Nokia and agility.

The giant's makeover

 From The Economist

This time last year, Nokia, the world's largest maker of mobile phones, suddenly found itself on the ropes. Its market share in the first three months of 2004 had fallen to 28.9%, having hovered around 35% for years. The firm cut prices, but that was only a short-term fix: it then set about addressing the underlying causes. The unveiling of its latest batch of handsets this week provided new evidence that Nokia has changed its ways.

Nokia's woes had two main causes: lacklustre products which failed to address consumers' enthusiasm for “clamshell” or “flip-phone” camera-phones and highlighted Nokia's loss of leadership in design; and the company's reluctance to produce customised versions for mobile operators. Many operators have been turning to specialist “original design manufacturers” (ODMs), mostly based in Taiwan, to supply custom handsets. These are often sold by operators under their own brands, to help differentiate themselves.

So the seven new handsets launched by Nokia this week were telling. Four were “slider” designs, in which the keypad can be hidden under the display, and two were clamshells. “What's encouraging is to see Nokia dumping the 'not-invented-here' mentality and becoming a fast follower,” says Ben Wood of Gartner, a consultancy. Per Lindberg, an analyst at Dresdner Kleinwort Wasserstein and a noted Nokia critic, says this is the best new batch of handsets the firm has produced for four years.

This follows the unveiling in April of a new line of high-end handsets, the most advanced of which, the N91, includes iPod-style music playback from a tiny hard disk.

Meanwhile, Nokia has also changed its tune on customisation. As well as offering to modify the software on its phones to suit particular operators, it has started to offer custom handsets. The first is being made for China Mobile, with others to follow soon, says Kai Oistamo of Nokia. And having traditionally been reluctant to outsource manufacturing, Nokia has started to use ODMs, as its rivals do, to plug any gaps in its product line. The firm has become “more open-minded, more flexible as the world around us changed,” Mr Oistamo says.

Challenges remain, however. Having bounced back in the last three months of 2004, Nokia had a weaker first quarter this year, largely due to poor sales in North America, where many network operators use CDMA technology rather than the GSM technology used in Europe. “That's their Achilles heel,” says Mr Wood. Nokia is said to have done a deal to buy advanced CDMA handsets from SK Teletech, a South Korean manufacturer, for resale under its own brand. This would beef up its range in America, but would also be a tacit admission that Nokia's own CDMA products are not up to scratch. Nokia says no such deal exists, but that may simply mean that no deal has been done yet.

Either way, it is clear that Nokia has changed its ways. “A big dose of humble pie was the best thing that could have happened to the company,” says Mr Wood. The company has, he notes, even licensed e-mail and media-playback protocols from Microsoft, its arch-rival in the field of smartphones–something that would have been unthinkable a year ago. Nokia is so determined to stay on top, it would seem, that nothing is sacred.

 

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