Nokia Falters, and the Finns Take Stock
The New York Times
September 4, 2004
By ALAN COWELL
HELSINKI, Finland, Sept. 3 - After the party, the hangover; after the binge, the bills.
In the late 1990's, Finland sprinted ahead of rivals and neighbors,
propelled by the runaway success of Nokia in the mobile phone industry and
reveling in a newly minted image as the world's leader in Internet and
cellphone use. But now, this land on Russia's flank seems to be pondering
whether it has lost its competitive inventive edge.
Last May, an authoritative study of global competitiveness bounced Finland
down from the top three to No. 8, countering other polls that gave
Finland top marks for literacy, lack of corruption and care of the environment.
Nokia itself has stumbled this year, losing some of its share of the
booming cellphone market to rival manufacturers. And in a survey of 70
Finnish executives that will be published soon, "all of them said Finland is
no longer No. 1; we have a great problem toward work and success;
we are no longer hungry," said Risto E. J. Penttila, head of a leading business
research institute here.
This mood of gloom and introspection is not at all unusual in northern
Europe's vast reaches of chill dark forests. But here the questions seem to
suggest that Finns have lowered their expectations for technology and
for Nokia, their corporate champion.
"The hype about everything going digital is over," said Prof. Ilpo Koskinen,
an industrial design specialist at the University of Art and Design in
Helsinki. "What happened when Nokia grew in the 1990's was that
Finland was suddenly an interesting place. Now the situation has changed, and
we are back in normal times - business as usual. What I think is really
new is the realization that Nokia can make mistakes."
The tally of misfortune is evident enough.
Nokia's stock, a bellwether for the technology industry, peaked in early 2000
at 60 euros (about $58 at that time) a share and has lost more than
four-fifths of its value since then, closing on Friday at 10.22 euros ($12.30) a share.
While it is still by far the biggest mobile phone manufacturer in
the world - making twice as many handsets as Motorola, its nearest
rival - Nokia's share of the market has slipped below 30 percent this year from
over 35 percent last year, according to industry estimates.
As the dominant player in its home economy, employing 22,000 workers
in Finland and dictating the fortunes of some 6,000 companies acting as
suppliers and subcontractors, Nokia stock once made up more than two-thirds
of the total value of shares traded on the Helsinki stock exchange.
Now, that proportion has fallen to less than 30 percent, though it remains
the most traded stock, the exchange said.
Three times this year, Nokia has warned investors that its earnings
will be lower than forecast, and with uncharacteristic disregard for profit
margins, the company has cut its prices to try to win back market share
lost to rivals like Samsung and Motorola.
Nokia's tactic may be working. Gartner Inc., a research group, said on Thursday
that Nokia's share of the global cellphone market clawed back up to
29.7 percent in the second quarter of 2004, from 28.9 percent in the first.
But that was still far short of both the 35.6 percent share it recorded in
the second quarter of 2003 and the company's stated ambition of 40 percent.
Moreover, economists argue that there is no returning to the heady 1990's
for either Nokia or Finland. The company's climb to dominance a decade
ago gave a big lift to a country mired in recession, and it underpinned
an economic recovery that cut unemployment here from 20 percent to less
than half that. But now, like many other European nations, Finland is
confronting the reality that its aging population is not replenishing the work
force fast enough to keep financing its generous pensions and social safety nets.
This year, for the first time, more people will leave Finland's work force
than enter it, according to government estimates. By 2008, the country's
work force of 2.3 million will have to support 1.3 million pensioners, 200,000
more than today. It is hardly surprising that the income tax rates
needed to finance state spending now reach up to 58 percent on earnings
over 55,000 euros ($66,000) a year.
"The mood is not that the bottom has fallen out, but that Nokia is going to have
to sort out its ways, and Finland is going to have to sort out its
ways," said Mr. Penttila, the director of the Finnish Business and Policy Forum,
known by its Finnish initials, EVA, which is financed by private
businesses.
