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Nokia Corporation

FOUNDED: 1865

Contact Information:

HEADQUARTERS: Keilalahdentie 4
Espoo, FIN-00045 Finland
PHONE: (358)7180-08000
FAX: (358)7180-38226
URL: http://www.nokia.com

OVERVIEW

One of the largest industrial enterprises in Scandinavia, Nokia, headquartered in Finland, is a world leader in the mobile communications business. In 2001 the company enjoyed worldwide sales of $27.8 billion, down about $900 million from the previous year. Structurally Nokia is broken into three main operational components: Nokia Networks, Nokia Mobile Phones, and Nokia Ventures Organization.

Nokia Networks, responsible for about 24 percent of the corporation's total 2001 revenue, supplies mobile, fixed broadband, and IP network infrastructure and related services. Nokia Mobile Phones is the world's largest manufacturer of mobile phones. Accounting for 74 percent of Nokia's total revenue in 2001, the mobile phones division offers a broad range of products covering all consumer segments and cellular protocols. Nokia Ventures is ever vigilant for new business opportunities for Nokia, based on technological developments. This division generated approximately 2 percent of the corporation's total revenue in 2001.

In the spring of 2002, Nokia was closing in on its goal of a 40 percent market share, this despite the pressures of a global economic slump. Although it's only a matter of time before Chairman Jorma Ollila's market share goal is reached, most observers doubt that the Finnish-based company will ever be able to get much beyond that point, largely because cell phone service operators are hesitant to let any single handset maker become too dominant. Some have suggested that carriers may push phones from rival manufacturers to keep Nokia from capturing an even larger share of the market.

COMPANY FINANCES

Despite intense competition within the telecommunications market, Nokia managed to turn in a very creditable performance in 2001. Because of the strong U.S. dollar, Nokia's 2001 financial performance looked even better when expressed in terms of Euros. For 2001 as a whole, the company posted a profit of almost $2 billion on revenue of $27.8 billion. This was down from 2000's net income of $3.7 billion on sales of $28.6 billion, but surprisingly good considering the inhospitable economic climate of 2001. In 1999 Nokia posted a profit of $2.6 billion on revenue of almost $20 billion.

In his assessment of the company's 2001 performance, Nokia Chairman and CEO Jorma Ollila said: "The year was characterized by intense competition, extreme volatility, and a weakened global economy. Even in this environment, with our strong and focused team, we increased sales, sustained solid profitability, and achieved extraordinarily strong operating cash flow. . . .As we enter 2002, our strategic position is better than ever backed by a very strong brand, product range, and operational ability."

Although the global economy remained sluggish and the telecommunications sector continued to experience weakness in early 2002, Nokia executives were heartened by the company's first quarter showing. According to Chairman Ollila, "the company put in a solid overall performance for the first quarter 2002, with mobile phone profitability exceeding all expectations. The strong bottom line in our mobile handset business continues to be driven by Nokia's global leadership. Based on Nokia's preliminary research for the first quarter 2002, we believe we have at least maintained our estimated 37 percent share of the overall mobile phone market, in line with our long-term 40 percent share target."

The new millennium has not been particularly kind to the stocks of most telecommunications companies. As of early May 2002, Nokia's stock was down 74 percent from its peak in June 2000. However, this was a better stock performance than that of most of Nokia's competitors. The Finnish company's price-earnings ratio of 40 has kept investors interested.

ANALYSTS' OPINIONS

Security analysts were generally positively impressed by Nokia's announced plans to introduce 20 new mobile phone models during the first half of 2002. Of Nokia's strategy, analysts at Strategy Analytics said: "Nokia is attempting to battle brand fatigue with innovation." To tap more heavily into the high-end of the mobile phone market, Nokia in January 2002 announced plans to offer a new range of hand-crafted telephones, some of which will be adorned by precious and semi-precious gemstones. To handle these new high-end models, the company launched a new subsidiary called Vertu. Ben Wood, senior mobile communications analyst at Gartner, observed: "It is a way for Nokia to differentiate its product range further as part of its ongoing brand strategy. People are willing to pay a premium for this, just like they are for exclusive watches."

Analysts were also positively impressed with Nokia's decision to go head to head with computer software giant Microsoft in a battle for the market for software for mobile telephones. As mobile phones rapidly turn from mere instruments of convenient communication into miniature computers with a multitude of capabilities, the need for more sophisticated operating systems and software becomes apparent. To tackle this emerging market, Nokia in 2001 set up its own mobile software unit. "Nokia's strong point is their ability to evolve," said Len Morris, a communications technology consultant with the Accenture Group.

HISTORY

Although it's now the world's leading mobile phone manufacturer, Nokia began nearly 140 years ago as a pulp and paper maker. Founded in 1865 in the small central Finnish town for which it is named, Nokia pioneered many innovations in paper production and even constructed its own power plants. It was not until after World War II that the company began to make its presence known outside Scandinavia. As Finland and its Scandinavian neighbors began to trade more extensively with other western countries, Nokia became a major exporter.

