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Nokia Corporation

Nokia Corporation

Keilalahdentie 4 FIN-02150
Espoo,
Finland
Telephone: (358) 7180-08000
Fax: (358) 7180-38226
Web site: http://www.nokia.com

Public Company
Incorporated:
1865
Employees: 55,505
Sales: EUR 29.26 billion (2004)
Stock Exchanges: New York Helsinki Stockholm Frankfurt
Ticker Symbol: NOK
NAIC: 334210 Telephone Apparatus Manufacturing; 334220 Radio and Television Broadcasting and Wireless Communications Equipment Manufacturing; 334310 Audio and Video Equipment Manufacturing; 334419 Other Electronic Component Manufacturing; 517212 Cellular and Other Wireless Telecommunications; 517910 Other Telecommunications; 551112 Offices of Other Holding Companies

Nokia Corporation is the world's largest manufacturer of mobile phones, serving customers in 130 countries. Nokia is divided into four business groups: Mobile Phones, Multimedia, Enterprise Solutions, and Networks. The Mobile Phones group markets wireless voice and data products in consumer and corporate markets. The Multimedia segment sells mobile gaming devices, home satellite systems, and cable television set-top boxes. The Enterprise Solutions group develops wireless systems for use in the corporate sector. Wireless switching and transmission equipment is sold through the company's Networks division. Nokia operates 15 manufacturing facilities in nine countries and maintains research and development facilities in 12 countries.

19TH-CENTURY ORIGINS

Originally a manufacturer of pulp and paper, Nokia was founded as Nokia Company in 1865 in a small town of the same name in central Finland. Nokia was a pioneer in the industry and introduced many new production methods to a country with only one major natural resource, its vast forests. As the industry became increasingly energy-intensive, the company even constructed its own power plants. But for many years, Nokia remained an important yet static firm in a relatively forgotten corner of northern Europe. Nokia shares were first listed on the Helsinki exchange in 1915.

The first major changes in Nokia occurred several years after World War II. Despite its proximity to the Soviet Union, Finland has always remained economically connected with Scandinavian and other Western countries, and as Finnish trade expanded Nokia became a leading exporter.

During the early 1960s Nokia began to diversify in an attempt to transform the company into a regional conglomerate with interests beyond Finnish borders. Unable to initiate strong internal growth, Nokia turned its attention to acquisitions. The government, however, hoping to rationalize two underperforming basic industries, favored Nokia's expansion within the country and encouraged its eventual merger with Finnish Rubber Works, which was founded in 1898, and Finnish Cable Works, which was formed in 1912, to form Nokia Corporation. When the amalgamation was completed in 1966, Nokia was involved in several new industries, including integrated cable operations, electronics, tires, and rubber footwear, and had made its first public share offering.

In 1967 Nokia set up a division to develop design and manufacturing capabilities in data processing, industrial automation, and communications systems. The division was later expanded and made into several divisions, which then concentrated on developing information systems, including personal computers and workstations, digital communications systems, and mobile phones. Nokia also gained a strong position in modems and automatic banking systems in Scandinavia.

OIL CRISIS, CORPORATE CHANGES: 1970S

Nokia continued to operate in a stable but parochial manner until 1973, when it was affected in a unique way by the oil crisis. Years of political accommodation between Finland and the Soviet Union ensured Finnish neutrality in exchange for lucrative trade agreements with the Soviets, mainly Finnish lumber products and machinery in exchange for Soviet oil. By agreement, this trade was kept strictly in balance. But when world oil prices began to rise, the market price for Soviet oil rose with it. Balanced trade began to mean greatly reduced purchasing power for Finnish companies such as Nokia.

Although the effects were not catastrophic, the oil crisis did force Nokia to reassess its reliance on Soviet trade (about 12 percent of sales) as well as its international growth strategies. Several contingency plans were drawn up, but the greatest changes came after the company appointed a new CEO, Kari Kairamo, in 1975.

Kairamo noted the obvious: Nokia was too big for Finland. The company had to expand abroad. He studied the expansion of other Scandinavian companies (particularly Sweden's Electrolux) and, following their example, formulated a strategy of first consolidating the company's business in Finland, Sweden, Norway, and Denmark, and then moving gradually into the rest of Europe. After the company had improved its product line, established a reputation for quality, and adjusted its production capacity, it would enter the world market.

Meanwhile, Nokia's traditional, heavy industries were looking increasingly burdensome. It was feared that trying to become a leader in electronics while maintaining these basic industries would create an unmanageably unfocused company. Kairamo thought briefly about selling off the company's weaker divisions, but decided to retain and modernize them.

He reasoned that, although the modernization of these low-growth industries would be very expensive, it would guarantee Nokia's position in several stable markets, including paper, chemical, and machinery productions, and electrical generation. For the scheme to be practical, each division's modernization would have to be gradual and individually financed. This would prevent the bleeding of funds away from the all-important effort in electronics while preventing the heavy industries from becoming any less profitable.

With each division financing its own modernization, there was little or no drain on capital from other divisions, and Nokia could still sell any group that did not succeed under the new plan. In the end, the plan prompted the machinery division to begin development in robotics and automation, the cables division to begin work on fiber optics, and the forestry division to move into high-grade tissues.

RISE OF ELECTRONICS: 1980S

Nokia's most important focus was development of the electronics sector. Over the course of the 1980s, the firm acquired nearly 20 companies, focusing especially on three segments of the electronics industry: consumer, workstations, and mobile communications. Electronics grew from 10 percent of annual sales to 60 percent of revenues from 1980 to 1988.

COMPANY PERSPECTIVES

By connecting people, we help fulfill a fundamental human need for social connections and contact. Nokia builds bridges between peopleboth when they are far apart and face-to-faceand also bridges the gap between people and the information they need.

In late 1984 Nokia acquired Salora, the largest color television manufacturer in Scandinavia, and Luxor, the Swedish state-owned electronics and computer firm. Nokia combined Salora and Luxor into a single division and concentrated on stylish consumer electronic products, since style was a crucial factor in Scandinavian markets. The Salora-Luxor division was also very successful in satellite and digital television technology. Nokia purchased the consumer electronics operations of Standard Elektrik Lorenz A.G. from Alcatel in 1987, further bolstering the company's position in the television market to the third largest manufacturer in Europe.

In early 1988 Nokia acquired the data systems division of the Swedish Ericsson Group, making Nokia the largest Scandinavian information technology business.

Although a market leader in Scandinavia, Nokia still lacked a degree of competitiveness in the European market, which was dominated by much larger Japanese and German companies. Kairamo decided, therefore, to follow the example of many Japanese companies during the 1960s (and Korean manufacturers a decade later) and negotiate to become an original equipment manufacturer, or OEM, to manufacture products for competitors as a subcontractor.

Nokia manufactured items for Hitachi in France, Ericsson in Sweden, Northern Telecom in Canada, and Granada and IBM in Britain. In doing so it was able to increase its production capacity stability. There were, however, several risks involved, those inherent in any OEM arrangement. Nokia's sales margins were naturally reduced, but of greater concern, production capacity was built up without a commensurate expansion in the sales network. With little brand identification, Nokia feared it might have a difficult time selling under its own name and become trapped as an OEM.

In 1986 Nokia reorganized its management structure to simplify reporting efforts and improve control by central management. The company's 11 divisions were grouped into four industry segments: electronics; cables and machinery; paper, power, and chemicals; and rubber and flooring. In addition, Nokia won a concession from the Finnish government to allow greater foreign participation in ownership. This substantially reduced Nokia's dependence on the comparatively expensive Finnish lending market. Although there was growth throughout the company, Nokia's greatest success was in telecommunications.

Having dabbled in telecommunications in the 1960s, Nokia cut its teeth in the industry by selling switching systems under license from a French company, Alcatel. The Finnish firm got in on the cellular industry's ground floor in the late 1970s, when it helped design the world's first international cellular system. Named the Nordic Mobile Telephone (NMT) network, the system linked Sweden, Denmark, Norway, and Finland. A year after the network came on line in 1981, Nokia gained 100 percent control of Mobira, the Finnish mobile phone company that would later become its key business interest as the Nokia Mobile Phones division. Mobira's regional sales were vastly improved, but Nokia was still limited to OEM production on the international market; Nokia and Tandy Corporation, of the United States, built a factory in Masan, South Korea, to manufacture mobile telephones. These were sold under the Tandy name in that company's 6,000 Radio Shack stores throughout the United States.

In 1986, eager to test its ability to compete openly, Nokia chose the mobile telephone to be the first product marketed internationally under the Nokia name; it became Nokia's "make or break" product. Unfortunately, Asian competitors began to drive prices down just as Nokia entered the market. Other Nokia products gaining recognition were Salora televisions and Luxor satellite dishes, which suffered briefly when subscription programming introduced broadcast scrambling.

KEY DATES

1865:
Nokia is founded as a maker of pulp and paper.
1898:
Finnish Rubber Works is founded.
1912:
Finnish Cable Works is formed.
1915:
Nokia shares are first listed on the Helsinki exchange.
1967:
Nokia merges with Finnish Rubber Works and Finnish Cable Works to form Nokia Corporation.
1979:
Mobira Oy is formed as a mobile phone company.
1981:
The first international cellular system, the Nordic Mobile Telephone network, comes on line, having been developed with the help of Nokia.
1982:
Nokia acquires Mobira, which later becomes the Nokia Mobile Phones division.
1986:
Company markets internationally the first Nokia mobile telephone.
1993:
The first Nokia digital cellular phone hits the market.
1998:
Nokia surpasses Motorola as the world's number one maker of mobile phones.
2002:
Nokia introduces the first third-generation compliant mobile phone.
2005:
Jorma Ollila announces he will step down as chief executive officer in 2006.

The company's expansion, achieved almost exclusively by acquisition, had been expensive. Few Finnish investors other than institutions had the patience to see Nokia through its long-term plans. Indeed, more than half of the new shares issued by Nokia in 1987 went to foreign investors. Nokia moved boldly into Western markets; it gained a listing on the London exchange in 1987 and was subsequently listed on the New York exchange.

CRISES OF LEADERSHIP, PROFITABILITY IN THE LATE 1980S AND EARLY 1990S

Nokia's rapid growth was not without a price. In 1988, as revenues soared, the company's profits, under pressure from severe price competition in the consumer electronics markets, dropped. Chairman Kari Kairamo committed suicide in December of that year; not surprisingly, friends said it was brought on by stress. Simo S. Vuorileto took over the company's reins and began streamlining operations in the spring of 1988. Nokia was divided into six business groups: consumer electronics, data, mobile phones, telecommunications, cables and machinery, and basic industries. Vuorileto continued Kairamo's focus on high-tech divisions, divesting Nokia's flooring, paper, rubber, and ventilation systems businesses and entering into joint ventures with companies such as Tandy Corporation and Matra of France (two separate agreements to produce mobile phones for the U.S. and French markets).

