Nokia's line to the top slot
Finland's mobile maker is set to pass Motorola, writes Jonas Dromberg
Sunday 09 August 1998
The former rubber-boot and toilet-paper maker took a gamble when it switched to telecommunications. The bet paid off: Nokia is about to eclipse Motor- ola as the world's number one mobile-phone maker and its stock is up 133 per cent this year. Motorola's stock is down 8 per cent.
In a fast-growing industry that is defined by new products and high technology, Nokia has stayed ahead of the competition by releasing sleeker, smaller phones with functions - including Internet access - that its competitors lack.
"Nokia had a vision," said Jukka-Pekka Leppae, a fund manager at Arctos Funds in Helsinki. "It understood what it was getting into."
Phone sales at the Finnish company, whose new glass-fronted headquarters make visitors feel like they have walked into the 21st century, soared 50 per cent in the second quarter. Swedish rival Ericsson's mobile phone sales rose 1 per cent, while Motorola, based in Schaumburg, Illinois, saw cellular products sales fall 1 per cent.
Sales may grow even faster in years to come. Nokia expects the number of users worldwide will more than double to 600 million in 2001, and Ericsson expects 830 million users in 2003. Seven years ago, only 15 million people around the world had mobile phones.
Even the most saturated markets are still gathering steam. For the first time, Finland - where almost half of the population owns a mobile phone, the highest penetration rate of any country - has seen more sales generated from cellular calls than fixed-line calls this year.
In a country with only 5 million people, Finnish companies learned early on that growth must come from abroad. Two decades ago, as Sony Corporation was introducing its revolutionary Walkman palmtop tape deck, Nokia's then- chairman and chief executive, Kari Kairamo, decided to enter the electronics industry. Nokia began making televisions, computer screens - and mobile phones.
"The whole business was different then," said a Nokia spokesman. In 1982, Nokia's first "portable" phone, the Nokia Senator, weighed almost 22 pounds - or as much as a year-old baby.
By 1987, Nokia released its first phone that could be held to the ear, the Mobira Cityman 900. Though it had to be recharged every six hours, the 790-gram Cityman became a status symbol for securities traders and others after it appeared in popular movies such as Wall Street.
By comparison, one of Nokia's newest models, the 6110, weighs only 137 grams - about as much as a McDonald's Quarter Pounder - and with an extended- life battery can go for more than two weeks without recharging.
Still, Nokia's success came at a price. Mr Kairamo, the mentor of the current chief executive officer, Jorma Ollila, shot himself in 1988 when the Soviet Union was beginning to unravel, sending Finland into its deepest recession since the Second World War. That prevented phone sales from taking off as he expected.
The Finnish company was propelled into the top ranks of mobile phone makers when Europe adopted a common technology standard for mobile phones - a standard which relied on digital technology. While Motorola concentrated on developing phones for the US based on the analog technology adopted there, Nokia and Ericsson had all of Europe to themselves.
Both companies boomed, led by Nokia with its stylish, rugged and technically advanced models. Shares followed sales: Nokia's stock, adjusted for splits, has risen 86-fold in six years, to 433 markkaa ($80.47) Thursday from as low as 5 markkaa in 1992.
"Innovation is much higher at Nokia," said Markus
Pfeffer, a fund manager at Oppenheim Kapitalanlagesellschaft in Germany. "The only way to be first is to develop stronger models."
With digital technology now set to become the global standard, Nokia is poised to overtake Motorola as the world's premier mobile phone maker, analysts say. Last year, Nokia had 21 per cent of the worldwide market; Motorola had 22 per cent and Ericsson 16 per cent.
Part of Nokia's success has been in its ability to deliver products attractive to young people, building brand loyalty. Notably, Nokia, whose employees average 32 years in age, equips its newest phones with games that owners can play alone or with other Nokia owners through an infrared link. The 6110 model, for example, can also request and receive weather reports, stock and bond prices, and sports scores.
"All young people want a game," said Mr Leppae, "and when they get it they'll probably stick with Nokia."
While Nokia has sold its computer and television businesses to focus on mobile phones and equipment for telephone networks, experience gained in PCs and TVs will help it as technology blurs divisions between cellular phones, television and computers.
The PC and television businesses gave Nokia a "customer-oriented approach and exper- ience in volume products," said Dennis Exton, an analyst at Nikko Securities International.
Nokia introduced the first mobile phone that can access the Internet, the 9000 Communicator. It can also perform simple computer tasks, such the diary and address-book functions like the Palm Pilot and Psion's Series 3 palmtop computers.
The 9000 Communicator and its successor, the 9110 Communicator, not only lets its owner retrieve information from the -Internet, but also to send and receive electronic mail and faxes.
"Nokia has done a great job in integrating mobile communication with the Internet," said Dennis Gross, an analyst at Williams de Broe. "The Communicator is the key to the future evolution" of phones.
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