In the 1960s Nokia moved to strengthen its economic base through diversification. Seeing little opportunity for such expansion within Finland, the company began to look outside for possible acquisitions. However, the Finnish government encouraged Nokia to merge with a couple of under performing Finnish companies. Bowing to government pressure, Nokia merged in 1967 with Finnish Rubber Works, a Finnish producers of tires, rubber boots, and other rubber products for both the consumer and industrial markets, and Finnish Cable Works, a manufacturer of cable for power transmission and telephone and telegraph networks, to form Nokia Corporation. Through this merger, Nokia entered the telecommunications market. In 1960 Finnish Cable Works had set up an electronics department to focus on the production of radio transmission equipment. Products developed by this electronics department included a radio telephone and cable modems, long before the general public had even heard of such products.

Nokia's management, which early on had identified the potential for telecommunications and personal electronics, in the early 1980s moved to strengthen its position in these markets, both through the creation of new divisions and the acquisition of outside companies in these businesses. The company in 1982 introduced Europe's first fully digital local telephone exchange and in 1984 offered a car telephone to operate on the Nordic mobile telephone analog standard. Three years later, in 1987, Nokia purchased the consumer electronics business and part of the components business of Germany's Standard Elektrik Lorenz and the French consumer electronics company, Oceanic. By the end of the decade, Nokia had become the largest information technology company in Scandinavia through its purchase of Ericsson's information systems division in 1988.

The early 1990s brought a strategic decision by Nokia's management to concentrate on telecommunications as its core business. Once this decision had been made, the company began to divest its basic industry and non-telecommunications businesses. The company's rise to prominence in its chosen business has been substantially aided by Finland's competitive business climate and the emphasis on innovation. Technological advancements have also played a significant role in Nokia's success. The development in the mid-1980s of the Global System for Mobile communication (GSM) provided a technology that allowed the transmission of data as well as high-quality voice communications. In 1987 European countries resolved to adopt GSM as the continent's digital standard by July 1, 1991. Finland met the deadline, and the first GSM call was placed over the Nokia-built network of Radiolinja using a Nokia mobile phone.

In 2001 Nokia made two strategic acquisitions. The company purchased Ramp Networks, a U.S.-based provider of purpose-built Internet security appliances designed for small office applications. Also acquired was Amber Networks, also based in the United States. Amber, the first to develop a fault-tolerant routing platform, was integrated with Nokia Networks' network platforms business division.

STRATEGY

The primary objective of Nokia's business strategy is to strengthen the company's position as a leading provider of systems and products. In its 2001 annual report, Nokia said its "strategic intent, as the trusted brand, is to create personalized communication technology that enables people to shape their own mobile world. We innovate technology to allow people to access Internet applications, devices, and services instantly, irrespective of time and place. Achieving interoperability of network environments, terminals, and mobile services is a key part of our objective."

Key elements in Nokia's strategy include "being the preferred provider of products and solutions for mobile communications; creating personalized communication technology; driving open mobile architecture, enabling a non-fragmented global mobile services market; strengthening and leveraging Nokia, the trusted brand; and expanding our business and market position on a global basis," according to the company's 2001 annual report.

INFLUENCES

Nokia in 2001 had to contend with keen competition in its key markets as well as the effects of a global economic slowdown. Some of these influences were clearly being felt in the early months of 2002 as well, although optimism was expressed that prospects for Nokia would improve in the second half of the year. After several years of rapid growth, the mobile phone industry in 2001 appeared to be undergoing a technology transition, resulting in lower sales volumes worldwide and a decrease in capital spending by service operators. For the year, the total cellular network market decelerated and was down slightly from the previous year; the GSM market remained flat. This reflected some fundamental changes under way at telecommunications networks, which are converting from circuit-switched to packet-switched IP connectivity and from single-purpose networks supporting mainly voice transmissions to multi-service networks facilitating a variety of voice and non-voice applications and interactions.

Even more ominous for Nokia, the mobile phone market in 2001 experienced an unprecedented slowdown in growth. Factors behind the slowdown included a technology transition, related to the same transition being experienced in the cellular network market, and challenging economic conditions. Both of these factors were reflected in a depressed replacement market and lower sales volumes. The size of the mobile phone market, for obvious reasons, is closely tied to the number of cellular subscribers worldwide. Nokia estimated the global mobile phone subscriber base at about 930 million as of the end of 2001. This figure was expected to top 1 billion by the middle of 2002 and to reach 1.5 billion sometime in 2005.