In spite of these efforts, Nokia's pretax profits continued to decline in 1989 and 1990, culminating in a loss of $102 million in 1991. Industry observers blamed cutthroat European competition, the breakdown of the Finnish banking system, and the collapse of the Soviet Union. But, notwithstanding these difficulties, Nokia remained committed to its high-tech orientation. Late in 1991, the company strengthened that dedication by promoting Jorma Ollila from president of Nokia-Mobira Inc. (renamed Nokia Mobile Phones Ltd. the following year) to group president.

LEADING THE TELECOMMUNICATIONS REVOLUTION: MID-1990S AND BEYOND

Forbes 's Fleming Meeks credited Ollila with transforming Nokia from "a moneylosing hodgepodge of companies into one of telecommunications' most profitable companies." Unable to find a buyer for Nokia's consumer electronics business, which had lost nearly $1 billion from 1988 to 1993, Ollila cut that segment's workforce by 45 percent, shuttered plants, and centralized operations. Having divested Nokia Data in 1991, Nokia focused further on its telecommunications core by selling off its power unit in 1994 and its television and tire and cable units the following year.

The new leader achieved success in the cellular phone segment by bringing innovative products to market quickly with a particular focus on ever smaller and easier-to-use phones featuring sleek Finnish design. Nokia gained a leg up in cellphone research and development with the 1991 acquisition of the United Kingdom's Technophone Ltd. for $57 million. The company began selling digital cellular phones in 1993.

Ollila's tenure brought Nokia success and with it global recognition. The company's sales more than doubled, from FIM 15.5 billion in 1991 to FIM 36.8 billion in 1995, and its bottom line rebounded from a net loss of FIM 723 million in 1992 to a FIM 2.2 billion profit in 1995. Securities investors did not miss the turnaround: Nokia's market capitalization multiplied ten times from 1991 to 1994.

In late 1995 and early 1996, Nokia suffered a temporary setback stemming from a shortage of chips for its digital cellular phones and a resultant disruption of its logistics chain. The company's production costs rose and profits fell. Nokia was also slightly ahead of the market, particularly in North America, in regard to the shift from analog to digital phones. As a result, it was saddled with a great number of digital phones it could not sell and an insufficient number of analog devices. Nevertheless, Nokia had positioned itself well for the long haul, and within just a year or two it was arch-rival Motorola, Inc. that was burdened with an abundance of phones it could not sell, analog ones, as Motorola was slow to convert to digital. As a result, by late 1998, Nokia had surpassed Motorola and claimed the top position in cellular phones worldwide.

Aiding this surge was the November 1997 introduction of the 6100 series of digital phones. This line proved immensely popular because of the phones' small size (similar to a slim pack of cigarettes), light weight (4.5 ounces), and superior battery life. First introduced in the burgeoning mobile phone market in China, the 6100 soon became a worldwide phenomenon. Including the 6100 and other models, Nokia sold nearly 41 million cellular phones in 1998. Net sales increased more than 50 percent over the previous year, jumping from FIM 52.61 billion ($9.83 billion) to FIM 79.23 billion ($15.69 billion). Operating profits increased by 75 percent, while the company's skyrocketing stock price shot up more than 220 percent, pushing Nokia's market capitalization from FIM 110.01 billion ($20.57 billion) to FIM 355.53 billion ($70.39 billion).

Not content with conquering the mobile phone market, Nokia began aggressively pursuing the mobile Internet sector in the late 1990s. Already on the market was the Nokia 9000 Communicator, a personal all-in-one communication device that included phone, data, Internet, e-mail, and fax retrieval services. The Nokia 8110 mobile phone included the capability to access the Internet. In addition, Nokia was the first company to introduce a cellular phone that could be connected to a laptop computer to transmit data over a mobile network. To help develop further products, Nokia began acquiring Internet technology companies, starting with the December 1997, $120 million purchase of Ipsilon Networks Inc., a Silicon Valley firm specializing in Internet routing. One year later, Nokia spent FIM 429 million ($85 million) for Vienna Systems Corporation, a Canadian firm focusing on Internet Protocol telephony.

Acquisitions continued in 1999, when a further seven deals were completed, four of which were Internet-related. Meanwhile, net sales increased a further 48 percent in 1999, while operating profits grew by 57 percent; riding the late 1990s high-tech stock boom, the market capitalization of Nokia took another huge leap, ending the year at EUR 209.37 billion ($211.05 billion). Nokia's share of the global cellular phone market increased from 22.5 percent in 1998 to 26.9 percent in 1999, as the company sold 76.3 million phones in 1999.

Nokia's ascendance to the top of the wireless world by the end of the 1990s could be traced to the company being able to consistently, over and over again, come out with high-margin products superior to those of its competitors and in tune with market demands. The continuation of this trend into the 21st century was by no means certain as the increasing convergence of wireless and Internet technologies and the development of the third generation (3G) of wireless technology (which followed the analog and digital generations and which was slated to feature sophisticated multimedia capability) were predicted to open Nokia up to new and formidable competitors.

Perhaps the greatest threat was that chipmakers such as Intel would turn mobile phones into commodities just as they had previously done with personal computers; the days of the $500 Nokia phone were potentially numbered. Nevertheless, Nokia's 25 percent profit margins were enabling it to spend a massive $2 billion a year on research and development and continue to churn out innovative new products, concentrating on the various standards being developed for 3G wireless networks.

A TWO-PRONGED APPROACH IN THE 21ST CENTURY

Mobile communications developed along two broad fronts during the first years of the century, both of which played to Nokia's advantage, ensuring that the company remained the leader of its industry. The evolution of handsets into multimedia devices ushered in by 3G technology meant that Nokia could continue to rely on marketing expensive, sophisticated handsets. The days of the $500 Nokia phone gave way to the days of increasingly more expensive phones, such as the Nokia N90, a unit featuring a camera with Carl Zeiss optics, video-recording capabilities, and Internet access. Nokia could count on a substantial share of the high end of the market, a segment that continued to thrive midway through the decade, but the company's greatest strength was in the lower end of the market. In countries such as China, Brazil, and India there was a tremendous demand for inexpensive mobile phones, with analysts expecting 50 percent of the one billion handsets sold between 2005 and 2010 to be sold in developing economies. Industry observers believed there were only two companies in the world that could seriously compete for the estimated 800-million-unit-per year market for inexpensive handsets: Motorola and Nokia. Rivals such as Samsung, Sony Ericsson, and LG Electronics preferred to confine their activities to the high end of the market, while emerging low-cost producers lacked the manufacturing efficiencies enjoyed by Nokia and Motorola.

Against the backdrop of favorable market trends supporting Nokia's entrenched position, the company experienced a rare event in its modern history: a change in leadership. After a decade-and-a-half at the helm, CEO Ollila announced his retirement, effective June 2006. His replacement was a 25-year Nokia veteran named Olli-Pekka Kallasvuo, a lawyer by training whom Fortune, in that magazine's October 31, 2005 issue, described as so taciturn that "he can seem like an extra from an Ingmar Bergman movie."

Kallasvuo, who was promoted from his position as the head of the handset division, inherited an impressively capable company whose greatest challenge was contending with Motorola for the low end of the market and beating back competitors for control of the high end of the market. "Nokia is a dynamic company in a fast-changing and fluid environment," Kallasvuo said in a November 29, 2005 interview with the South China Morning Post. "I look forward to working together with our team to help Nokia shape the future of mobile communications at a pivotal time for the industry."

PRINCIPAL SUBSIDIARIES

Nokia Holding Inc.; Nokia Products Limited (Canada); Nokia IP Telephony Corporation (Canada); Nokia Telecommunications Inc.; Nokia Inc.; Nokia (China) Investment Co. Ltd.; Nokia (H.K.) Limited (Hong Kong); Nokia (Ireland) Ltd.; Nokia Australia Pty Limited; Nokia Asset Management Oy; Nokia Austria GmbH; Nokia Danmark A/S (Denmark); Nokia Do Brasil Ltda. (Brazil); Nokia Do Brasil Tecnologia Ltda. (Brazil); Nokia Finance International B.V. (Netherlands); Nokia France; Nokia GmbH (Germany); Nokia India Private Limited; Nokia Italia Spa (Italy); Nokia Korea Ltd.; Nokia Mobile Phones; Nokia Networks; Nokia Norge AS (Norway); Nokia Oyj; Nokia Pte Ltd. (Singapore); Nokia Spain, S.A.; Nokia Svenska AB (Sweden); Nokia U.K. Ltd.; Nokia Ventures Organization; Bave Tartum (U.K.); Beijing Nokia Hangxing Telecommunications Systems Co., Ltd. (China); DoctortelAssistencia De Telecomunicaes S.A. (Portugal); Funda Ao Nokia De Ensino (Brazil); Instituto Nokia De Tecnologia (Brazil); Nokia (M) Sdn Bhd (Malaysia); Nokia Argentina S.A.; Nokia Belgium NV; Nokia Capitel Telecommunications Ltd. (China); Nokia Ecuador S.A.; Nokia Hellas Communications S.A.; Nokia Hungary Kommunikacios Korlatolt Felelossegu Tarsasag (Hungary); Nokia Israel Ltd.; Nokia Middle East (United Arab Emirates; Nokia Nederland B.V. (Netherlands); Nokia Poland Sp Z.O.O.; Nokia Portugal S.A.; Nokia Private Joint Stock Company (Russia); Nokia Research Center; Nokia River Golf Ry; Nokia S.A. (Columbia); Nokia Servicios, S.A. de C.V. (Mexico); Nokia Technology GmbH (Germany); Nokianvirta Oy; Oy Scaninter Nokia Ltd.; Pointo Nokia Oy.

               Updated, April D. Gasbarre; David E. Salamie;
                                             Jeffrey L. Covell

PRINCIPAL COMPETITORS

Telefonaktiebolaget LM Ericsson; Motorola, Inc.; Siemens AG; Sony Corporation.

FURTHER READING

Angell, Mike, "Nokia Banking on New Phone Features, Cameras, E-Mail Access," Investor's Business Daily, December 3, 2002, p. A7.

Baker, Stephen, and Kerry Capell, "The Race to Rule Mobile," Business Week, February 21, 2000, pp. 58-60.

Baker, Stephen, Roger O. Crockett, and Neil Gross, "Nokia: Can CEO Ollila Keep the Cellular Superstar Flying High?," Business Week, August 10, 1998, pp. 54-60.

"Bellaby, Mara D., "Nokia Acquires Intellisynch," America's Intelligence Wire, November 17, 2005.

Bensinger, Ari, "The Call on Nokia," Business Week Online, January 7, 2003.

Berkman, Barbara N., "Brainstorming in the Sauna," Electronic Business, November 18, 1991, pp. 71-74.

, "Sagging Profits Spark Identity Crisis at Nokia," Electronic Business, March 4, 1991, pp. 57-59.

