If the world would only stand still for a moment, Nokia Corp.’s new chief executive officer, Olli-Pekka Kallasvuo, would still have his work cut out for him.
He’d have to ensure that his company delivered the more than 1 million mobile phones each and every business day expected this year, and deal with strategic and financial matters. And, perhaps, he could take a moment to discern the path forward on the Finnish handset vendor’s multiple fronts.
Of course, the world doesn’t stand still; it seemingly spins faster each day, at least in the wireless industry. Thus Kallasvuo may find himself in an arcade of sorts, with moving targets flitting by with maddening speed while flashing lights dazzle the eyes and shrill bells jangle the nerves.
The targets are too numerous to list succinctly, but Kallasvuo’s “memo to self” might include: Project the impression of continuity to ride the strengths of former CEO Jorma Ollila’s era. Recapture the mantle of innovation in style and design. Fight for leadership in the consumer experience by rooting Nokia differentiators deeper into the handset. Shoot down the competition, which pops up the second you look away. Discern the shifting sensibilities of consumers and network operators in a crazy-quilt international market of competing air interfaces, feature sets and price points. (Take deep breath.) Advance Nokia’s global network of manufacturing, distribution and operator relationships. Achieve rapprochement with Qualcomm Inc. on patents. Make strategic acquisitions without overreaching. Maintain or grow average selling prices, margins and volume to please fickle investors. Don’t forget the “next billion,” the U.S. market, the whole dang CDMA joint venture with Sanyo Corp., push mobile television, the pesky network equipment business, etc. (Take another deep breath, consider the Prozac.) And execute, execute, execute.
On the eve of stepping into his new job, Kallasvuo, 52, apparently known as “OPK” to colleagues, had already set his sights on a fundamental goal of making Nokia the world’s top brand spanning all industries-ahead of Coca-Cola, Microsoft, IBM, GE and Intel, which all rank ahead of Nokia in a recent Interbrand survey. (Good news: Nokia already is the top brand in Europe and its arch-rival, Motorola Inc., ranks 73rd worldwide.) The goal is not as crazy as it sounds at first blush and, already, Nokia has revamped its Web site and opened flagship, brand-oriented stores in key cities worldwide.
On the business side, Kallasvuo would appear well-prepared for the market-by-market battle ahead. He has served as Nokia’s chief financial officer, led its operations in the contested U.S. market-which he considers of greater importance as a trend-setter than its actual size suggests-and run the mobile phones division, which garners the lion’s share of revenue and profits ahead of the firm’s work in enterprise solutions and network equipment. Nokia is cash rich-reportedly, $12 billion is available for the battle-and Kallasvuo has indicated a willingness to consider strategic partnerships and acquisitions to incrementally bolster its strengths and fend off strategic moves by Motorola and the yapping pack of smaller handset vendors, each with an expertise or scrappiness that can bedevil Nokia’s portfolio.
Kallasvuo has the advantage of taking over a strong company that makes one in three handsets sold worldwide, according to market analyst Gartner Inc. It has nearly 40-percent market share in Europe, 47 percent in Eastern Europe, the Middle East and Africa and 42 percent of the Asia/Pacific region. In contested markets, Nokia has surged to claim-according to Nokia-second place in North America with 20-percent market share and it trails Motorola in the hot Latin American market, where the American vendor last year claimed 32-percent market share. One snapshot: Nokia read the Indian market perfectly and achieved more than 60-percent market share in one of the world’s largest and fastest-growing markets.
With 15 factories in 10 countries churning out handsets, Nokia is taking advantage of its “value and volume” strategy to supply high-end handsets for the cutting-edge and replacement buyers in mature markets, while delivering feature-laden, entry-level handsets to emerging markets eager for more than Motorola’s ultra-low-cost handsets.
Nokia’s product portfolio spans the entire market, its design vision represented by itsand E series have received high marks, and it has a slew of new products launching in Europe and on the drawing boards, according to Current Analysis’ Avi Greengart. “Theseries shows that Nokia can build a `wicked, cool phone’ as well as anyone else,” Greengart said. “It is a `halo’ product.” The company’s scale enables its vertical integration-Nokia makes many of its own chips and user interfaces-and that aids in creating reference designs that can be quickly tweaked into different models.
Indeed, at the end of May, UBS financial analyst Maynard Um’s report on Nokia was headlined, “Five good reasons to buy Nokia,” and was essentially based upon the observation that the handset industry boasted solid fundamentals and the Finnish vendor’s improving, competitive position within the industry. Um specified that an improving competitive position meant not only market share but also revenue growth, profitability, scale and new products.
Still, being perched atop the global heap can be a giddy position to maintain. Behind the façade of world-beater, Nokia is vulnerable in innumerable ways. Its CDMA portfolio relies solely on interim models from Pantech while analysts await signs that its joint venture with Sanyo will have the capital, design talent and marketing to give Nokia a shot at consolidating gains in the United States, Latin America and elsewhere. Failure to resolve cross-licensing agreements with Qualcomm by year’s end could roil the financial markets and hinder continuity of operations, while distracting management from executing on more primary tasks.
Failure to improve its position in the United States may also constrain brand burnishing.
“The problem is not understanding the U.S. market,” said Greengart. “The problem is executing on that knowledge.”
The analyst pointed out that Nokia is shifting away from its focus on broad product categories such as fashion and imaging to look at market research that employs psychographic profiles to dial in on categories of consumers-possibly a boon to its approach to the segmented U.S. market. Nokia has noted U.S. consumers’ interest in productivity, thus it will target its E61 model with QWERTY keyboard to that segment.
“You need to go carrier by carrier, technology by technology,” Greengart said. “Verizon, for instance, wants phones with its own user interface. Nokia needs to respond, though catering to carriers’ requests means lower margins. Today, they’ve reversed their recent slide here, to their credit.”
Greengart is wary of Nokia’s JV with Sanyo to address CDMA; he warns that the venture’s success will depend on Nokia’s commitment of capital and design and marketing talent.
How much time does Kallasvuo have to establish his leadership on these and myriad other issues? Greengart points to nine-month product cycles and 18-month product development cycles.
“After a year, if products don’t match market needs,” he said, “you can blame the CEO.”
