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WIKI ANALYSIS
This article refers to the phone manufacturer. For the currency Norwegian krone (NOK), see Norwegian Krone (NOK).
Nokia is a manufacturer of mobile devices and an active player in the internet and communication industries. In 2Q09, Nokia stood as the largest vendor of telephone handsets in the world, with 38% of the global market share, 41% of the smartphone market share, and 9.9 billion EUR in net sales, a 25% YoY decrease but 7% sequential increase[1][2]. The creator of the world's first handheld mobile phone in 1987, Nokia both designs and produces mobile phones, and also provides service plans for these devices[3]. Since the 1970's, the company has pioneered much of the technology used in handsets throughout the world, especially the Global System for Mobile Communications, and has expanded globally with Asia and North America representing their largest and smallest market, respectively[4].
As of late, Nokia has made an aggressive push into the online services market. It has invested heavily in its Ovi applications platform, an initiative to draw users away from the established application platforms of the iphone and Google phone. In July 2009 Nokia acquired Cellity, a mobile social networking service that allows users to store their contacts online and access them through their mobile phones[5]. In September 2009, Nokia acquired privately-held international mobile service provider Dopplr to further penetrate the mobile social networking space[6].
Rumors have emerged that Nokia is interested in acquiring Palm (PALM) to bolster its smartphone business[7]. The acquisition would give NOK access to the WebOS operating system and the new Pre touch-screen phone. Neither firm has commented yet on these rumors.
Company Overview
Nokia began life in 1865 as a pulp mill in Finland and has since undergone numerous transformations, becoming Finland's largest company and the largest producer of mobile phones in the world. In the 1970's Nokia began producing telecommunications equipment and in the 1980's it began work on mobile phones, which form the core of its business today.
Business Segments
- Devices and Services: This segment develops and produces Nokia's mobile devices. In FY2008, this segment shipped a total of 468 million mobile devices and completed its purchase of Symbian Limited, a smartphone operating system developer[8]. This $410 million buyout is an effort to compete against consortiums behind other mobile operating systems, such as the Google (GOOG) Android[9]. In February 2009, Devices and Services launched the Ovi Store, providing Nokia users access to applications, music, and games in fashion similar to that of Apple's Apps Store.
- NAVTEQ: NAVTEQ is a provider of digital map information and relation location-based content and services for navigation and mapping applications. In July 2008, the European Commission approved Nokia's acquisition of Chicago-based NAVTEQ for $8.1 billion, bolstering its web and mapping business.
- Nokia Siemens Network: Nokia Siemens Networks is a joint venture by Nokia and Siemens, combining Nokia's former Networks business with Siemens' carrier-related operations for telephony networks.
Trends and Forces
Acquisitions and Joint Ventures
- Nokia Aquires NAVTEQ
Navteq, one of the two primary global electronic mapping companies, was acquired by Nokia for $8.1 billion. NAVTEQ generates income for operations through issuing licenses for the use of its databases to GPS in-car navigation system companies and other technology companies such as Google, Microsoft, and Yahoo. NAVTEQ's only main competitor, Tele Atlas, was acquired by Amsterdam based GPS-navigation device maker Tom Tom NV in July of 2007 for $2.8 billion. However, a bidding war erupted, instigated by Garmin, the Cayman Islands based in-car navagation system company. Garmin executives placed a $3.0 billion bid for Tele Atlas.
The direct implication of this acquisition for Nokia is the possibility for standard setting integration of location based programs and products into their mobile technology. By introducing GPS information through primary service rather than through third party companies, Nokia can effectively lower the costs of providing GPS navigational equipment to the end-user, establishing itself as leader in the market. For this reason, litigation pertaining to anti-trust laws could come into view for Nokia if their price setting for products using NAVTEQ's global electronic mapping systems significantly inhibits the entry of competitors in the mobile telecommunications industry.
- Siemens Joint Venture
In 2006, Nokia and Siemens AG (SI) announced a joint venture whereby the two would merge business operations in mobile communications and telecommunications. The JV should generate about €15.8 billion in revenue per year. The joint venture should considerably enlarge Nokia's operations, especially in cell phones, and lead to further economies of scale. However, it requires Nokia to take on Siemens' business in telecommunications, an area in which Nokia has had little experience or business.
- OZ Communications Inc. is acquired
In November 2008, Nokia acquired OZ Communications Inc, which provides mobile phones with the technology for mobile messaging and emailing.[10] This is a fast growing market and Nokia will be able to provide consumers with Nokia phones which are capable of handling emails and instant messaging. Nokia’s multimedia business segment, which focuses on providing internet, mail, and music services to phones, is very welcoming to OZ Communications since it will enhance its services. This can potentially make Nokia phones more appealing to service providers who purchase phones from Nokia which are then sold to consumers. Consumers are demanding these technological services on their phones, and Nokia can benefit by supplying these services on their phones and thereby increasing the demand for their phones.