Burt, Tim, and Greg McIvor, "Land of Midnight Mobiles: A Former Toilet-Paper Maker from Finland Has Become the World's Largest Manufacturer of Mobile Phones," Financial Times, October 30, 1998, p. 18.

Edmondson, Gail, Peter Elstrom, and Peter Burrows, "At Nokia, a Comebackand Then Some," Business Week, December 2, 1996, p. 106.

Fox, Justin, "Nokia's Secret Code," Fortune, May 1, 2000, pp. 161-64+.

Furchgott, Roy, "Nokia Signals Desire for Higher Profile," ADWEEK Eastern Edition, June 12, 1995, p. 2.

Guth, Robert A., "Nokia Fights for Toehold in Japan's Cell-Phone Market," Wall Street Journal, June 26, 2000, p. A26.

Heard, Joyce, and Keller, John J., "Nokia Skates into High Tech's Big Leagues," Business Week, April 4, 1988, pp. 102-03.

Jacob, Rahul, "Nokia Fumbles, But Don't Count It Out," Fortune, February 19, 1996, pp. 86-88.

Kharif, Olga, "Will New Phones Boost Nokia's Signal?," Business Week Online, December 11, 2002.

La Rossa, James, Jr., "Nokia Knocks on U.S. Door," HFDThe Weekly Home Furnishings Newspaper, February 10, 1992, pp. 66-67.

Lemola, Tarmo, and Raimo Lovio, Miksi Nokia, Finland, Porvoo, Sweden: W. Sööderströöm, 1996, 211 p.

Lineback, J. Robert, "Nokia's Mobile Phone Unit Is Ringing Bells," Electronic Business Buyer, June 1994, pp. 60-62.

Meeks, Fleming, "Watch Out, Motorola," Forbes, September 12, 1994, pp. 192-94.

"Nokia and CommTel Expand Broadband in the Pacific," PR Newswire, December 28, 2005.

"Nokia Expands Production in China," TelecomWeb News Digest, December 1, 2005.

"Nokia Launches New 3G Phones," eWeek, December 1, 2005.

"Not Finnished Yet," Economist, February 9, 1991, p. 73.

Perez, Bien, "Nokia Adapts to Swift Changes," South China Morning Post, November 29, 2005.

Reinhardt, Andy, "Cell Phones for the People," Business Week, November 7, 2005, p. 26.

, "A Whole New Wireless Order," Business Week, October 31, 2005, p. MTL2.

Salameh, Asad, "Nokia Repositions for a Major Cellular Marketing Initiative," Telecommunications, June 1992, p. 43.

Schwartz, Nelson D., "The Man Behind Nokia's Comeback," Fortune, October 31, 2005, p. 39.

Seyfer, Jessie, "Nokia to Acquire Intellisync," San Jose Mercury News, November 17, 2005.

Silberg, Lurie, "A Brand Apart," HFDThe Weekly Home Furnishings Newspaper, September 5, 1994, pp. 54-55.

"These Sexy Gadgets Will Rock Next Year," Economic Times of India, December 20, 2005.

Williams, Elaine, "100-Year-Old Nokia Experiences Fast-Growth Pains," Electronic Business, June 26, 1989, pp. 111-14.

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Nokia Corporation

Nokia Corporation

Keilalahdentie 4
FIN-02150 Espoo
Finland
Telephone: (358) 9 18 071
Fax: (358) 9 656 388
Web site: http://www.nokia.com

Public Company
Incorporated:
1865
Employees: 55,000
Sales: EUR 19.77 billion (US$19.93 billion) (1999)
Stock Exchanges: Helsinki Stockholm London Frankfurt Paris New York
Ticker Symbol: NOK
NAIC: 334210 Telephone Apparatus Mfg.; 334220 Radio and Television Broadcasting and Wireless Communications Equipment Mfg.; 334290 Other Communications Equipment Mfg.; 334419 Other Electronic Component Mfg.

Nokia Corporation is the worlds largest manufacturer of mobile phones, with a worldwide market share of about 27 percent, far surpassing the number two player, Ericsson, which has about 17 percent. About two-thirds of the companys net sales are generated by the Nokia Mobile Phones business group. Nokias other main business group is Nokia Networks, which is responsible for about 30 percent of net sales. Nokia Networks is a leading global supplier of infrastructure for mobile, fixed, broadband, and Internet Protocol (IP) networks. With a sales network that spans 130 nations, Nokia Corporation generated more than half of its sales in Europe, a quarter in the Americas, and about 22 percent in the Asia-Pacific region. Over the course of its more than 135 years in business, the company has evolved from a concentration in pulp, paper, and other basic industries to a focus on telecommunications.

19th-century Origins

Originally a manufacturer of pulp and paper, Nokia was founded as Nokia Company in 1865 in a small town of the same name in central Finland. Nokia was a pioneer in the industry and introduced many new production methods to a country with only one major natural resource, its vast forests. As the industry became increasingly energy-intensive, the company even constructed its own power plants. But for many years, Nokia remained an important yet static firm in a relatively forgotten corner of northern Europe. Nokia shares were first listed on the Helsinki exchange in 1915.

The first major changes in Nokia occurred several years after World War II. Despite its proximity to the Soviet Union, Finland has always remained economically connected with Scandinavian and other Western countries, and as Finnish trade expanded Nokia became a leading exporter.

During the early 1960s Nokia began to diversify in an attempt to transform the company into a regional conglomerate with interests beyond Finnish borders. Unable to initiate strong internal growth, Nokia turned its attention to acquisitions. The government, however, hoping to rationalize two underperform-ing basic industries, favored Nokias expansion within the country and encouraged its eventual merger with Finnish Rubber Works, which was founded in 1898, and Finnish Cable Works, which was formed in 1912, to form Nokia Corporation. When the amalgamation was completed in 1966, Nokia was involved in several new industries, including integrated cable operations, electronics, tires, and rubber footwear, and had made its first public share offering.

In 1967 Nokia set up a division to develop design and manufacturing capabilities in data processing, industrial automation, and communications systems. The division was later expanded and made into several divisions, which then concentrated on developing information systems, including personal computers and workstations, digital communications systems, and mobile phones. Nokia also gained a strong position in modems and automatic banking systems in Scandinavia.

Oil Crisis, Corporate Changes: 1970s

Nokia continued to operate in a stable but parochial manner until 1973, when it was affected in a unique way by the oil crisis. Years of political accommodation between Finland and the Soviet Union ensured Finnish neutrality in exchange for lucrative trade agreements with the Sovietsmainly Finnish lumber products and machinery in exchange for Soviet oil. By agreement, this trade was kept strictly in balance. But when world oil prices began to rise, the market price for Soviet oil rose with it. Balanced trade began to mean greatly reduced purchasing power for Finnish companies such as Nokia.

Although the effects were not catastrophic, the oil crisis did force Nokia to reassess its reliance on Soviet trade (about 12 percent of sales) as well as its international growth strategies. Several contingency plans were drawn up, but the greatest changes came after the company appointed a new CEO, Kari Kairamo, in 1975.

Kairamo noted the obvious: Nokia was too big for Finland. The company had to expand abroad. He studied the expansion of other Scandinavian companies (particularly Swedens Elec-trolux) and, following their example, formulated a strategy of first consolidating the companys business in Finland, Sweden, Norway, and Denmark, and then moving gradually into the rest of Europe. After the company had improved its product line, established a reputation for quality, and adjusted its production capacity, it would enter the world market.

Meanwhile, Nokias traditional, heavy industries were looking increasingly burdensome. It was feared that trying to become a leader in electronics while maintaining these basic industries would create an unmanageably unfocused company. Kairamo thought briefly about selling off the companys weaker divisions, but decided to retain and modernize them.

He reasoned that, although the modernization of these low-growth industries would be very expensive, it would guarantee Nokias position in several stable markets, including paper, chemical, and machinery productions, and electrical generation. For the scheme to be practical, each divisions modernization would have to be gradual and individually financed. This would prevent the bleeding of funds away from the all-important effort in electronics while preventing the heavy industries from becoming any less profitable.

With each division financing its own modernization, there was little or no drain on capital from other divisions, and Nokia could still sell any group that did not succeed under the new plan. In the end, the plan prompted the machinery division to begin development in robotics and automation, the cables division to begin work on fiber optics, and the forestry division to move into high-grade tissues.

Rise of Electronics: 1980s

Nokias most important focus was development of the electronics sector. Over the course of the 1980s, the firm acquired nearly 20 companies, focusing especially on three segments of the electronics industry: consumer, workstations, and mobile communications. Electronics grew from ten percent of annual sales to 60 percent of revenues from 1980 to 1988. In late 1984 Nokia acquired Salora, the largest color television manufacturer in Scandinavia, and Luxor, the Swedish state-owned electronics and computer firm. Nokia combined Salora and Luxor into a single division and concentrated on stylish consumer electronic products, since style was a crucial factor in Scandinavian markets. The Salora-Luxor division was also very successful in satellite and digital television technology. Nokia purchased the consumer electronics operations of Standard Elektrik Lorenz A.G. from Alcatel in 1987, further bolstering the companys position in the television market to the third largest manufacturer in Europe. In early 1988 Nokia acquired the data systems division of the Swedish Ericsson Group, making Nokia the largest Scandinavian information technology business.

Although a market leader in Scandinavia, Nokia still lacked a degree of competitiveness in the European market, which was dominated by much larger Japanese and German companies. Kairamo decided, therefore, to follow the example of many Japanese companies during the 1960s (and Korean manufacturers a decade later) and negotiate to become an original equipment manufacturer, or OEM, to manufacture products for competitors as a subcontractor.

Nokia manufactured items for Hitachi in France, Ericsson in Sweden, Northern Telecom in Canada, and Granada and IBM in Britain. In doing so it was able to increase its production capacity stability. There were, however, several risks involved, those inherent in any OEM arrangement. Nokias sales margins were naturally reduced, but of greater concern, production capacity was built up without a commensurate expansion in the sales network. With little brand identification, Nokia feared it might have a difficult time selling under its own name and become trapped as an OEM.

In 1986 Nokia reorganized its management structure to simplify reporting efforts and improve control by central management. The companys 11 divisions were grouped into four industry segments: electronics; cables and machinery; paper, power, and chemicals; and rubber and flooring. In addition, Nokia won a concession from the Finnish government to allow greater foreign participation in ownership. This substantially reduced Nokias dependence on the comparatively expensive Finnish lending market. Although there was growth throughout the company, Nokias greatest success was in telecommunications.

Company Perspectives:

Nokia is a leading international communications company, focused on the key growth areas of wireline and wireless telecommunications. Nokia is a pioneer in digital technology and wireless data communications, continuously bringing innovations to the highly competitive and growing telecommunications markets. Nokia is also actively involved in international R&D cooperation, including the development of the standards for third generation mobile telephony.

