed as cheapie.

 

After Nokia lost its positions, it resorted to reorganization. The company’s administration cut jobs and expenses.

 

In the beginning of this year, Nokia made a crucial decision – it replaced out-of-date Symbian with… Windows Phone 7, to combat the Android foe with joint efforts. It seems Elop’s ties with Microsoft played an important part in this decision.

 

Word about the decision to transfer to a new platform prompted ambiguous reaction among remnants of the Finnish brand fans’ army.

 

Some of them viewed that as sign of possible revival, while others completely distanced themselves from Nokia.

 

 

The story of Nokia’s ups and downs will probably be added to marketing manuals as a mismanagement example.

 

The slide from high ranks happens rarely and is remembered for long time. Once Ford, satisfied with a supporting role for many decades, let leadership slip out of its hands because of its owner’s conservatism.

 

The same happened with GM – it slept away Toyota’s leadership and fell victim to own inflexibility two years ago. Now Nokia and Samsung are doing the same. Pessimists think Finns will be beaten also by Apple. The Finnish company is still retaining market leadership, but South Koreans are snapping at its heels and are thought to oust it to the second rank sooner or later. Nokia’s share at the market fell to 30% this year - the record low in the last decade – and continues shrinking.

 

The company, not able to stand competition, had to leave Japan, and legions of its fans didn’t excuse alliance with Microsoft and turned back on their idol.

 

The company faces also financial difficulties. It showered dealers with its phones and managed to build up the first quarter’s profit by 32% to €231 million by making tremendous efforts. However, the blown up bubble burst already in the next quarter. Nokia precipitously lowered profit outlook, triggering immediate 15-percent fall in stock quotation, and sustained losses of €500 million in Apr-June.

 

In February 2011, when transfer to Windows was announced, the company’s capitalization shrank twice.

 

Will the Finnish company be able to exit of the crisis?

 

Experts and analysts are cautious in answering. Pessimists predict liquidation of the brand in the next year, while optimists point out Nokia’s not so small share at the market and stake hopes on new joint models with Windows.

 

However, they will be for sale no earlier than the next year, and Finns will show whether they have powder in their powder-horns or not.

 

“The path to recovery for Nokia is going to be a long one,” CCS analyst Geoff Blaber told Reuters. “Deterioration in Nokia’s smartphone performance shows that time is of the essence in rebuilding a coherent portfolio of Windows Phone 7 products in 2012.”

 

Leading rating agencies Fitch Ratings and Moody’s Investors Service downgraded Nokia’s ratings by two notches and left the company with a negative outlook.

 

Both agencies’ analysts say that Nokia can be saved by Microsoft’s OS, but nobody can say whether there will be success or not.

 

By Alexander Gasparyan, RBC