Nice Bloomberg article -- Scott
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Nokia's Gamble on Technology Pays Off for Investors: Spotlight
Helsinki, Aug. 7 (Bloomberg) -- Twenty years ago, Nokia was a brand name found on Finnish feet and in Nordic bathrooms. Today, it's in the pockets of talkative people across the globe.
The former rubber-boot and toilet-paper maker took a gamble when it switched to telecommunications. The bet paid off: Nokia is about to eclipse Motorola Inc. as the world's No. 1 mobile- phone maker and its stock is up 125 percent this year. Motorola's stock is down 8 percent.
In a fast-growing industry that is defined by new products and high technology, Nokia has stayed ahead of the competition by releasing sleeker, smaller phones with functions -- including Internet access -- that its competitors lack.
''Innovation is much higher at Nokia,'' said Markus Pfeffer, a fund manager at Oppenheim Kapitalanlagesellschaft in Germany, which manages 30 billion deutsche marks ($17 billion) in assets. ''The only way to be first is to develop stronger models.''
Phone sales at the Finnish company, whose new glass-fronted headquarters make visitors feel like they've walked into the 21st century, soared 50 percent in the second quarter. Swedish rival Ericsson AB's sales rose 1 percent, while Schaumburg, Illinois- based Motorola saw cellular products sales fall 1 percent.
Gathering Steam
Sales may grow even faster in years to come. Nokia expects the number of users worldwide will more than double to 600 million in 2001, and Ericsson expects 830 million users in 2003. Seven years ago, only 15 million people around the world had mobile phones.
Even the most saturated markets are still gathering steam. For the first time, Finland -- where almost half of the population owns a mobile phone, the highest penetration rate of any country -- has seen more sales generated from cellular call fees than fixed-line calls this year.
In a country with only 5 million people, Finnish companies learned early on that growth must come from abroad. Two decades ago, as Sony Corp. was introducing its revolutionary Walkman palmtop tape deck, Nokia's then-chairman and chief executive, Kari Kairamo, decided to enter the electronics industry. Nokia began making televisions, computer screens -- and mobile phones.
''The whole business was different then,'' said a Nokia spokesman, Lauri Kivinen. In 1982, Nokia's first ''portable'' phone, the Nokia Senator, weighed 9.8 kilos, almost 22 pounds or as much as a year-old baby.
By 1987, Nokia released its first phone that could be held to the ear, the Mobira Cityman 900. Though it had to be recharged every six hours, the 790-gram Cityman became a status symbol for securities traders and others after it appeared in popular movies such as Wall Street.
The Cost of Vision
By comparison, one of Nokia's newest models, the 6110, weighs only 137 grams -- about as much as a McDonald's Quarter Pounder -- and with an extended-life battery can go for more than two weeks without recharging.
''Nokia had a vision,'' said Jukka-Pekka Leppae, a fund manager at Arctos Funds in Helsinki. ''It understood what it was getting into.''
Still, Nokia's success came at a price. Kairamo, the mentor of the current CEO, Jorma Ollila, shot himself in 1988 when the Soviet Union was beginning to unravel sending Finland into its deepest recession since World War II. That prevented Nokia phone sales from taking off as he expected.
Helping Nokia to recover from that trauma, the Finnish company was propelled into the top ranks of mobile phone makers when Europe adopted a common technology standard for mobile phones -- a standard that relied on digital technology. While Motorola concentrated on developing phones for the U.S. based on the analog technology adopted there, Nokia and Ericsson had all of Europe to themselves.
Both companies boomed, led by Nokia with its stylish, rugged and technically advanced models. Shares followed sales: Nokia's stock, adjusted for splits, has risen 86-fold in six years, to 433 markkaa ($80.47) Thursday from as low as 5 markkaa in 1992.
With digital technology now set to become the global standard, Nokia is poised to pass Motorola as the world's No. 1 mobile phone maker, analysts say. Last year, Nokia had 21 percent of the worldwide market, Motorola had 22 percent and Ericsson 16 percent.
Products for the Future
Part of Nokia's success has been in its ability to deliver products attractive to young people, building brand loyalty. Notably, Nokia, whose employees average 32 years old, equips its newest phones with games that owners can play alone or with other Nokia owners through an infrared link. The 6110 model, for example, can also request and receive weather reports, stock and bond prices, and sports scores.
''All young people want a game,'' said Leppae, ''and when they get it they'll probably stick with Nokia.''
While Nokia has sold its computer and television businesses to focus on mobile phones and equipment for telephone networks, experience gained in PCs and TVs will help it as technology blurs divisions between cellular phones, television and computers, analysts say.
The PC and television businesses gave Nokia a ''customer- oriented approach and experience in volume products,'' said Dennis Exton, an analyst at Nikko Securities International in London.
Nokia introduced the first mobile phone that can access the Internet, the 9000 Communicator, which also can perform simple computer tasks, such the diary and address-book functions of 3Com Corp.'s Palm Pilot and Psion Plc's Series 3 palm-top computers.
The 9000 Communicator and its successor, the 9110 Communicator, not only lets its owner retrieve information from the Internet but also send and receive electronic mail and faxes.
''Nokia has done a great job in integrating mobile communication with the Internet,'' said Dennis Gross, a Williams de Broe analyst in London. ''The Communicator is the key to the future evolution'' of phones.
04:17:09 08/07/1998 |