Having dabbled in telecommunications in the 1960s, Nokia cut its teeth in the industry by selling switching systems under license from a French company, Alcatel. The Finnish firm got in on the cellular industrys ground floor in the late 1970s, when it helped design the worlds first international cellular system. Named the Nordic Mobile Telephone (NMT) network, the system linked Sweden, Denmark, Norway, and Finland. A year after the network came on line in 1981, Nokia gained 100 percent control of Mobira, the Finnish mobile phone company that would later become its key business interest as the Nokia Mobile Phones division. Mobiras regional sales were vastly improved, but Nokia was still limited to OEM production on the international market; Nokia and Tandy Corporation, of the United States, built a factory in Masan, South Korea, to manufacture mobile telephones. These were sold under the Tandy name in that companys 6,000 Radio Shack stores throughout the United States.

In 1986, eager to test its ability to compete openly, Nokia chose the mobile telephone to be the first product marketed internationally under the Nokia name; it became Nokias make or break product. Unfortunately, Asian competitors began to drive prices down just as Nokia entered the market. Other Nokia products gaining recognition were Salora televisions and Luxor satellite dishes, which suffered briefly when subscription programming introduced broadcast scrambling.

The companys expansion, achieved almost exclusively by acquisition, had been expensive. Few Finnish investors other than institutions had the patience to see Nokia through its long-term plans. Indeed, more than half of the new shares issued by Nokia in 1987 went to foreign investors. Nokia moved boldly into Western markets; it gained a listing on the London exchange in 1987 and was subsequently listed on the New York exchange.

Crises of Leadership, Profitability in the Late 1980s and Early 1990s

Nokias rapid growth was not without a price. In 1988, as revenues soared, the companys profits, under pressure from severe price competition in the consumer electronics markets, dropped. Chairman Kari Kairamo committed suicide in December of that year; not surprisingly, friends said it was brought on by stress. Simo S. Vuorileto took over the companys reins and began streamlining operations in the spring of 1988. Nokia was divided into six business groups: consumer electronics, data, mobile phones, telecommunications, cables and machinery, and basic industries. Vuorileto continued Kairamos focus on high-tech divisions, divesting Nokias flooring, paper, rubber, and ventilation systems businesses and entering into joint ventures with companies such as Tandy Corporation and Matra of France (two separate agreements to produce mobile phones for the U.S. and French markets).

In spite of these efforts, Nokias pretax profits continued to decline in 1989 and 1990, culminating in a loss of US$102 million in 1991. Industry observers blamed cutthroat European competition, the breakdown of the Finnish banking system, and the collapse of the Soviet Union. But, notwithstanding these difficulties, Nokia remained committed to its high-tech orientation. Late in 1991, the company strengthened that dedication by promoting Jorma Ollila from president of Nokia-Mobira Inc. (renamed Nokia Mobile Phones Ltd. the following year) to group president.

Leading the Telecommunications Revolution: Mid-1990s and Beyond

Forbes s Fleming Meeks credited Ollila with transforming Nokia from a money losing hodgepodge of companies into one of telecommunications most profitable companies. Unable to find a buyer for Nokias consumer electronics business, which had lost nearly US$1 billion from 1988 to 1993, Ollila cut that segments workforce by 45 percent, shuttered plants, and centralized operations. Having divested Nokia Data in 1991, Nokia focused further on its telecommunications core by selling off its power unit in 1994 and its television and tire and cable units the following year.

The new leader achieved success in the cellular phone segment by bringing innovative products to market quickly with a particular focus on ever-smaller and easier-to-use phones featuring sleek Finnish design. Nokia gained a leg up in cellphone research and development with the 1991 acquisition of the United Kingdoms Technophone Ltd. for US$57 million. The company began selling digital cellular phones in 1993.

Ollilas tenure brought Nokia success and with it global recognition. The companys sales more than doubled, from Fmk 15.5 billion in 1991 to Fmk 36.8 billion in 1995, and its bottom line rebounded from a net loss of Fmk 723 million in 1992 to a Fmk 2.2 billion profit in 1995. Securities investors did not miss the turnaround: Nokias market capitalization multiplied ten times from 1991 to 1994.

In late 1995 and early 1996, Nokia suffered a temporary setback stemming from a shortage of chips for its digital cellular phones and a resultant disruption of its logistics chain. The companys production costs rose and profits fell. Nokia was also slightly ahead of the market, particularly in North America, in regard to the shift from analog to digital phones. As a result, it was saddled with a great number of digital phones it could not sell and an insufficient number of analog devices. Nevertheless, Nokia had positioned itself well for the long haul, and within just a year or two it was arch-rival Motorola, Inc. that was burdened with an abundance of phones it could not sellanalog onesas Motorola was slow to convert to digital. As a result, by late 1998, Nokia had surpassed Motorola and claimed the top position in cellular phones worldwide.

Key Dates:

1865:
Nokia Company is founded as a maker of pulp and paper.
1898:
Finnish Rubber Works is founded.
1912:
Finnish Cable Works is formed.
1915:
Nokia shares are first listed on the Helsinki exchange.
1967:
Nokia merges with Finnish Rubber Works and Finnish Cable Works to form Nokia Corporation.
1979:
Mobira Oy is formed as a mobile phone company.
1981:
The first international cellular system, the Nordic Mobile Telephone network, comes on line, having been developed with the help of Nokia.
1982:
Nokia acquires Mobira, which later becomes the Nokia Mobile Phones division.
1986:
Company markets internationally the first Nokia mobile telephone.
1993:
The first Nokia digital cellular phone hits the market.
1998:
Nokia surpasses Motorola as the worlds number one maker of mobile phones.

Aiding this surge was the November 1997 introduction of the 6100 series of digital phones. This line proved immensely popular because of the phones small size (similar to a slim pack of cigarettes), light weight (4.5 ounces), and superior battery life. First introduced in the burgeoning mobile phone market in China, the 6100 soon became a worldwide phenomenon. Including the 6100 and other models, Nokia sold nearly 41 million cellular phones in 1998. Net sales increased more than 50 percent over the previous year, jumping from Fmk 52.61 billion (US$9.83 billion) to Fmk 79.23 billion (US$15.69 billion). Operating profits increased by 75 percent, while the companys skyrocketing stock price shot up more than 220 percent, pushing Nokias market capitalization from Fmk 110.01 billion (US$20.57 billion) to Fmk 355.53 billion (US$70.39 billion).

Not content with conquering the mobile phone market, Nokia began aggressively pursuing the mobile Internet sector in the late 1990s. Already on the market was the Nokia 9000 Communicator, a personal all-in-one communication device that included phone, data, Internet, e-mail, and fax retrieval services. The Nokia 8110 mobile phone included the capability to access the Internet. In addition, Nokia was the first company to introduce a cellular phone that could be connected to a laptop computer to transmit data over a mobile network. To help develop further products, Nokia began acquiring Internet technology companies, starting with the December 1997, US$120 million purchase of Ipsilon Networks Inc., a Silicon Valley firm specializing in Internet routing. One year later, Nokia spent Fmk 429 million (US$85 million) for Vienna Systems Corporation, a Canadian firm focusing on Internet Protocol telephony. Acquisitions continued in 1999, when a further seven deals were completed, four of which were Internet-related. Meanwhile, net sales increased a further 48 percent in 1999, while operating profits grew by 57 percent; riding the late 1990s high tech stock boom, the market capitalization of Nokia took another huge leap, ending the year at EUR 209.37 billion (US$211.05 billion). Nokias share of the global cellular phone market increased from 22.5 percent in 1998 to 26.9 percent in 1999, as the company sold 76.3 million phones in 1999.

Nokias ascendance to the top of the wireless world by the end of the 1990s could be traced to the company being able to consistently, over and over again, come out with high-margin products superior to those of its competitors and in tune with market demands. The continuation of this trend into the 21st century was by no means certain as the increasing convergence of wireless and Internet technologies and the development of the third generation of wireless technology (which followed the analog and digital generations and which was slated to feature sophisticated multimedia capability) were predicted to open Nokia up to new and formidable competitors. Perhaps the greatest threat was that chipmakers such as Intel would turn mobile phones into commodities just as they had previously done with personal computers; the days of the $500 Nokia phone were potentially numbered. Nevertheless, Nokias 25 percent profit margins were enabling it to spend a massive US$2 billion a year on research and development and continue to churn out innovative new products, concentrating on the various standards being developed for the third generation wireless networks.

Principal Subsidiaries

Nokia Matkapuhelimet Oy; Nokia Mobile Phones Inc. (U.S.A.); Nokia Networks Oy; Nokia GmbH (Germany); Nokia UK Limited; Nokia TMC Limited (South Korea); Beijing Nokia Mobile Telecommunications Ltd. (China); Nokia Finance International B.V. (Netherlands).

Principal Operating Units

Nokia Networks; Nokia Mobile Phones; Nokia Venture Organization; Nokia Research Center.

Principal Competitors

Alcatel; Telefonaktiebolaget LM Ericsson; Harris Corporation; Kyocera Corporation; Lucent Technologies Inc.; Matsushita Communication Industrial Co., Ltd.; Mitsubishi Electric Corporation; Motorola, Inc.; NEC Corporation; Nortel Networks Corporation; Oki Electric Industry Company, Limited; Koninklijke Philips Electronics N.V.; Pioneer Corporation; Qualcomm Incorporated; Robert Bosch GmbH; Samsung Group; Sanyo Electric Co., Ltd.; Siemens AG; Sony Corporation; Tellabs, Inc.; Toshiba Corporation.

Further Reading

Baker, Stephen, and Kerry Capell, The Race to Rule Mobile, Business Week, February 21, 2000, pp. 58-60.

Baker, Stephen, Roger O. Crockett, and Neil Gross, Nokia: Can CEO Ollila Keep the Cellular Superstar Flying High?, Business Week, August 10, 1998, pp. 54-60.

Berkman, Barbara N., Brainstorming in the Sauna, Electronic Business, November 18, 1991, pp. 71-74.

, Sagging Profits Spark Identity Crisis at Nokia, Electronic Business, March 4, 1991, pp. 57-59.

Burt, Tim, and Greg Mclvor, Land of Midnight Mobiles: A Former Toilet-Paper Maker from Finland Has Become the Worlds Largest Manufacturer of Mobile Phones, Financial Times, October 30, 1998, p. 18.

Edmondson, Gail, Peter Elstrom, and Peter Burrows, At Nokia, a Comebackand Then Some, Business Week, December 2, 1996, p. 106.

Fox, Justin, Nokias Secret Code, Fortune, May 1, 2000, pp. 161-64+.

Furchgott, Roy, Nokia Signals Desire for Higher Profile, ADWEEK Eastern Edition, June 12, 1995, p. 2.

Guth, Robert A., Nokia Fights for Toehold in Japans Cell-Phone Market, Wall Street Journal, June 26, 2000, p. A26.

Heard, Joyce, and Keller, John J., Nokia Skates into High Techs Big Leagues, Business Week, April 4, 1988, pp. 102-103.

Jacob, Rahul, Nokia Fumbles, But Dont Count It Out, Fortune, February 19, 1996, pp. 86-88.