Emerging and Developed Markets
While Nokia's overall sales are split evenly between the emerging and developed markets, the global market for cell phones is not homogeneous. It is useful to divide the global market for mobile phones tends into emerging and developed areas. Emerging markets are characterized by a large volume of customers purchasing their first handset, while repurchases and upgrades are common in the developed market. Although much of the world's population lies in China, India, and Africa, the majority of cell phones are owned by the people of Europe and North America. Nonetheless, emerging markets represent an important source of current revenue and future growth for the handset industry. Mobile phone adoption rates in China, India and part of Africa have been in the mid to high double digits in recent years, and are expected to remain robust in the near future. Increasingly, mobile devices are being used for money transfers in developing areas that do not have an established banking system.[11] Nokia has invested in Obopay, a mobile-money service company in India, and will begin selling its 6216 classic phone in the 3rd Q of 2009 with expanded electronic payment capabilities. This market is estimated to grow to $7.9 billion in sales by 2012.
Nokia has demonstrated that it can earn high profits on cheaper phones. This combination makes Nokia suited to dominate the emerging markets, where the demand for cell phones is high but wealth is limited. Nokia has very strong market share in Central/Eastern Europe, the Middle East, and Africa, where it controls over half of the market. In China, India, and the emerging Asian markets, Nokia has a leading 43% share. Some of Nokia's largest sales areas are in emerging markets--in 2006, China alone accounted for 20% of Nokia's total sales, and India claimed another 10%.
Nokia controls only 22% of the developed market for handsets. The market for handsets in the developed countries is mainly a replacement market, meaning sales consist of replacing existing cell phones rather than selling handsets to new customers. In these markets Nokia focuses on providing new features and services rather than price discrimination.
| Market Region | Units Sold (millions, 2007) | Percent of Units Sold |
| Europe | 117.2 | 26.81% |
| Middle East & Africa | 75.6 | 17.30% |
| China | 70.7 | 16.17% |
| Asia-Pacific | 112.9 | 25.83% |
| North America | 19.4 | 4.44% |
| Latin America | 41.3 | 9.45% |
Source: Nokia's 20-F FY2007 report
3G Phones and Qualcomm
3G refers to the third generation of mobile phones, which come with broadband capacity and have download speeds comparable to a personal computer. The phones integrate internet, music, messaging, and traditional communication into a single package. The phones are technologically complex, and to produce them Nokia has used technology owned by Qualcomm, which had a patent-sharing arrangement with Nokia that expired in April, 2007. A new 15 year agreement was reached in July 2008 which provides an overall rate structure for licensing and royalties between the two companies.[12] Nokia and Qualcomm were in a legal dispute because Nokia thought the royalty rates it was paying were too high, but the legal battle has ended with this new agreement. Nokia said it has paid Qualcomm over $1B in royalty payments since the early 1990’s and expected to pay Qualcomm nearly $600M in royalty rates in 2008 under the previous terms. [13] Nokia will still be paying in the hundreds of millions as an initial payment to Qualcomm, but the long term agreement promises to ease tension between the companies and help facilitate innovation going forward.
Nokia has been recently losing market share to companies such as Apple, Palm, Research in Motion, and Samsung which offer phones with additional applications which can be downloaded onto their mobile devices.[14] Ironically, Nokia was the first company to make mobile devices with internet access back in 1996, but has seen its smart phone sales fall from 45.1 percent to 41.2 percent from the 1st quarter of 2008 to the same time of 2008. Over the same time period, Apple's market share doubled to 10.8 percent. This could prove detrimental to business as smart phones accounted for 13 percent of their total handset sales. Most recently, Nokia has partnered with AT&T to release the Nokia Surge on July 19, 2009.[15] The Surge is aimed to the consumer segment as it has a full keyboard to allow users to IM, text, and e-mail. The development of applications for Nokia's handheld devices, such as the Surge, will prove influential in its ability to maintain market share in this increasingly important market.
Legal Issues
Nokia's dispute with Qualcomm highlights the growing legal complexities in the industry, which fall into two categories:
- Patents and technology: Much of the technology in mobile phones is developed imitatively and widely shared, so that intellectual ownership is often unclear, and thus there are many opportunities for copyright infringement. In May 2007, Nokia was sued in the United States by an Australian company alleging Nokia had used its patents without notice.
- Health risk and regulation: Some consumer advocates allege that cell phones can cause cancer. Although unfounded, this notion could lead to lawsuits against Nokia and other handset producers. Moreover, in the United States, many states have prohibited the use of cell phones while driving.
