The Rise and Fall of Nokia

In 1991 on July 1^st the Finnish Prime Minister, Harri Holkeri, made the world’s first Global System for Mobile (GSM) communication call, using Nokia equipment. 1992 then saw the launch of Nokia’s first digital handheld GSM phone, the Nokia 1011. Early and heavy investment into the GSM technology saw Nokia propel itself into the industry of telecommunications and gain first mover advantage.

It is therefore hard to believe that as Europe’s biggest technology company and the global market leader, by volume at least, for mobile handsets, Nokia find themselves to be in such a parlous state. Their products have been all but squeezed out at the top end of the market by Apple, HTC and Samsung. Their inability to equal and surpass their competitors through innovation has seen the once $300billion corporation plummet their market value by 77% to $25.6billion since Apple introduced the first iPhone in June 2007.

The problem lies in Nokia struggling to find their marketing niche. Apple is dominating the high-end market and the Google Anroid has taken over the mid-market. This has left Nokia battling it out with Chinese manufactures in emerging markets where consumers are looking for cheaper alternatives. 

So why and how did Nokia allow for their once thriving empire to become stagnant and outdated? Furthermore how has this impacted on shareholder maximization?

From 1992, the new CEO Jorma Ollila steered the company into a golden age. Nokia dominated mobile phones throughout the Nineties, and helped create the GSM standard for voice and data. However it was their cheap and reliable handsets that were the real hit.

Between 1996 and 2001, Nokia’s sales increased almost fivefold, to reach $29.7 billion. Basic handsets were being sold in emerging markets whilst in Europe and U.S. Nokia could focus on upgrading and constantly evolving their handsets to keep up with the ever-demanding market. Furthermore their success was pinned by its unique British operating system and its creator, businessman David Potter.

In 1997 Nokia merged with Symbian hoping to create the perfect match. Together they created a new class of device and for a while they seemed to be way ahead of all other competitors in the development of smartphones. However things started to go wrong when there was an invasion of businessmen and engineers, who took over highly sensitive design areas. Their was a feeling of corporate arrogance as they lead Nokia to a string of bad decisions. The company's visions, strategies and education were being violated by those without the track record, education or passion.

The rapid growth of Nokia resulted in the company’s capabilities becoming misaligned as communication broke down. They bought anything and became so big and so self-congratulatory they lost sight of their roots.

In 2007 Apple introduced their revolutionary iPhone. Nokia tired to compete and adapt to the changes created by Apple. In 2003 they created a ‘gaming phone’ however this failed miserably and the concept of a gaming phone was only realised with the arrival of the iPhone and iTunes Store. Ovi, Nokia’s answer to the iTunes Store, was a disastrous launch and furthermore they refused to add touchscreen to their high end products.

Rather than sticking to their philosophy of ‘simple is successful’ Nokia have tried their hardest to compete with the high technology and innovative iPhone. Their biggest decision to date has been to drop Symbian, used by 400 million phones worldwide and sign up to Windows Phone 7 software (used by 4 million people), made by Microsoft.

Both shareholder value and the finances of Nokia have taken a battering over the years. Cash reserves of $5.6bn, were down from nearly $7bn last year and the share price plummeted to an all time low of just $3.98 in June 2011, compared to 2000 when the share price was $61.

2012 will be a real test for Nokia.  The integration with Microsoft will make or break Nokia’s desire to crack the smart phone market and compete with the likes of Apple and Google. The link below gives an incite into whether Microsoft can save Nokia.

http://news.bbc.co.uk/1/hi/programmes/click_online/9626628.stm

It is clear that Microsoft is key to Nokia’s success however a lack of investor confidence is affecting Nokia’s capability to move out of the rut they have created for themselves. Therefore the creation of shareholder value needs to be emphasized and present in order for Nokia to successfully move forward.