La Rossa, James, Jr., Nokia Knocks on U.S. Door, HFD The Weekly Home Furnishings Newspaper, February 10, 1992, pp. 66-67.

Lemola, Tarmo, and Raimo Lovio, Miksi Nokia, Finland, Porvoo, Sweden: W. Sööderströöm, 1996, 211 p.

Lineback, J. Robert, Nokias Mobile Phone Unit Is Ringing Bells, Electronic Business Buyer, June 1994, pp. 60-62.

Meeks, Fleming, Watch Out, Motorola, Forbes, September 12, 1994, pp. 192-94.

Not Finnished Yet, Economist, February 9, 1991, p. 73.

Salameh, Asad, Nokia Repositions for a Major Cellular Marketing Initiative, Telecommunications, June 1992, p. 43.

Silberg, Lurie, A Brand Apart, HFDThe Weekly Home Furnishings Newspaper, September 5, 1994, pp. 54-55.

Williams, Elaine, 100-Year-Old Nokia Experiences Fast-Growth Pains, Electronic Business, June 26, 1989, pp. 111-14.

April D. Gasbarre

updated by David E. Salamie

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Nokia Corporation

Nokia Corporation

Etelesplanadi 12
P.O. Box 226
Helsinki 358018071
Finland
(358) 1 18071
Fax: (358) 1 656388
Internet: http://www.nokia.com/

Public Company
Incorporated: 1865
Employees: 34,000
Sales: FIM 36.81 billion (US $8.4 billion)
Stock Exchanges: Helsinki Stockholm London Paris
Frankfurt New York
SICs:
3630 Household Appliances

With a stock market value that equals more than one-third of Finlands gross domestic product, Nokia Corporation is that countrys largest company. The firms tens of thousands of employees make it one of Scandinavias largest employers. Over the course of its more than 130 years in business, the company has evolved from a concentration in pulp, paper, and other basic industries to a focus on electronics, especially telecommunications. In the mid-1990s, the company had three business groups. The most important of these was Nokia Mobile Phones. With about 20 percent of the global cellular phone market, this division ranked as the continents largest and the worlds second largest producer of mobile phones. Nokia Telecommunications was a highly profitable supplier of digital phone exchanges and other cellular network equipment, ranking second among manufacturers adhering to the GSM (Global System for Mobile Communication) digital standard. The General Communications Products group was created through the mid-1995 combination of the companys Consumer Electronics division with its Cables and Machinery group.

19th Century Origins

Originally a manufacturer of pulp and paper, Nokia was founded in 1865 in a small town of the same name in central Finland. Nokia was a pioneer in the industry and introduced many new production methods to a country with only one major natural resource, its vast forests. As the industry became increasingly energy-intensive, the company even constructed its own power plants. But for many years, Nokia remained an important yet static firm in a relatively forgotten corner of northern Europe.

The first major changes in Nokia occurred several years after World War II. Despite its proximity to the Soviet Union, Finland has always remained economically connected with Scandinavian and other Western countries, and as Finnish trade expanded Nokia became a leading exporter.

During the early 1960s Nokia began to diversify in an attempt to transform the company into a regional conglomerate with interests beyond Finnish borders. Unable to initiate strong internal growth, Nokia turned its attention to acquisitions. The government, however, hoping to rationalize two underperforming basic industries, favored Nokias expansion within the country and encouraged its eventual merger with Finnish Rubber Works and Finnish Cable Works, When the amalgamation was completed in 1966, Nokia was involved in several new industries, including integrated cable operations, electronics, tires, and rubber footwear, and had made its first public share offering.

In 1967 Nokia set up a division to develop design and manufacturing capabilities in data processing, industrial automation, and communications systems. The division was later expanded and made into several divisions, which then concentrated on developing information systems, including personal computers and workstations, digital communications systems, and mobile phones. Nokia also gained a strong position in modems and automatic banking systems in Scandinavia.

Oil Crisis in the 1970s Triggers Corporate Change

Nokia continued to operate in a stable but parochial manner until 1973, when it was affected in a unique way by the oil crisis. Years of political accommodation between Finland and the Soviet Union ensured Finnish neutrality in exchange for lucrative trade agreements with the Sovietsmainly Finnish lumber products and machinery in exchange for Soviet oil. By agreement, this trade was kept strictly in balance. But when world oil prices began to rise, the market price for Soviet oil rose with it. Balanced trade began to mean greatly reduced purchasing power for Finnish companies such as Nokia.

Although the effects were not catastrophic, the oil crisis did force Nokia to reassess its reliance on Soviet trade (about 12 percent of sales) as well as its international growth strategies. Several contingency plans were drawn up, but the greatest changes came after the company appointed a new CEO, Kari Kairamo, in 1975.

Kairamo noted the obvious: Nokia was too big for Finland. The company had to expand abroad. He studied the expansion of other Scandinavian companies (particularly Swedens Electrolux) and, following their example, formulated a strategy of first consolidating the companys business in Finland, Sweden, Norway, and Denmark, and then moving gradually into the rest of Europe. After the company had improved its product line, established a reputation for quality, and adjusted its production capacity, it would enter the world market.

Meanwhile, Nokias traditional, lower-technology heavy industries were looking increasingly burdensome. It was feared that trying to become a leader in electronics while maintaining these basic industries would create an unmanageably unfocused company. Kairamo thought briefly about selling off the companys weaker divisions, but decided to retain and modernize them.

He reasoned that, although the modernization of these low-growth industries would be very expensive, it would guarantee Nokias position in several stable markets, including paper, chemical, and machinery productions, and electrical generation. For the scheme to be practical, each divisions modernization would have to be gradual and individually financed. This would prevent the bleeding of funds away from the all-important effort in electronics while preventing the heavy industries from becoming any less profitable.

With each division financing its own modernization, there was little or no drain on capital from other divisions, and Nokia could still sell any group that did not succeed under the new plan. In the end, the plan prompted the machinery division to begin development in robotics and automation, the cables division to begin work on fiber optics, and the forestry division to move into high-grade tissues.

Electronics Come to the Fore in the 1980s

Nokias most important focus was development of the electronics sector. Over the course of the decade, the firm acquired nearly 20 companies, focusing especially on three segments of the electronics industry: consumer, workstations, and mobile communications. Electronics grew from ten percent of annual sales to 60 percent of revenues from 1980 to 1988. In late 1984 Nokia acquired Salora, the largest color television manufacturer in Scandinavia, and Luxor, the Swedish state-owned electronics and computer firm. Nokia combined Salora and Luxor into a single division and concentrated on stylish consumer electronic product, since style is a crucial factor in Scandinavian markets. The Salora-Luxor division was also very successful in satellite and digital television technology. Nokia purchased the consumer electronics operations of Standard Elektrik Lorenz A.G. from Alcatel in 1987, further bolstering the companys position in the television market to the third largest manufacturer in Europe. In early 1988 Nokia acquired the data systems division of the Swedish Ericsson Group, making Nokia the largest Scandinavian information technology business.

Although a market leader in Scandinavia, Nokia still lacked a degree of competitiveness in the European market, which was dominated by much larger Japanese and German companies. Kairamo decided, therefore, to follow the example of many Japanese companies during the 1960s (and Korean manufacturers a decade later) and negotiate to become an original equipment manufacturer, or OEM, to manufacture products for competitors as a subcontractor.

Nokia manufactured items for Hitachi in France, Ericsson in Sweden, Northern Telecom in Canada, and Granada and IBM in Britain. In doing so it was able to increase its production capacity stability. There were, however, several risks involved, those inherent in any OEM arrangement. Nokias sales margins were naturally reduced, but of greater concern, production capacity was built up without a commensurate expansion in the sales network. With little brand identification, Nokia feared it might have a difficult time selling under its own name and become trapped as an OEM.

In 1986 Nokia reorganized its management structure to simplify reporting efforts and improve control by central management. The companys 11 divisions were grouped into four industry segments: electronics; cables and machinery; paper, power, and chemicals; and rubber and flooring. In addition, Nokia won a concession from the Finnish government to allow greater foreign participation in ownership. This substantially reduced Nokias dependence on the comparatively expensive Finnish lending market. Although there was growth throughout the company, Nokias greatest success was Mobira.

Having dabbled in telecommunications in the 1960s, Nokia cut its teeth in the industry by selling switching systems under license from a French company, Alcatel. The Finnish firm got in on the cellular industrys ground floor in the late 1970s, when it helped design the worlds first international cellular system. Named the Nordic Mobile Telephone (NMT) network, the system linked Sweden, Denmark, Norway, and Finland. A year after the network came on line in 1981, Nokia gained 100 percent control of Mobira, the Finnish mobile phone company that would later become its key business interest. Mobiras regional sales were vastly improved, but Nokia was still limited to OEM production on the international market; Nokia and Tandy Corporation, of the United States, built a factory in Masan, South Korea to manufacture mobile telephones. These were sold under the Tandy name in that companys 6,000 Radio Shack stores throughout the United States.

In 1986, eager to test its ability to compete openly, Nokia chose the mobile telephone to be the first product marketed internationally under the Nokia name; it became Nokias make or break product. Unfortunately, Asian competitors began to drive prices down just as Nokia entered the market. Other Nokia products gaining recognition were Salora televisions and Luxor satellite dishes, which suffered briefly when subscription programming introduced broadcast scrambling.

The companys expansion, achieved almost exclusively by acquisition, had been expensive. Few Finnish investors other than institutions had the patience to see Nokia through its long-term plans. Indeed, more than half of the new shares issued by Nokia in 1987 went to foreign investors. Nokia moved boldly into Western markets; it gained a listing on the London exchange in 1987 and was subsequently listed on the New York exchange.

Crises of Leadership, Profitability in the Late 1980s

Nokias rapid growth was not without a price. In 1988, as revenues soared, the companys profits, under pressure from severe price competition in the consumer electronics markets, dropped. Chairman Kari Kairamo committed suicide in December of that year; not surprisingly, friends said it was brought on by stress. Simo S. Vuorileto took over the companys reins and began streamlining operations in the spring of 1988. Nokia was divided into six business groups: consumer electronics, data, mobile phones, telecommunications, cables and machinery, and basic industries. Vuorileto continued Kairamos focus on high-tech divisions, divesting Nokias flooring, paper, rubber, and ventilation systems businesses and entering into joint ventures with companies like Tandy Corporation and Matra of France (two separate agreements to produce mobile phones for the U.S. and French markets).

In spite of these efforts, Nokias pretax profits continued to decline in 1989 and 1990, culminating in a loss of US $102 million in 1991. Industry observers blamed cutthroat European competition, the breakdown of the Finnish banking system, and the collapse of the Soviet Union. But, notwithstanding these difficulties, Nokia remained committed to its high-tech orientation. Late in 1991, the company strengthened that dedication by promoting Jorma Ollila from president of Nokia-Mobira Inc. (renamed Nokia Mobile Phones Ltd. the following year) to group president.

