Business Strategy and Management – January 24, 2009"In recent weeks, the macroeconomic environment has deteriorated rapidly, with even weaker consumer confidence, unprecedented currency volatility and credit tightness continuing to impact the mobile communications industry."
– Nokia’s President and chief executive Olli-Pekka Kallasvuo.
Nokia is the world’s largest handset manufacturer and the maker of four out of every 10 mobiles sold worldwide. In the past few months (fourth quarter 2008), the mobile phone market slowed dramatically and Nokia’s competitors Motorola and Sony Ericsson announced quarterly losses and even the sales of Apple’s iPhone slowed down. The slowing down could hit other handset manufacturers more severely and force them away from the market. However, this isn’t reason enough for Nokia to cheer as its sales also dipped particularly in large markets like China where sales came down by almost 35% from the last quarter. Some analysts even reported that the company’s operating profit margin on handsets was at its lowest point in 10 years.
Why Nokia’s sales and profits dipped?
- Slowdowns in both developed and developing markets.
- Nokia’s price strategy: Nokia’s refusal to be drawn into a price war in developing countries. Nokia is clearly struggling to maintain its dominance in the face of aggressive price competition from its rivals.
- Cash-strapped consumers: In China, which is regarded as the company’s largest market, consumers are now increasingly being price conscious (due to the faltering economy, slowing exports and slumping real-estate market) and are preferring non-branded inexpensive phones.
- Competition: The total market for high-end devices increased. But, Nokia’s high-end handsets did not do well as compared to Apple’s iPhone and Research In Motion’s BlackBerry.
- Increasing sales of cheap lower-margin devices: In the fourth quarter of 2008, margins dipped because a large proportion of sales was of cheap lower-margin devices.
Can Nokia turnaround? Nokia’s Strength and Opportunities
Analysts feel that Nokia is in the best position to make a turnaround. With a huge market share it can manufacture at a lower cost per unit. It’s wide range of products can give it an edge over any competitor and it has one of the best distribution networks in the world. Nokia can certainly capture back share in the vital high-end devices market with new products such as it’s 5800 Xpress Music (a lower priced iPhone like touchscreen phone) and making more consumer oriented phones.