2 Years Into Its Turnaround, Nokia Shows Promise

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BERLIN -- Nearly two years ago, Stephen Elop, fresh from a senior post at Microsoft, spoke of flaming ocean platforms and shark-infested waters to describe the competitive climate he inherited at Nokia, the erstwhile leader in mobile phones that was then teetering on the brink of irrelevance.

Mr. Elop, an affable Canadian engineer, painted the bleak outlook as he prescribed a radical cure on the once-proud Finnish mobile phone pioneer: The rejection of the company's own Symbian smartphone operating system for a shotgun collaboration with Microsoft, itself stumbling badly in the sector.

On Thursday, the Nokia chief executive delivered the biggest news from the Finnish company since he started the last-ditch transformation: Nokia may be on its way back.

Thanks in part to an all-out marketing push, sales of its new smartphone line, the Lumia, powered by Microsoft's Windows Phone operating system, soared more than 50 percent in the fourth quarter of last year, leading Nokia to an unexpected profit. Thanks largely to demand for its newest models, Nokia had to correct its financial forecasts -- upward.

In what was seen as a make-or-break quarter, Mr. Elop was able to tell investors that Nokia would break even or turn a 2 percent profit rather than report a loss as large as 10 percent.

"While we definitely experienced some tough challenges in the first half of 2012, we are managing through these issues," Mr. Elop said during a conference call with journalists.

What Nokia has accomplished under Mr. Elop, whose professional future is tied to resuscitating the company, is to produce a line of increasingly competitive smartphones that are starting to draw favorable comparisons with Samsung and Apple, the two companies most responsible for knocking Nokia from its lofty perch, according to analysts.

"The Lumia smartphones are night-and-day different from Nokia's old Symbian handsets," said Francisco Jeronimo, an analyst in London at International Data Corp. "I think what we are starting to see now is what will be a steady turnaround in Nokia's fortunes."

The company, which dominated the cellphone business until Apple introduced its iPhone in 2007, still has a long way to go to approach its former stature. In the third quarter, Nokia had just a 4 percent share of the global smartphone market, and was a distant No.10 in the sector, trailing the not-so-illustrious likes of LG and ZTE, among others, according to Strategy Analytics, a research firm.

Samsung and Apple, the No.1 and No.2 smartphone makers, together had 50 percent of the global smartphone market, and their shares were growing. While its competitors rose, Nokia has generated nearly €5 billion, or $6.5 billion, in losses under Mr. Elop, and eliminated of a third of its work force.

In October, Microsoft introduced the Windows Phone 8, the operating system that would be used in the top-of-the-line Lumia 920 and 820. Since then, Nokia has spent heavily on advertising in Britain and Europe to promote the models. The company will not disclose how much it had spent on its campaign, but its television ads were ubiquitous over the holidays, said Neil Mawston, an analyst at Strategy Analytics in London.

The heavy promotion, which was aided by Microsoft, whose own mobile strategy is intimately tied up with Nokia's, has helped the company recapture some of its lost glory, Mr. Mawston said.

But Mr. Mawston warned that "Nokia still lacks the true killer phone that will enable it to compete with the iPhone 5 or Samsung Galaxy S III."

Mr. Mawston said he expected Nokia's share of the global smartphone market to rise to 6 percent by the end of the year.

The company's financial position is likely to revive even more quickly as a result of the strict cost-cutting imposed by Mr. Elop, who used to run Microsoft's business software division before coming to Nokia in late 2010.

Mr. Elop has eliminated a third of Nokia's work force and shut factories across Europe. Last month, Nokia even sold its 540,000 square-foot, or 50,000 square-meter, glass-and-wood headquarters in the Helsinki suburb of Espoo to Finnish investors, and leased it back. The maneuver netted Nokia €170 million.

Besides a more competitive array of phones, Nokia has discarded its market-leader mentality. Employees are now routinely traveling in economy class and sharing rides to airports. Workers no longer use costly telephone conference calling but speak in group teleconferences using less expensive Internet calling services.

"The company is a lot smaller now but people are working better together," said Susan Sheehan, a Nokia spokeswoman. "Everyone has been pitching in."

Even at Nokia Siemens, the company's long-suffering network equipment venture, the future is looking brighter than it was two years ago. On Thursday, Nokia said the unit, which contributes about 40 percent of its total sales, would report an operating profit for the third quarter, its third straight quarterly profit.

Nokia, in its information to investors, even revised the operating profit forecast at the venture to 13 percent to 15 percent of sales, up from a range of 4 percent to 12 percent.

Looking ahead, Nokia said it expected to return to an operating loss of 2 percent of sales in the first quarter amid the post-holiday buying lull and harsh competition. But the results for the coming three months could vary widely, Nokia warned, from an even bigger 6 percent operating loss to a 2 percent profit.

Pete Cunningham, an analyst at Canalys, a research firm in Reading, England, said that Nokia's improving financial position was a positive step but that the company still faced challenges.

"On face value, this is a positive for Nokia," Mr. Cunningham said. "But 2013 could still turn out to be another very difficult year for Nokia. It is way too premature to say that the company has made a turnaround."

Mr. Cunningham said he used the Lumia 920, Nokia's newest smartphone, during the Christmas holidays and liked the experience.

"But the more I used the phone, the more apparent it became to me that there are big gaps between Lumia and its competitors in terms of the functionality and usability of its apps," Mr. Cunningham said. "I still think there is a lot of work to be done on Lumia."

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This article originally appeared in The New York Times.


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