Forbess Fleming Meeks has credited Ollila with transforming Nokia from a moneylosing hodgepodge of companies into one of telecommunications most profitable companies. Unable to find a buyer for Nokias consumer electronics business, which had lost nearly US $1 billion from 1988 to 1993, Ollila cut that segments work force by 45 percent, shuttered plants, and centralized operations.

The new leader achieved success in the cellular phone segment by bringing innovative products to market quickly with a particular focus on ever-smaller and easier-to-use phones featuring sleek Finnish design. Nokia gained a leg up in cellphone research and development with the 1991 acquisition of the United Kingdoms Technophone Ltd. for US $57 million.

Ollilas tenure brought Nokia success and with it global recognition. The companys sales more than doubled, from FIM 15.5 billion in 1991 to FIM 36.8 billion in 1995, and its bottom line rebounded from a net loss of FIM 723 million in 1992 to a FIM 2.2 billion profit in 1995. Securities investors have not missed the turnaround: Nokias market capitalization multiplied ten times from 1991 to 1994. There is no reason to believe that this leader will not guide his company to even greater profitability in the waning years of the 20th century.

Principal Subsidiaries

Nokia Cellular Systems Oy; Nokia Data Systems Oy; Nokia Cable Machinery Oy (61%); Nokia Kaapeli Oy; Nokia Matkapuhelimet Oy; Nokia Renkaat Oy (80%); Nokian Paperi Oy; Salora Myynti Oy; Shkliikkeiden Oy (65.6%); Telenokia Oy; British Tissues Ltd (UK); Graetz Strahlungsmesstechnik GmbH (West Germany; 99.7%); Horda AB (Sweden; 91.1%); Ibervisao-Audiovisao Iberica S.A. (Portugal; 99.7%); Kabmatik AB (Sweden; 61%); Luxor AB (Sweden; 90%); Maillefer S.A. (Switzerland; 61%); Monette Kabel-ud Elektro-werk GmbH (West Germany); Nokia A/S (Norway); Nokia Audio Electronics GmbH (West Germany; 99.7%); Nokia Consumer Electronics GmbH (West Germany; 99.7%); Nokia Consumer Electronics Ltd (UK; 99.7%); Nokia Consumer Electronics Italia S.r.l. (Italy; 99.7%); Nokia Data AB (Sweden); Nokia Data A/S (Denmark); Nokia Data A/S (Norway); Nokia Data BV (Netherlands); Nokia Data GmbH (West Germany); Nokia Data Ltd (UK); Nokia Data S.A. (France); Nokia Data S.A. (Spain); Nokia Data Systems AB (Sweden); Noki Graetz Holzwerke GmbH (West Germany; 99.7%); Nokia Kunststof-ftechnik GmbH (West Germany; 99.7%); Nokia Ltd (Ireland); Nokia Mobira AB (Sweden); Nokia-Mobira A/S (Denmark); Nokia Mobira A/S (Norway); Nokia-Mobira Inc. (USA); Nokia-Mobira UK Ltd; Nokia Interhaltungselektronik (West Germany; 99.7%); Novelectric AG (Switzerland; 99.7%); Oceanic S.A. (France; 99.9%); Salora AB (Sweden); Sodipan-Nokia S.A. (France); Trkkablo A.O. (Turkey; 51%).

Further Reading

Berkman, Barbara N., Brainstorming in the Sauna, Electronic Business, November 18, 1991, pp. 71-74.

, Sagging Profits Spark Identity Crisis at Nokia, Electronic Business, March 4, 1991, pp. 57-59.

Furchgott, Roy, Nokia Signals Desire for Higher Profile, ADWEEK Eastern Edition, June 12, 1995, p. 2.

Heard, Joyce, and Keller, John J., Nokia Skates into High Techs Big Leagues, Business Week, April 4, 1988, pp. 102-103.

La Rossa, James Jr., Nokia Knocks on U.S. Door, HFDThe Weekly Home Furnishings Newspaper, February 10, 1992, pp. 66-67.

Lineback, J. Robert, Nokias Mobile Phone Unit Is Ringing Bells, Electronic Business Buyer, June 1994, pp. 60-62.

Meeks, Fleming, Watch Out, Motorola, Forbes, September 12, 1994, pp. 192-194.

Not Finnished Yet, The Economist, February 9, 1991, p. 73.

Salameh, Asad, Nokia Repositions for a Major Cellular Marketing Initiative, Telecommunications, June 1992, p. 43.

Silberg, Lurie, A Brand Apart, HFDThe Weekly Home Furnishings Newspaper, September 5, 1994, pp. 54-55.

Williams, Elaine, 100-Year-Old Nokia Experiences Fast-Growth Pains, Electronic Business, June 26, 1989, pp. 111-114.

updated by April D. Gasbarre

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"Nokia Corporation." International Directory of Company Histories. . Encyclopedia.com. 21 Sep. 2018 <http://www.encyclopedia.com>.

"Nokia Corporation." International Directory of Company Histories. . Encyclopedia.com. (September 21, 2018). http://www.encyclopedia.com/books/politics-and-business-magazines/nokia-corporation-1

"Nokia Corporation." International Directory of Company Histories. . Retrieved September 21, 2018 from Encyclopedia.com: http://www.encyclopedia.com/books/politics-and-business-magazines/nokia-corporation-1

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Nokia Corporation

Nokia Corporation

Eteläesplanadi 12
P.O. Box 226
SF-00101 Helsinki
Finland
(0) 18-071

Public Company
Incorporated: 1865
Employees: 28,500 1987
Sales: FIM21.82 billion (US$5.25 billion)
Stock Index: Helsinki Stockholm London París Frankfurt

Nokia is one of the largest industrial enterprises in Scandinavia and the most important company in its native Finland, as Finlands only multinational and its leading industrial standard bearer.

For many years a diversified conglomerate, Nokia has recently bet its future on success in the high-technology electronics market. In addition, the company has elected to undertake a costly modernization of its marginally-performing forestry, chemicals, and manufacturing units. While this strategy disappoints some investors, it clearly demonstrates Nokias commitment to long-term growtha concept which should not be foreign to a 125-year-old company.

Originally a manufacturer of pulp and paper, Nokia was founded in 1865 in a small town of the same name in central Finland. Nokia was a pioneer in the industry, and introduced many new production methods to a country whose only major natural resource was its vast forests. As the industry became increasingly energy-intensive, the company even constructed its own power plants. But for many years, Nokia remained an important yet static firm in a relatively forgotten corner of northern Europe.

The first major changes in Nokia occurred several years after World War II. Despite its proximity to the Soviet Union, Finland has always remained economically connected with Scandinavian and other Western countries, and as Finnish trade expanded Nokia became a leading exporter.

During the early 1960s Nokia began to diversify in an attempt to transform the company into a regional conglomerate with interests beyond Finnish borders. Unable to initiate strong internal growth, Nokia turned its attention to acquisitions. The government, however, hoping to rationalize two under-performing basic industries, favored Nokias expansion within the country, and encouraged its eventual merger with Finnish Rubber Works and Finnish Cable Works. When the amalgamation was completed in 1966, Nokia was involved in several new industries, including integrated cable operations, electronics, tires, and rubber footwear and had made its first public share offering.

In 1967 Nokia set up a division to develop design and manufacturing capabilities in data processing, industrial automation, and communications systems. The division was later expanded and made into several divisions, which then concentrated on developing information systems, including personal computers and workstations, digital communications systems, and mobile phones. Nokia also gained a strong position in modems and automatic banking systems in Scandinavia.

Nokia continued to operate in a stable but parochial manner until 1973, when it was affected in a unique way by the oil crisis. Years of political accommodation between Finland and the Soviet Union ensured Finnish neutrality in exchange for lucrative trade agreements with the Sovietsmainly Finnish lumber products and machinery in exchange for Soviet oil. By agreement, this trade was kept strictly in balance. But when world oil prices began to rise, the market price for Soviet oil rose with it. Balanced trade began to mean greatly reduced purchasing power for Finnish companies such as Nokia.

While the effects were not catastrophic, the oil crisis did force Nokia to reassess its reliance on Soviet trade (about 12% of sales) as well as its international growth strategies. Several contingency plans were drawn up, but the greatest changes came after the company appointed a new CEO, Kari Kairamo, in 1975.

Kairamo noted the obvious: Nokia was too big for Finland. The company had to expand abroad. He studied the expansion of other Scandinavian companiesparticularly Swedens Electroluxand, following their example, formulated a strategy of first consolidating its business in Finland, Sweden, Norway, and Denmark, and then moving gradually into the rest of Europe. After the company had improved its product line, established a reputation for quality, and adjusted its production capacity, it would enter the world market.

The most promising market for Nokia was consumer and business electronics. Already a world leader in mobile telephone technologies, the company hoped that further development along this line would contribute to the development of related products as well as new systems.

Meanwhile, Nokias traditional, lower-technology heavy industries were looking increasingly burdensome. It was feared that trying to become a leader in electronics while maintaining these basic industries would create an unmanageably unfocused company. Kairamo thought briefly about selling off the companys weaker divisions, but decided to retain and modernize them.

He reasoned that, while the modernization of these low-growth industries would be very expensive, it would guarantee Nokias position in several stable markets, including paper, chemical and machinery production, and electrical generation. In order for the scheme to be practical, each divisions modernization would have to be gradual and individually financed. This would prevent the bleeding of funds away from the all-important effort in electronics while preventing the heavy industries from becoming any less profitable.

With each division financing its own modernization, there was little or no drain on capital from other divisions, and Nokia could still sell any group which did not succeed under the new plan. In the end, the plan prompted the machinery division to begin development in robotics and automation, the cables division to begin work on fiber optics, and the forestry division to move into high-grade tissues.

But Nokias most important focus was development of the electronics sector. The company became the Finnish agent for the French computer firm Bull in 1962. Similarly, Nokia built its expertise in telecommunications by selling switching systems under license from another French company, Alcatel. It then custom designed a digital switching system especially for Finnish telephone companies. Installed in 1982, it was the first digital system in Europe. That same year, Nokia gained 100% control of Mobira, a Finnish mobile phone company.

In late 1984 Nokia acquired Salora, the largest color television manufacturer in Scandinavia, and Luxor, the Swedish state-owned electronics and computer firm. Nokia combined Salora and Luxor into a single division and concentrated on stylish consumer electronic products, since style is a crucial factor in Scandinavian markets. The Salora-Luxor division has also been very successful in satellite and digital television technology.

Nokia, however, although a market leader in Scandinavia, still lacked a degree of competitiveness in the European market, which was dominated by much larger Japanese and German companies. Kairamo therefore decided to follow the example of many Japanese companies during the 1960s (and Korean manufacturers a decade later) and negotiate to become original equipment manufacturer, or OEM, to manufacture products for competitors as a subcontractor.