CURRENT TRENDS

Undoubtedly the most significant trend in 2001 was a transition in mobile communications technology that depressed both the mobile phone and mobile communications network markets. The beginning of 2002 witnessed the beginning of third generation (3G) wireless. This newest stage in wireless technology is expected to reach its maturity sometime between 2003 and 2005. The prospects for sales of 3G mobile devices will depend to a large extent on the timely and successful build-out of 3G networks and the development of related services.

Features and capabilities of 3G mobile devices will ultimately include enhanced multimedia (voice, data, video, and remote control); usability on all popular modes, including cellular telephone, e-mail, paging, fax, Web browsing, and videoconferencing; broad bandwidth and high speed (upwards of 2 Mbps); routing flexibility; operation at transmit and receive frequencies of approximately 2 GHz; and roaming capability throughout Europe, Japan, and North America.

PRODUCTS

Nokia markets two main categories of products: mobile phones, handled by the company's Nokia Mobile Phones division, and communications networks, for which Nokia Networks division is responsible. A more recent addition to the company's product line is software for mobile devices.

The product matrix of Nokia Mobile Phones has six style dimensions (basic, expression, active, classic, fashion, and premium) and five functional dimensions (voice, entertainment, media, imaging, and business applications). The matrix helps Nokia's product developers to identify potential new products in each cross-section of the two dimensions. By combining each of the styles with each of the functionalities, the company is better able to address specific user needs.

Nokia Networks supplies mobile, fixed broadband, and Internet protocol (IP) network infrastructure and related services. In the fall of 2001, Nokia Networks began the rollout of third generation (3G) wireless network coverage.

CORPORATE CITIZENSHIP

In the realm of corporate responsibility, Nokia is an active participant in a number of international initiatives, including the International Youth Foundation, World Business Council for Sustainable Development, United Nations ICT Task Force, Global Compact, and the World Wildlife Fund.

GLOBAL PRESENCE

Nokia products—both mobile phones and mobile communications networks and services—are marketed worldwide. As of December 31, 2001, the company operated a number of manufacturing facilities in nine countries around the world. Seven of those production plants were operated by the Nokia Networks division. Of those, four were located in Finland and three were in China. The Nokia Mobile Phones division operated nine manufacturing plants in eight countries: Brazil, China, Finland, Germany, Hungary, Mexico, South Korea, and the United States.

EMPLOYMENT

At the end of 2001, Nokia Corporation had on its payrolls 53,849 employees worldwide. Recognizing the importance of its employees to the company's business success, Nokia has instituted the "Nokia Way," a philosophy of attracting and retaining the best personnel and ensuring continuous renewal. The company seeks to instill in each of its employees a set of four core values—customer satisfaction, respect for the individual, achievement, and continuous learning—that it believes are essential for an international corporation such as Nokia to operate efficiently. Management also seeks to cultivate in Nokia's employees an attitude of trust, responsibility, and open-mindedness that allows them "to build teams of independent entrepreneurs that are permitted to take chances and even make occasional mistakes. The result is a culture in which decisions can be, and are, made quickly, and employees are energized and driven by a desire to win. We believe that this type of corporate culture is essential for us to prevail in the rapidly changing mobile communications industry."

SOURCES OF INFORMATION

Bibliography

de Bendern, Paul. "Nokia Targets Rich with Luxury Mobile Phone Range." Reuters, 11 January 2002.

Gamel, Kim. "For Cell Phone King, Challenge Turns to Mobile Software." AP Worldstream, 12 March 2002.

"GPRS: Flop or Kingdom Come for Sluggish Telecom Sector?" Agence France Presse, 9 May 2002.

"Nokia Corp.—History." Gale Business Resources, 2002. Available at http://galenet.galegroup.com/servlet/GBR.

"Nokia Corporation." Hoover's Online, 2002. Available at http://www.hoovers.com.

Nokia Corporation 2001 Annual Report. Espoo, Finland: Nokia Corporation, 2002.

Nokia Corporation Home Page, 2002. Available at http://www.nokia.com. "Nokia Losing Market Share to Cell Phone Rivals, Study Says." Toronto Star, 17 May 2002.

Reinhardt, Andy. "European Business: Finland: Has Nokia Run Out of Rocket Fuel?" Business Week International, 6 May 2002.

"Snapshot Report: Nokia Corporation." Multex Investor, 2002. Available at http://www.marketguide.com.

For an annual report:

on the Internet at: http://www.nokia.com/aboutnokia/downloads/index.html.

For additional industry research:

Investigate companies by their Standard Industrial Classification Codes, also known as SICs. Nokia Corporation's primary SICs are:

3679 Electronic Components, NEC

4812 Radiotelephone Communications

4813 Telephone Communications Except Radiotelephone

Also investigate companies by their North American Industrial Classification System codes, also known as NAICS codes. Nokia Corporation's primary NAICS codes are:

334419 Other Electronic Component Manufacturing

513322 Cellular and Other Wireless Telecommunications