Nokia Corp

views updated

NOKIA CORP.

Nokia Corp. is the world's largest cell phone manufacturer with sales of $27 billion, profits of $3.5 billion, and a 31-percent share of the worldwide mobile phone market. Believing that mobile products will one day replace PCs as the most popular method for gaining Internet access, the Finland-based firm began focusing on developing wireless Internet devices in the late 1990s.

EARLY HISTORY

Oy Nokia Ab was established in 1865 to sell paper and other products that would result from harvesting the forests that grew near the small town of Nokia, Finland. When the rebuilding of Europe following World War II spurred demand for construction materials, Nokia found itself operating as a major exporter of paper and wood products. To increase its international presence, Nokia began to diversify by purchasing other companies.

In 1966, Nokia merged with Finnish Rubber Works, a rubber products manufacturer created in 1898, and Finnish Cable Works, a power transmission cable and phone line manufacturer founded in 1912. The new firm was renamed Nokia Corp., and operations were restructured into four units: pulp, paper, and power; Finnish Rubber Works; Finnish Cable Works; and Nokia Electronics. The following year, Nokia created a fifth unit, hoping to move into the areas of data processing, industrial automation, and communications systems. By the early 1970s, the Soviet Union accounted for 12 percent of Nokia's sales. Most of the firm's business with the Soviet Union was done via trade, as lumber products and machinery were exchanged for petroleum.

FOCUS ON ELECTRONICS

Kari Kairamo took over as CEO in 1975 and shifted Nokia's focus from forest products to consumer electronics. He also began consolidating Nokia's Scandinavian operations in an effort to increase operations throughout the remainder of Europe. Two years later, Nokia acquired Oy Kymamo, which formed the core of the firm's sixth operating unit, Nokia Plastics. The company's first foray into telecommunications came in 1981, when it purchased a 51-percent stake in Finland's state-owned telecommunications company, which was eventually renamed Telenokia. It was then that Finland began developing its cellular system, which developed into the world's most heavily trafficked cellular network, a major factor in Nokia's rise to dominance in the cellular phone industry. The following year, Nokia designed a digital switching system for Finnish telephone companies and purchased Finnish mobile phone company Mobira, which gave the firm entrance to what would become an exploding mobile phone market. Nokia continued to expand its electronics holdings in 1984, acquiring Luxor, Sweden's state-owned electronics and computer firm, and an 18.3-percent stake in Salora, the second-largest manufacturer of televisions in Scandinavia. By then, Nokia had forged several original equipment manufacture deals, agreeing to manufacture electronic equipment under the brand names of other firms.

The later half of the 1980s was marked by the launch of the Nokia brand name when the firm began to manufacture Nokia mobile phones. In 1986, the largest electrical products wholesaler in Finland, Sahkoliikkeiden, was added to Nokia's growing list of holdings. Purchases the following year included German consumer electronics manufacturer Standard Elektrik Lorenz AG, Swiss cable manufacturer Mail-lefer, and a French manufacturer of consumer electronics, Oceanic. Nokia also listed its shares on the London stock exchange. Nokia became Scandinavia's largest information technology company in 1988 when it purchased the data systems division of Sweden-based Ericsson Group. The company also acquired Great Britain's Deeko PLC and Renucci SA of France. Tire producing operations were rolled into a new subsidiary, dubbed Nokia Tyres Ltd. Divestitures that year included paper pulp producer Metsa-Botnia Oy.

Reportedly feeling intense pressure to boost profit margins, Kairamo committed suicide in 1988. He was succeeded by Simo S. Vuorilehto. Mobile phone operations continued to grow as Nokia forged joint ventures to produce mobile phones in the United States with Tandy Corp., and in France with Matra. The following year, Nokia sold off the bulk of its conveyor belt, technical, and flooring operations interests, as well as a circuit board plant in Germany.