Nokia manufactured items for Hitachi in France, Ericsson in Sweden, Northern Telecom in Canada, and Granada and IBM in Britain. In doing so it was able to increase its production capacity stably. There were, however, several risks involved, ones inherent in any OEM arrangement. Nokias sales margins were naturally reduced, but of greater concern, production capacity was built up without a commensurate expansion in the sales network. With little brand identification, Nokia feared it might have a difficult time selling under its own name and become trapped as an OEM.

In 1986 Nokia reorganized its management structure to simplify reporting efforts and improve control by central management. The companys 11 divisions were grouped into four industry segments: electronics; cables and machinery; paper, power, and chemicals; and rubber and flooring. In addition, Nokia won a concession from the Finnish government to allow greater foreign participation in ownership. This substantially reduced Nokias dependence on the comparatively expensive Finnish lending market. While there was growth throughout the company, Nokias greatest success was Mobira.

The mobile telephone group received a tremendous boost in the early 1980s when the Scandinavian countries created the Nordic Mobile Telephone (NMT) network. Mobiras regional sales were vastly improved, but Nokia was still limited to OEM production on the international marketNokia and Tandy Corporation, of the U.S., built a factory in Masan, South Korea to manufacture mobile telephones for sale in the United States.

In 1986, eager to test its ability to compete openly, Nokia chose the mobile telephone to be the first product marketed internationally under the Nokia name; it became Nokias make or break product. The effort, with only a short record so far, has proven moderately successful. Asian competitors began to drive prices down just as Nokia entered the market. Other Nokia products gaining recognition are Mikko computers, Salora televisions, and Luxor satellite dishes, which suffered briefly when subscription programming introduced broadcast scrambling.

Nokia purchased the consumer electronics operations of Standard Elektrik Lorenz A.G. from Alcatel in 1987, further bolstering the companys position in the television marketit is now the third largest manufacturer in Europe. However, the companys expansion, achieved almost exclusively by acquisition, has been expensive. Few Finnish investors other than institutions have had the patience to see Nokia through its long-term plans. Indeed, over half of the new shares issued by Nokia in 1987 went to foreign investors. In early 1988 Nokia acquired the data systems division of the Swedish Ericsson Group, making Nokia the largest Scandinavian information technology business.

Trade with the Soviet Union required neither competitiveness nor a need for innovation; it had been a stagnating influence. As Nokias dependence on Soviet and East Bloc trade has waned (from 50% of exports to about 6%) the company has gained an improved sense of market trends. Nokia has moved boldly into Western markets, and in 1987 gained a listing on the London exchange.

Nokias rapid growth was not without a price. In 1988, as revenues soared, the companys profits, under pressure from severe price competition in the consumer electronics markets, tumbled. Chairman Kari Kairamo committed suicide; friends said it was brought on by stress. Simo S. Vuorilehto took over the companys reins and, in spring, 1988 began streamlining operations. Nokia was divided into six business groups: consumer electronics, data, mobile phones, telecommunications, cables and machinery, and basic industries. Vuorilehto continued Kairamos focus on high-tech divisions, divesting Nokias $60 million flooring business and entering into joint ventures with companies like Tandy Corporation and Matra of France (two separate agreements to produce mobile phones for the U.S. and French markets). Despite the cut-throat competition in consumer electronics throughout Europe, Nokia remained committed to its high-tech orientation. Vuorilehto emphasized that this area would provide the most growth over the long term. The company is banking on its strength in Scandinavia to anchor its continued thrust into the turbulent world markets. Still, as research and development costs escalate, it remains to be seen whether a company of Nokias size can survive the changes in high-tech industries.

Principal Subsidiaries:

Nokia Cellular Systems Oy; Nokia Data Systems Oy; Nokia Cable Machinery Oy (61%); Nokia Kaapeli Oy; Nokia Matkapuhelimet Oy; Nokia Renkaat Oy (80%); Nokian Paperi Oy; Salora Myynti Oy; Sähköliikkeiden Oy (65.6%); Telenokia Oy; British Tissues Ltd (UK); Graetz Strahlungsmesstechnik GmbH (99.7%) (West Germany); Horda AB (Sweden) (91.1%); Ibervisao-Audiovisao Iberica S.A. (Portugal) (99.7%); Kabmatik AB (Sweden) (61%); Luxor AB (Sweden) (90%); Maillefer S.A. (Switzerland) (61%); Monette Kabel-und Elektrowerk GmbH (West Germany); Nokia A/S (Norway); Nokia Audio Electronics GmbH (West Germany) (99.7%); Nokia Consumer Electronics GmbH (West Germany) (99.7%); Nokia Consumer Electronics Ltd (UK) (99.7%); Nokia Consumer Electronics Italia S.r.l. (Italy) (99.7%); Nokia Data AB (Sweden); Nokia Data A/S (Denmark); Nokia Data A/S (Norway); Nokia Data BV (Netherlands); Nokia Data GmbH (West Germany); Nokia Data Ltd (UK); Nokia Data S.A. (France); Nokia Data S.A. (Spain); Nokia Data Systems AB (Sweden); Nokia Graetz Holzwerke GmbH (West Germany) (99.7%); Nokia Kunststofftechnik GmbH (West Germany) (99.7%); Nokia Ltd (Ireland); Nokia-Mobira AB (Sweden); Nokia-Mobira A/S (Denmark); Nokia Mobira A/S (Norway); Nokia-Mobira Inc. (USA); Nokia-Mobira UK Ltd; Nokia Unterhaltungselektronik (West Germany) (99.7%); Novelectric AG (Switzerland) (99.7%); Oceanic S.A. (France) (99.9%); Salora AB (Sweden); Sodipan-Nokia S.A. (France); Türkkablo A.O. (Turkey) (51%).

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Nokia Corporation

Nokia Corporation

founded: 1865



Contact Information:

headquarters: keilalahdentie 4
espoo, fin-00045 finland phone: (358)7180-08000 fax: (358)7180-38226 url: http://www.nokia.com

OVERVIEW

One of the largest industrial enterprises in Scandinavia, Nokia, headquartered in Finland, is a world leader in the mobile communications business. In 2001 the company enjoyed worldwide sales of $27.8 billion, down about $900 million from the previous year. Structurally Nokia is broken into three main operational components: Nokia Networks, Nokia Mobile Phones, and Nokia Ventures Organization.

Nokia Networks, responsible for about 24 percent of the corporation's total 2001 revenue, supplies mobile, fixed broadband, and IP network infrastructure and related services. Nokia Mobile Phones is the world's largest manufacturer of mobile phones. Accounting for 74 percent of Nokia's total revenue in 2001, the mobile phones division offers a broad range of products covering all consumer segments and cellular protocols. Nokia Ventures is ever vigilant for new business opportunities for Nokia, based on technological developments. This division generated approximately 2 percent of the corporation's total revenue in 2001.

In the spring of 2002, Nokia was closing in on its goal of a 40 percent market share, this despite the pressures of a global economic slump. Although it's only a matter of time before Chairman Jorma Ollila's market share goal is reached, most observers doubt that the Finnish-based company will ever be able to get much beyond that point, largely because cell phone service operators are hesitant to let any single handset maker become too dominant. Some have suggested that carriers may push phones from rival manufacturers to keep Nokia from capturing an even larger share of the market.

COMPANY FINANCES

Despite intense competition within the telecommunications market, Nokia managed to turn in a very creditable performance in 2001. Because of the strong U.S. dollar, Nokia's 2001 financial performance looked even better when expressed in terms of Euros. For 2001 as a whole, the company posted a profit of almost $2 billion on revenue of $27.8 billion. This was down from 2000's net income of $3.7 billion on sales of $28.6 billion, but surprisingly good considering the inhospitable economic climate of 2001. In 1999 Nokia posted a profit of $2.6 billion on revenue of almost $20 billion.

In his assessment of the company's 2001 performance, Nokia Chairman and CEO Jorma Ollila said: "The year was characterized by intense competition, extreme volatility, and a weakened global economy. Even in this environment, with our strong and focused team, we increased sales, sustained solid profitability, and achieved extraordinarily strong operating cash flow. . . .As we enter 2002, our strategic position is better than ever backed by a very strong brand, product range, and operational ability."

Although the global economy remained sluggish and the telecommunications sector continued to experience weakness in early 2002, Nokia executives were heartened by the company's first quarter showing. According to Chairman Ollila, "the company put in a solid overall performance for the first quarter 2002, with mobile phone profitability exceeding all expectations. The strong bottom line in our mobile handset business continues to be driven by Nokia's global leadership. Based on Nokia's preliminary research for the first quarter 2002, we believe we have at least maintained our estimated 37 percent share of the overall mobile phone market, in line with our long-term 40 percent share target."

The new millennium has not been particularly kind to the stocks of most telecommunications companies. As of early May 2002, Nokia's stock was down 74 percent from its peak in June 2000. However, this was a better stock performance than that of most of Nokia's competitors. The Finnish company's price-earnings ratio of 40 has kept investors interested.



ANALYSTS' OPINIONS

Security analysts were generally positively impressed by Nokia's announced plans to introduce 20 new mobile phone models during the first half of 2002. Of Nokia's strategy, analysts at Strategy Analytics said: "Nokia is attempting to battle brand fatigue with innovation." To tap more heavily into the high-end of the mobile phone market, Nokia in January 2002 announced plans to offer a new range of hand-crafted telephones, some of which will be adorned by precious and semi-precious gemstones. To handle these new high-end models, the company launched a new subsidiary called Vertu. Ben Wood, senior mobile communications analyst at Gartner, observed: "It is a way for Nokia to differentiate its product range further as part of its ongoing brand strategy. People are willing to pay a premium for this, just like they are for exclusive watches."

FAST FACTS: About Nokia Corporation


Ownership: Nokia Corporation is a publicly owned company traded on the New York Stock Exchange.

Ticker Symbol: NOK

Officers: Jorma Ollila, Chmn. and CEO, 52; Pekka AlaPietila, Pres., 45; Olli-Pekka Kallasvuo, EVP and CFO, 49

Employees: 53,849

Principal Subsidiary Companies: Nokia Corporation's major subsidiaries include Nokia Ventures and Symbian Ltd. Nokia Ventures, headquartered in Menlo Park, California, is on the lookout for new business opportunities for Nokia as a whole. Symbian Ltd., based in London, is a joint venture with Psion, Motorola, Sony Ericsson, Siemens, and Matsushita Communications Industrial. The company markets an operating system for hand-held devices.

Chief Competitors: The world's leading manufacturer of mobile phones, Nokia also supplies mobile, fixed, and Internet protocol (IP) networks and related services and multimedia terminals. Its major competitors in the mobile phone market are Ericsson, Motorola, Samsung, and Siemens. In the networks market, Nokia faces competition from Alcatel, Ericsson, Motorola, Nortel, and Siemens.