Competition
Nokia occupies a dominant position in the global handset market, contributing almost 40% of the global market's wireless headsets. In 2007, Nokia sold 437 million or 38.4% of all of the 1,138 million mobile device sold globally. Not to mention, Nokia's Series 40 mobile phone platform accounts for over 30% of all phone shipments. [16]
Nokia's size means it can exploit economies of scale; that is, average production costs fall as output increases. The following table suggests this advantage:
| Handset Vendors, 2007 data | Units Sold (MM) | Revenue per Unit | Cost per Unit | Profit per Unit | % Profit | |
|---|---|---|---|---|---|---|
| Nokia | 437.1 | $134 | $113 | $20.9 | 15.6% | |
| Motorola | 250.6 | $154 | $138 | $15.9 | 10.3% | |
| Samsung | 189.5 | $205 | $177 | $27.8 | 13.6% | |
| LG | 99.3 | $174 | $164 | $9.5 | 5.5% | |
| Sony-Ericsson | 93.6 | $184 | $170 | $13.3 | 7.3% | |
Note: data includes only mobile handset
Nokia leads not only in terms of sheer volume of units sold but accrues the highest profit margin at nearly 16% per unit. The company outpaces even Samsung Group from a margin rate perspective; Samsung sells higher-end phones and charges over 50% more per unit but realizes only 14% margin. However, in a survey of 24 stores nation wide by Tickermine Researchers, the Nokia 5310 was ranked last in overall phone sales as only 2 of the 24 stores identified the Nokia 5310 as its top selling phone. This survey does not measure actual volume, but rather whether or not the phone was the top sold at the store. The BlackBerry was was the best being identified as the top selling phone in 7 of the 24 stores. However, the Nokia 5310 was identified as the best phone for music by 8 of the 24 stores, that was the highest in the survey.[17]
Nokia is facing increased competition from smartphone makers Apple and RIMM who are quickly snapping up industry profits and market share with their offerings, the iPhone and Blackberry. While Nokia remains the dominant player, the recent developments in the industry show how quickly fortunes can change in such a competitive and innovative market as the handheld market. Nokia must continue to roll out new technologically advanced products which appeal to the mass consumer market to maintain their market position.
References
- ↑ "Nokia-Q2 2009 Quarterly Information"
- ↑ You must specify title = and url = when using {{cite web}}. (December 31, 2008).
- ↑ You must specify title = and url = when using {{cite web}}..
- ↑ You must specify title = and url = when using {{cite web}}. (March 31, 2009).
- ↑ "Nokia Buys Assets of Social Startup Cellity" Computerworld 7/25/2009
- ↑ "Nokia buys social travel firm Dopplr", ZD Net Asia, 9/29/2009
- ↑ Nikolaj Gammeltoft (July 20, 2009). Nokia May Be Possible Buyer for Palm, Kaufman Says. Bloomberg.
- ↑ "Company Overview" Reuters
- ↑ "Nokia acquires Symbian LTD; Symbian Foundation Closer to Launch" Mobile Burn, December 2, 2008
- ↑ Nokia completes OZ Communications acquisition, November 4, 2008
- ↑ Marcel van de Hoef and Sarah McGregor (July 20, 2009). World Poor Spell $7.9 Billion in Mobile Cash for Vodafone, MTN. Bloomberg.
- ↑ Qualcomm, Nokia Reach Deal to End Fight Over Patents
- ↑ Qualcomm, Nokia Reach Deal to End Fight Over Patents
- ↑ Diana ben-Aaron (June 24, 2009). Nokia Failure to Beat IPhone Software Puts Market Share at Risk. Bloomberg.
- ↑ AT&T and Nokia Ride A Social Wave Into Summer With the Nokia Surge (July 13, 2009).
- ↑ Nokia Series 40's 6th Edition
- ↑ Raw Data Report: Cell Phones
- ↑ Sara Silver (July 20, 2009). Apple, RIM Outsmart Phone Market. Wall Street Journal.
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References
- ↑ "Nokia-Q2 2009 Quarterly Information"
- ↑ You must specify title = and url = when using {{cite web}}. (December 31, 2008).
- ↑ You must specify title = and url = when using {{cite web}}..
- ↑ You must specify title = and url = when using {{cite web}}. (March 31, 2009).
- ↑ "Nokia Buys Assets of Social Startup Cellity" Computerworld 7/25/2009
- ↑ "Nokia buys social travel firm Dopplr", ZD Net Asia, 9/29/2009
- ↑ Nikolaj Gammeltoft (July 20, 2009). Nokia May Be Possible Buyer for Palm, Kaufman Says. Bloomberg.
- ↑ "Company Overview" Reuters
- ↑ "Nokia acquires Symbian LTD; Symbian Foundation Closer to Launch" Mobile Burn, December 2, 2008
- ↑ Nokia completes OZ Communications acquisition, November 4, 2008
- ↑ Marcel van de Hoef and Sarah McGregor (July 20, 2009). World Poor Spell $7.9 Billion in Mobile Cash for Vodafone, MTN. Bloomberg.
- ↑ Qualcomm, Nokia Reach Deal to End Fight Over Patents
- ↑ Qualcomm, Nokia Reach Deal to End Fight Over Patents
- ↑ Diana ben-Aaron (June 24, 2009). Nokia Failure to Beat IPhone Software Puts Market Share at Risk. Bloomberg.
- ↑ AT&T and Nokia Ride A Social Wave Into Summer With the Nokia Surge (July 13, 2009).
- ↑ Nokia Series 40's 6th Edition
- ↑ Raw Data Report: Cell Phones
- ↑ Sara Silver (July 20, 2009). Apple, RIM Outsmart Phone Market. Wall Street Journal.
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