In 1990, Nokia agreed to merge its European soft-tissue paper operations with those of United States-based James River Corp. and Italy-based Ferruzzi Group. The firm also worked with the telephone authority in Moscow, Russia, to establish ATM there. Acquisitions included Finnish electrical equipment wholesaler Suomen Sahkotukku Oy and a 51-percent stake in NKF Holding NV, which owned the Dutch telecommunications and cable manufacturer NFK Kabel. Cellular phone assets grew in 1991 with the purchase of Britain's Technophone Ltd., a mobile phone manufacturer. Also that year, Nokia sold its Nokia Data unit, and Kymmene Corp. agreed to merge its chemical operations with Nokia. The firm purchased television manufacturer Finlux in 1992. By then, Nokia had grown into the leading corporation in Finland. The diversified giant also was the sixth-largest manufacturer of electrical cables in Europe, as well as a leading television maker. Nokia also was the world's top cable machinery and winter tires maker. However, despite the firm's impressive growth, it had lost $213 million over the previous two years. Jorma Ollila took over as CEO that year, and he refocused the company on telecommunications.

FOCUS ON TELECOMMUNICATIONS

Sales in 1993 reached $2.1 billion. Ollila sold off the firm's cable manufacturing operations. Nokia released its blockbuster 2100 mobile phone series that year, selling 20 million units. To raise capital, the firm listed its shares on the New York Stock Exchange in 1994. The tire division was spun off into a separate company in 1995, and in 1996 television operations were brought to a halt. By 1996, Nokia had become the second-largest maker of mobile phones. In fact, roughly 70 percent of annual sales came from telecommunications operations. Employees totaled 32,000, and operations spanned 40 countries. Despite efforts to diversify, European sales still accounted for roughly 70 percent of total revenues.

Thailand's Total Access Communications Inc. awarded Nokia a $30 million contract in 1997 to build a fiber optic transmission system named SYNFONET, as well as a network management system, and to provide technical support services. Sales grew to $8.7 billion. Capturing a 25-percent share of the market, Nokia surpassed Motorola Corp., which had a 20-percent share, as the leading mobile phone maker in 1998. That year, Ericsson, Nokia, and Motorola created Symbian, a company focused on developing wireless technology with messaging, information access, and Internet capabilities. In 1999, sales grew 48 percent, nearing the $20 billion mark, and earnings jumped 57 percent to nearly $4 billion. IBM Corp. and Nokia forged an alliance to hasten the growth of the wireless Internet. The two companies agreed to work together to develop enterprise wireless application protocol (WAP) solutions that would allow customers to immediately begin extending e-business beyond the PC to a variety of mobile devices. With the cellular phone markets in many nations nearing saturation, Nokia had started looking to the Internet as a way to ensure future sales, believing that wireless devices would replace PCs as the most popular method for accessing the Net.

In September of 2000, Nokia released a WAP-enabled mobile phone. The firm also established a systems integration center in France to support mobile Internet applications for its business and individual customers. Nokia and RealNetworks Inc. began working together to develop technology designed to deliver Internet audio and video content to future mobile devices. According to a May 2000 article in Fortune, "To achieve its goal of brining the Internet to our pockets, Nokia is taking off in many directions. It isn't just making wireless application protocol (WAP) phones that can surf an abridged version of the Internet; it's also making the WAP servers upon which that abridged Net will run. It's building wireless Internet connections for cars; developing products for Bluetooth, a new standard for high bandwidth wireless connections inside a house or office; and working on wireless videophones and all sorts of other gee-whiz stuff." To oversee its wide range of Internet products, the firm created Nokia Internet Communications.

Telecommunications spending slowed dramatically as economies in both North America and Europe slumped in late 2000 and continued their downturns in 2001. As a result, spending on the new general packet radio networks, known as 2.5G and 3G, that Nokia was relying upon for its wireless Internet products came to a near halt. According to a June 2001 BusinessWeek Online article, "with nearly three-quarters of its revenues coming from handsets, Nokia had big hopes that existing customers would upgrade their phones to get speedier Internet access complete with services from mobile air ticketing to driving directions. But as Europe's phone companies have been forced to scale back spending on 2.5G and 3G networks, the resultant delays are cooling a once torrid market." Despite the slowdown, Nokia continued to develop its wireless Internet devices.