Although it cannot be ascertained that Nokia’s decline is entirely Stephen Elop’s fault, it is arguable that the man responsible for changing the company’s fortunes is its chief executive. Through further surprising decisions by Elop and Nokia’s senior management, the Finnish company’s decline persisted into 2012.
Whether the decline at Nokia was well underway before he took over as chief executive, or whether he triggered it with the burning platforms memo as stated in the first part of this series, as a leader, he is expected to act in the best interests of his company.
His decisions, along with the management team under him, suggest otherwise.
In late 2011 and so far in 2012, the once giant mobile phone manufacturer continued to lose a large market share and further laid off thousands more employees. It also announced a shutdown of some of its manufacturing plants including one in its homeland, Finland.
November 2011
Nokia’s smartphone sales remain flat only growing by 1 percent in an industry that grew by 9 percent in the quarter July to September 2011. Nokia holds third place behind Samsung and Apple at 14 percent smartphone market share.
Nokia Siemens Networks announces it will lay off 17,000 workers — which amounts to nearly 25 percent of its staff complement. The company says it aims to save about 1 billion Euros a year with this move. The company is Nokia’s network equipment joint venture with Siemens.
Analysts note with interest the striking similarities between the MeeGo based Nokia N9 and the newly launched Windows Phone based Nokia Lumia 800. This raises further questions about the reasons for the limited distribution of the N9.
February 2012
Nokia reveals plans to moves its smartphone assembly work to Asia. In the process cutting 4,000 more jobs at its plants in Finland, Hungary and Mexico.
June 2012
The Finnish phone-maker announces plans to cut another 10,000 jobs globally.
Nokia issues a profit warning, saying that the anticipated second-quarter loss from its cellphone business will be far greater than expected.
The company’s share price falls by 18 percent in one trading day.
Decision is made to sell its luxury handset unit Vertu to EQT VI, a European private equity firm, for an undisclosed sum.
More bad news are announced, this time by Microsoft stating that that none of the current Lumia smartphones running Windows Phone will be able to be upgraded to Windows Phone 8. Nokia’s share price falls another by 11 percent.
Why the giants fall so fast?
Parallel to the decline of Nokia under Elop, we also get to witness another former giant mobile phone manufacturer in a rapid decline, namely RIM, which makes the Blackberry smartphones.
Also of interest is to note how this phenomenon (of a giant company’s rapid decline) seems to be pretty common to mobile phone manufacturers. The current leading companies, namely Samsung, Apple and Google, were not around about 10 years ago when Ericcsson and Nokia mobile phones ruled the market.
Not to mention that for a very long time, the world couldn’t see past Nokia, Motorola, Siemens, Erriccson (before Sony acquisition) and even Windows Phone based smartphones (HTC, HP etc.) as the only mobile phone and smartphone makers.
Yet despite these companies, along with Palm which has disappeared into obscurity, having held the highest market share in this industry amongst themselves and benefitting from large profits in the process, they have and are rapidly falling off the radar.
Why? Tomi T. Ahonen, a former Nokia executive and current mobile consultant, tries to explain this in what he terms the Cliff Theory.
How Handset Makers Die Rapidly
The first observation is the speed with which handset makers collapse as compared to any other industry, it’s rather quick. Take the Nokia example detailed in this two part series, in less than 24 months, the company moved from being amongst the top three in the world to holding on for dear life.
In summary, Ahonen states that this can be attributed to three factors that create the “Cliff” from which the companies fall off from.
Mobile Phone Replacement Cycles
Ahonen states, “The average replacement cycle for mobile phones in year 2000 was 21 months. By year 2006, it was down to 18 months. Today it is 16 months (all handsets). For smartphones, it is even faster, at 11.5 months. A car is replaced something like every three or four years on average. A TV set once every sven years. A personal computer every three and a half years. But mobile phones are replaced every year and a half, smartphones replaced every year (on average).”
This simply suggests that if a year ago customers were not happy with their smartphone purchase, do not expect a return purchase the following year. This in turn means mobile manufacturers have no luxury of time to correct mistakes and have to be on top of their game to constantly please ever demanding customers.
Dealerships
Simply put, unlike cars and most other industries (and Apple to a certain extent), mobile phones are sold anywhere and everywhere side by side with other competing models. “Dealerships” he explains “help(s) dampen the fluctuation, even if you have a bad model year of your products, the damaging effect is not as severe. Mobile phones are sold whether in operator/carrier stores, or independent handset retailers,”
Carrier / Operator Relationship
“The operator/carrier has exceptional influence in the mobile phone handset business. If the carrier/operator decides to push a given phone, it can help it succeed,” Ahonen says.
He further elaborates on this by saying “In mobile, the carrier/operator has a profound effect on which handset brand is welcome to that market, and which is not. And as the carrier community is tiny – the 10 largest carrier groups control the subscriptions of 2.7 Billion people – and thus strongly influence 46 percent of the global handsets – that could theoretically be down to yes, 10 CEO’s (or a little bit more in reality, their handset bosses and their management teams).”