Analysts were also positively impressed with Nokia's decision to go head to head with computer software giant Microsoft in a battle for the market for software for mobile telephones. As mobile phones rapidly turn from mere instruments of convenient communication into miniature computers with a multitude of capabilities, the need for more sophisticated operating systems and software becomes apparent. To tackle this emerging market, Nokia in 2001 set up its own mobile software unit. "Nokia's strong point is their ability to evolve," said Len Morris, a communications technology consultant with the Accenture Group.

HISTORY

Although it's now the world's leading mobile phone manufacturer, Nokia began nearly 140 years ago as a pulp and paper maker. Founded in 1865 in the small central Finnish town for which it is named, Nokia pioneered many innovations in paper production and even constructed its own power plants. It was not until after World War II that the company began to make its presence known outside Scandinavia. As Finland and its Scandinavian neighbors began to trade more extensively with other western countries, Nokia became a major exporter.

In the 1960s Nokia moved to strengthen its economic base through diversification. Seeing little opportunity for such expansion within Finland, the company began to look outside for possible acquisitions. However, the Finnish government encouraged Nokia to merge with a couple of under performing Finnish companies. Bowing to government pressure, Nokia merged in 1967 with Finnish Rubber Works, a Finnish producers of tires, rubber boots, and other rubber products for both the consumer and industrial markets, and Finnish Cable Works, a manufacturer of cable for power transmission and telephone and telegraph networks, to form Nokia Corporation. Through this merger, Nokia entered the telecommunications market. In 1960 Finnish Cable Works had set up an electronics department to focus on the production of radio transmission equipment. Products developed by this electronics department included a radio telephone and cable modems, long before the general public had even heard of such products.

Nokia's management, which early on had identified the potential for telecommunications and personal electronics, in the early 1980s moved to strengthen its position in these markets, both through the creation of new divisions and the acquisition of outside companies in these businesses. The company in 1982 introduced Europe's first fully digital local telephone exchange and in 1984 offered a car telephone to operate on the Nordic mobile telephone analog standard. Three years later, in 1987, Nokia purchased the consumer electronics business and part of the components business of Germany's Standard Elektrik Lorenz and the French consumer electronics company, Oceanic. By the end of the decade, Nokia had become the largest information technology company in Scandinavia through its purchase of Ericsson's information systems division in 1988.

The early 1990s brought a strategic decision by Nokia's management to concentrate on telecommunications as its core business. Once this decision had been made, the company began to divest its basic industry and non-telecommunications businesses. The company's rise to prominence in its chosen business has been substantially aided by Finland's competitive business climate and the emphasis on innovation. Technological advancements have also played a significant role in Nokia's success. The development in the mid-1980s of the Global System for Mobile communication (GSM) provided a technology that allowed the transmission of data as well as high-quality voice communications. In 1987 European countries resolved to adopt GSM as the continent's digital standard by July 1, 1991. Finland met the deadline, and the first GSM call was placed over the Nokia-built network of Radiolinja using a Nokia mobile phone.

In 2001 Nokia made two strategic acquisitions. The company purchased Ramp Networks, a U.S.-based provider of purpose-built Internet security appliances designed for small office applications. Also acquired was Amber Networks, also based in the United States. Amber, the first to develop a fault-tolerant routing platform, was integrated with Nokia Networks' network platforms business division.

CHRONOLOGY: Key Dates for Nokia Corporation


1865:

Nokia Co., a wood pulp maker, is founded

1967:

Nokia Co. merges with Finnish Rubber Works and Finnish Cable Works to form Nokia Corporation

1982:

Nokia introduces first fully digital local telephone exchange in Europe

1984:

Nokia introduces car phone for Nordic Mobile Telephone analog standard

2001:

Nokia acquires Ramp Networks and Amber Networks, both of the United States




STRATEGY

The primary objective of Nokia's business strategy is to strengthen the company's position as a leading provider of systems and products. In its 2001 annual report, Nokia said its "strategic intent, as the trusted brand, is to create personalized communication technology that enables people to shape their own mobile world. We innovate technology to allow people to access Internet applications, devices, and services instantly, irrespective of time and place. Achieving interoperability of network environments, terminals, and mobile services is a key part of our objective."

Key elements in Nokia's strategy include "being the preferred provider of products and solutions for mobile communications; creating personalized communication technology; driving open mobile architecture, enabling a non-fragmented global mobile services market; strengthening and leveraging Nokia, the trusted brand; and expanding our business and market position on a global basis," according to the company's 2001 annual report.




INFLUENCES

Nokia in 2001 had to contend with keen competition in its key markets as well as the effects of a global economic slowdown. Some of these influences were clearly being felt in the early months of 2002 as well, although optimism was expressed that prospects for Nokia would improve in the second half of the year. After several years of rapid growth, the mobile phone industry in 2001 appeared to be undergoing a technology transition, resulting in lower sales volumes worldwide and a decrease in capital spending by service operators. For the year, the total cellular network market decelerated and was down slightly from the previous year; the GSM market remained flat. This reflected some fundamental changes under way at telecommunications networks, which are converting from circuit-switched to packet-switched IP connectivity and from single-purpose networks supporting mainly voice transmissions to multi-service networks facilitating a variety of voice and non-voice applications and interactions.

Even more ominous for Nokia, the mobile phone market in 2001 experienced an unprecedented slowdown in growth. Factors behind the slowdown included a technology transition, related to the same transition being experienced in the cellular network market, and challenging economic conditions. Both of these factors were reflected in a depressed replacement market and lower sales volumes. The size of the mobile phone market, for obvious reasons, is closely tied to the number of cellular subscribers worldwide. Nokia estimated the global mobile phone subscriber base at about 930 million as of the end of 2001. This figure was expected to top 1 billion by the middle of 2002 and to reach 1.5 billion sometime in 2005.



CURRENT TRENDS

Undoubtedly the most significant trend in 2001 was a transition in mobile communications technology that depressed both the mobile phone and mobile communications network markets. The beginning of 2002 witnessed the beginning of third generation (3G) wireless. This newest stage in wireless technology is expected to reach its maturity sometime between 2003 and 2005. The prospects for sales of 3G mobile devices will depend to a large extent on the timely and successful build-out of 3G networks and the development of related services.

Features and capabilities of 3G mobile devices will ultimately include enhanced multimedia (voice, data, video, and remote control); usability on all popular modes, including cellular telephone, e-mail, paging, fax, Web browsing, and videoconferencing; broad bandwidth and high speed (upwards of 2 Mbps); routing flexibility; operation at transmit and receive frequencies of approximately 2 GHz; and roaming capability throughout Europe, Japan, and North America.



PRODUCTS

Nokia markets two main categories of products: mobile phones, handled by the company's Nokia Mobile Phones division, and communications networks, for which Nokia Networks division is responsible. A more recent addition to the company's product line is software for mobile devices.

The product matrix of Nokia Mobile Phones has six style dimensions (basic, expression, active, classic, fashion, and premium) and five functional dimensions (voice, entertainment, media, imaging, and business applications). The matrix helps Nokia's product developers to identify potential new products in each cross-section of the two dimensions. By combining each of the styles with each of the functionalities, the company is better able to address specific user needs.

Nokia Networks supplies mobile, fixed broadband, and Internet protocol (IP) network infrastructure and related services. In the fall of 2001, Nokia Networks began the rollout of third generation (3G) wireless network coverage.



CORPORATE CITIZENSHIP

In the realm of corporate responsibility, Nokia is an active participant in a number of international initiatives, including the International Youth Foundation, World Business Council for Sustainable Development, United Nations ICT Task Force, Global Compact, and the World Wildlife Fund.



GLOBAL PRESENCE

Nokia products—both mobile phones and mobile communications networks and services—are marketed worldwide. As of December 31, 2001, the company operated a number of manufacturing facilities in nine countries around the world. Seven of those production plants were operated by the Nokia Networks division. Of those, four were located in Finland and three were in China. The Nokia Mobile Phones division operated nine manufacturing plants in eight countries: Brazil, China, Finland, Germany, Hungary, Mexico, South Korea, and the United States.

NOKIA TO DEVELOP MOBILE SOFTWARE

Now that Nokia is king of the mountain in the mobile phone business, it has no intention of turning a blind eye to Microsoft Corporation's attempts to capture the lead in the emerging field of wireless software. The Finnish-based mobile phone giant has set up its own mobile software unit to develop operating systems and other software for mobile phones that are rapidly being transformed from convenient communications devices into multi-capable mini-computers. Nokia's new software unit, headed by Niklas Savander, is being staffed with some 1,600 employees, and Nokia also ramped up its research and development budget in 2001 by 16 percent to $2.6 billion. As early as 1995, Nokia Chairman Jorma Ollila presaged the current developments when he told the Associated Press: "We aren't far off from a palmtop that can store information, receive TV pictures, and can also be used as a telephone."




EMPLOYMENT

At the end of 2001, Nokia Corporation had on its payrolls 53,849 employees worldwide. Recognizing the importance of its employees to the company's business success, Nokia has instituted the "Nokia Way," a philosophy of attracting and retaining the best personnel and ensuring continuous renewal. The company seeks to instill in each of its employees a set of four core values—customer satisfaction, respect for the individual, achievement, and continuous learning—that it believes are essential for an international corporation such as Nokia to operate efficiently. Management also seeks to cultivate in Nokia's employees an attitude of trust, responsibility, and open-mindedness that allows them "to build teams of independent entrepreneurs that are permitted to take chances and even make occasional mistakes. The result is a culture in which decisions can be, and are, made quickly, and employees are energized and driven by a desire to win. We believe that this type of corporate culture is essential for us to prevail in the rapidly changing mobile communications industry."




SOURCES OF INFORMATION

Bibliography

de bendern, paul. "nokia targets rich with luxury mobile phone range." reuters, 11 january 2002.

gamel, kim. "for cell phone king, challenge turns to mobile software." ap worldstream, 12 march 2002.

"gprs: flop or kingdom come for sluggish telecom sector?" agence france presse, 9 may 2002.

"nokia corp.—history." gale business resources, 2002. available at http://galenet.galegroup.com/servlet/gbr.

"nokia corporation." hoover's online, 2002. available at http://www.hoovers.com.

nokia corporation 2001 annual report. espoo, finland: nokia corporation, 2002.

nokia corporation home page, 2002. available at http://www.nokia.com. "nokia losing market share to cell phone rivals, study says." toronto star, 17 may 2002.

reinhardt, andy. "european business: finland: has nokia run out of rocket fuel?" business week international, 6 may 2002.

"snapshot report: nokia corporation." multex investor, 2002. available at http://www.marketguide.com.


For an annual report:

on the internet at: http://www.nokia.com/aboutnokia/downloads/index.html.


For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. nokia corporation's primary sics are:

3679 electronic components, nec

4812 radiotelephone communications

4813 telephone communications except radiotelephone

also investigate companies by their north american industrial classification system codes, also known as naics codes. nokia corporation's primary naics codes are:

334419 other electronic component manufacturing

513322 cellular and other wireless telecommunications

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