Nokia: fallen hero
Finnish firm falls into ‘competence trap’ while Samsung, Apple soar
By Kim Yoo-chul
When Apple unveiled its first touch-screen iPhone in June 2007, then Nokia Chief Executive Olli-Pekka Kallasvuo simply underestimated the impact of its release saying, ``What we decide is the global standard.’’ This was the beginning of the Finnish firm's fiasco.
His remark illustrates how Nokia’s influence and confidence was great back then in the phone making business. Later, Kallasvuo was replaced by Canadian Stephen Elop ― the firm’s first non-Finnish CEO ― in 2010 taking full responsibility for failing to keep up with rivals such as Apple.
Nokia, once the handset titan and ``the pride of Finland’’ is falling. It ended its 14-year leadership in the entire mobile phone industry in the first quarter of this year. Rather, Korea’s Samsung Electronics has risen to the top in the industry globally.
Standard and Poor’s (S&P) has downgraded Nokia’s credit rating to BB minus. It also cut Nokia’s short-term credit rating to B from A-3. With this downgrade, the company’s debt now falls under the junk category, which unexpected a few years ago. Moody’s has also slashed its credit rating to near junk status.
S&P remains skeptical about the future course of the Finnish outfit.
``We thought it was impossible to beat Nokia just a few years ago as it was regarded as untouchable. When at the top, four out of 10 mobile users worldwide were using Nokia phones. People knew what Nokia was, though they didn’t know where Finland was,’’ said a senior executive from Samsung Electronics’ telecommunications division.
``Nobody expected Samsung to rise as the world’s top phone seller, however, we finally did. The reason is Samsung was fast to respond to the industry’s new trend ― smartphones ― created by the late Apple founder Steve Jobs, which initially Nokia ignored,’’ said the executive, asking not to be identified. Nokia is still one of Samsung’s big customers, purchasing ``billions of dollars’’ of parts such as flat screens and memory chips.
In 2007, Nokia’s total market capitalization reached some 110 billion euros or about 164 trillion won, more than double that of Samsung. But the value dropped to 11.3 billion euros last year. Nokia’s position as Finland’s top firm has been replaced by an oil company.
Industry executives and market analysts say Nokia was caught in a ``competence trap’’ as it believed an era of low-end feature phones’’ would last longer.
``Nokia’s top management underestimated the impact of smartphones because Its success was mostly based on low-end feature phones. That’s the key reason for Nokia’s fall,’’ said Kim Jae-phil, a senior analyst at KT Economic Research and Institute (KTERI) by telephone.
Nokia was a ``genius’’ in creating a new demand during the feature phone era. Its 1100 model was a best seller globally over the last decade. In terms of revenue, the 1100 was the best earner in the electronics sector, followed by Nintendo’s popular gaming console Wii, Sony’s PlayStation and Motorola’s Razr.
``The 1100 was so popular to customers in developing countries from Africa to Southeast Asia. Within five years after its release, over 250 million were sold, which was very surprising. That’s why Nokia was hesitant to jump into the smartphone market,’’ said Park Won-jae, an analyst at leading local brokerage firm Daewoo Securities and Investment.
Nokia’s ``all-in’’ strategy for its Symbian mobile software failed without yielding any significant results. Against the open-based Google-powered Android software, Symbian is simply ``far too dusty’’ to compete and undoubtedly, that’s having a minimal effect on its share of the smartphone market, according to analysts.
``Another factor that led to Nokia’s collapse is its mobile platform. Symbian failed to create distinguished value and is far behind Apple's iOS and Android software. Nokia had its edge in cheap pricing, some volume-making but not software initiatives. In the world of smartphones, software is king,’’ said Choi Nam-gon, an analyst at TongYang Investment and Securities.
Nokia wasn’t the only one who insisted on its own system. BlackBerry phone maker Research In Motion (RIM) is barely visible in the mobile market as it didn’t upgrade its software, as an increasing number of phone users are obsessed with content-rich software such as Android and iOS.
``Nokia’s mobile eco-system collapsed. Meanwhile, the design of its phones was so simple. There’s no reason for consumers to buy Nokia phones amid attractive offers by design-upgraded and technology-advanced Apple and Samsung Electronics devices,’’ said Choi.
The Interactive Data Corp. (IDC), one of the top market research firms in the United States, said Nokia was the biggest loser in the smartphone war in the first quarter of this year.
``Nokia dropped the most, seeing the phasing out of Symbian cost it dearly. Nokia’s first quarter sales were about one-third of its first quarter sales a year ago ― a shocking fall. RIM’s sales fell to a little bit more than half,’’ said IDC.
Except for the 1100, Nokia didn’t have a killer product. In contrast, Apple’s iPhone has been continuing its bullish moves since its introduction, while Samsung’s Galaxy-branded smartphone was the top seller in the global market during the first three months of this year.
The IDC puts Samsung’s first quarter market share at 29.1 percent, five percentage points higher than that of Apple’s. ``Clearly, that isn’t the kind commanding lead Samsung had hoped for, however, it can hardly bemoan its fate as the world’s top smartphone seller,’’ according to the IDC.
Samsung's success story
Against Nokia, Samsung has ``all the conditions’’ to effectively push its phone-making business. It has advanced technology, highlighted with volume manufacturing, better pricing and on-time delivery of its products.
``It’s interesting to see only a few phone-making firms, which have realized economies of a scale under the Android umbrella can create more revenue and profit than others,’’ said Kang Gyeong-soo, an analyst at Strategy Analytics (SA), another leading market research firm.
Upgrading platforms is cash- and labor-intensive. Using other software by paying patent fees appears effective in catching up with the rapidly-changing mobile industry, according to Samsung and industry officials.
Samsung Electronics has developed its own mobile software called Bada, which means ocean in Korean but its concentrating on smartphones based on the Android mobile platform.
``Samsung’s strategy is paying off. It chose Android and put more resources into that platform,’’ said Kang.
It is aiming to ship more than 350 million handsets, including over 120 million smartphones this year and the Korean company is the sole one who can guarantee output commitment regardless of the situation as well as better pricing.
Samsung’s telecommunications division accounted for over 70 percent out of the total profit the company reaped during the first quarter, earning 5.8 trillion won.
Local LG Electronics is turning toward Android-based smartphones as the company blamed slow sales of MS-developed Windows phones, which, despite Nokia’s high-profile investment, still account for a tiny minority of the global smartphone market at around 2 percent.
Nokia is also in a transition, shifting from its Symbian feature phones to Microsoft’s Windows software. However, the Finnish firm’s latest long-term evolution Lumia 900 smartphone is facing some data connection problems, which could hamper Lumia’s success.
``It’s all about technology and decision making. Nokia missed those key factors, while Samsung is emerging,’’ said another high-ranking Samsung executive.
S&P retains its long-term ``underperform’’ recommendation on Nokia.
``The Roman Empire and Inca Empire fell. Once the handset giant Nokia and solutions leader IBM outpaced rivals. I had visited Nokia’s headquarters years ago. At that time, Nokia was the top global telecommunications company, and Samsung didn’t even dream of beating Nokia,’’ said Hong Ra-hee, wife of Samsung Electronics Chairman Lee Kun-hee in a recent meeting with high-profile industry executives in Seoul.