NOKIA

Nokia originated in 1865 as a pulp-making enterprise, but it was Prometheus thinking of the founders that they entered the sphere of technology in 1902 with electricity generation. In 1992 it redesigned its logo to include the iconic word “connecting people”, when they exit from all other business except the telecommunication, which they pioneered.

            In Greek mythology, there were two titan brothers: Prometheus and Epimetheus. Prometheus means “fore-thinker”, and Epimetheus means “after thinker”. Prometheus, who gave human fire, represents the progress of the civilization, while Epimetheus represents the backward thinking, staleness and indecision. Nokia used to be and can be again a fantastic of what Prometheus symbolises. 

Low-Priced LUMIA?

For the next 14 years, Nokia ruled the globe as the leading mobile phone manufacturer. In 2000, its market cap touched a staggering $245 billion, but unfortunately that marked the end of the Prometheus phase for Nokia. It is hard to believe that the current market cap of Nokia is just $7.7 billion. If it had changed its orientation from being a “product company” to a “services company” in the early 2000s, as it is attempting now, then perhaps the current crisis could have been avoided.

An obsession with cost reductions and rapid growth helps explain how Nokia, long revered for quality and foresight, got itself hijacked by number oriented management and lost the character necessary to maintain a customer-first focus.

Under Stephen Elop, who joined Nokia as its CEO from Microsoft in September 2010, Nokia commenced the migration from Symbian to Microsoft’s Windows (Lumia).

            Nokia has announced its first-quarter financial results and posted a 20% drop in sales of US$7.65 billion as all three main divisions within the company saw sales declining. That represents the company’s lowest quarterly revenue figure since 1999.

Handset sales were down by 32% at US$3.79 billion, Digital Mapping sales fell by 22% to US$282.33 million and Nokia Siemens Networks saw sales fall by 5% to US$3.66 billion.

            The company shrank its net loss to US$443.28 million –compared to a loss of US$2.05 billion a year ago.

After losing money in quarter’s continuously — not out of the woods yet, but not sliding into oblivion either.

The fact that, the Lumia sales grew by 27% in Q1 2013 over Q4 2012 and the mobile phones sales declined by 30% for the same period indicate that MS-based Lumia is not growing fast enough.

An inability to be guided by a healthy fear of bad consequences is a disastrous flaw and Nokia needs to come out of it by launching low-priced, Android based Lumias and thus grow their business by two to three times. Even as Nokia is fighting the touch-screen smart phone battle, it probably realises that future competition might not be with other device manufacturers.

But first Nokia has to address its continued loss of market share in emerging markets like India and China. India is Nokia’s second largest market but the company’s revenues have declined by 25% since 2010. More worrisome is China, where its revenues have declined by 65% in the same period. These markets need best-inclass talent, long-tenure leadership teams and consumer understanding to manage the changing demographic profile. The resignation of D Shivkumar as Nokia India MD could negatively impact the execution. Nokia can regain the consumer franchise it lost; all it needs to do is to manage five contradictions:

1) Global Integration vs. Local Adaptation

2) Efficiency vs. Creativity

3) Control vs. Autonomy

4) Explicit vs. Tacit Knowledge

5) Economies of Scale and Scope vs. Economies of Speed and Persistence.

Analysts say Nokia has yet to prove it can survive in an industry increasingly dominated by Samsung and Apple, a slow but steady improvement in finance may buy more time for Canadian Chief Executive Elop as he attempts to implement his turnaround strategy.

Nokia is pinning its hopes on Lumia phones, which use Microsoft’s Windows software. Since signing a deal late last year to sell Lumias in China, it has launched cheaper versions of the smartphones to cater to a global market of price-conscious but tech-savvy consumers.

While Nokia recently launched US$19.6 phones to shore up its position in basic handsets, its long term success is seen as hinging on smartphones, both due to their higher margins and because more consumer, including those in emerging markets, are demanding access to apps like Twitter from their phones.

“Its visibility is really poor, and of course there’s still a possibility that the Window Strategy will fail. We don’t know,” said Michael Schroder at Finnish Investment Group FIM.

“But the base case assumption now is that volumes will gradually come up as the geographical coverage distribution gets eider and product portfolio moves towards lower price points.”

While that is hardly a bullish endorsement, it underscores a shift in the market’s view of the Finnish mobile phone market, which a few quarters ago was under pressure to drop its Windows Phone strategy, as well as its CEO, if sales failed to pick up.