The technology boom created flashy fortunes in many countries, but little
ostentation in Finland, an egalitarian land that has traditionally
disdained conspicuous displays of wealth. The slowdown since then has been equally decorous.
"Helsinki is a relatively wealthy town," Professor Koskinen said. "But how
many luxury boutiques do you see? People don't really consume the
high-end products as in other countries."
Moreover, Finns tend to be savers rather than speculators. Of the
estimated 90 billion euros ($108 billion) in private wealth in Finland, only about
one-sixth is in stocks, while 50 billion euros is held in bank accounts,
according to EVA figures. Some 90 percent of Nokia's outstanding stock is
held outside the country, mainly by American institutions.
That means that the direct impact of Nokia's falling stock price on
Finnish pocketbooks is "not as big as it could be," said Jyrki Ali-Yrkko, an
economist at the Research Institute of the Finnish Economy, a privately financed organization.
More important, Mr. Ali-Yrkko said, is that Nokia pays roughly one billion
euros a year in corporate taxes, one-fifth of all corporate taxes collected
in Finland. "Nokia is still a very significant part of the Finnish economy,"
he said. From a high of 60,300 employees worldwide in 2000, Nokia has
shed some 9,000, according to Arja Suominen, vice president for corporate
communications. But only 2,000 of those were in Finland, where the
company's work force has been growing from 22,300 at the end of last year,
Ms. Suominen said in an interview at Nokia's headquarters at Espoo, on
the outskirts of Helsinki. Nokia long ago outgrew its home market,
which accounts for only 1 percent of its sales and a limited (though undisclosed)
proportion of its cellphone production. It now has nine major plants around
the world. But though it recently scaled back plans for more office space
in Finland and it has relocated some of its financial, marketing and
cellphone operations to New York and London, its heart will stay in Finland.
"We have said that we don't have any plans to move the head office,"
Ms. Suominen said. "Nokia is a Finnish company, but also a global company,
and it is certainly more global than it was two years ago."
Nokia's management has been criticized for being too slow to adapt
to a shift in consumer preferences away from the candy bar style of handset
and toward clamshell style phones. It has raced to catch up with 35 new models.
"Nokia thought they could shape the industry because they were so
strong," said Jussi Hyoty, an analyst with FIM Securities. "They didn't want to
follow the others, and maybe they missed the feeling of the consumers.
They were not sensitive enough to hear the noises coming their way." Even
so, Mr. Hyoty said he thought the setback would be temporary.
But for some a more lasting effect of the decline since 2000 - not just
at Nokia but across the technology sector in Finland - may be a more
enduring reluctance to emulate American-style risk-taking.
Consider, for instance, Frederik Husberg, a 28-year-old software
specialist in Tampere, Finland's second city. In 1997, he and three friends from
college started a company, Mediaclick, to develop 3-D images for
broadband Internet users. It attracted some private equity financing, and at its
peak the company employed 40 people and counted Nokia
and other phone companies as clients.
But "when the downturn came, the funding just dried up," Mr. Husberg
said in a telephone interview. Mediaclick closed its doors in 2002, and Mr.
Husberg now works for one of his former customers.
"Nokia has been a role model for each and every aspiring company
in Finland," he said. "It has been the locomotive of the train pulling people along.
But nowadays you can't make a business plan relying only on Nokia."
Experiences like his seem to have turned many young people cautious.
At the leafy University of Technology campus in Helsinki, near Nokia's
headquarters, four students pursuing master's degrees in engineering
and computing who gathered to talk about their future shared a sense that
Finland had returned to its traditional aversion to risk.
"Many people like to be in a secure job, and not to take risks at the
moment, because the situation is very flaky," Christian Elg, 26, said.
Lauri Pakkanen, also 26, used language learned during studies in
the United States to make another point. "In 2001 and 2002, everyone wanted to
work for Nokia," he said. "But you know how young people are.
It ain't so hip any more. It ain't so cool."
Copyright 2004 The New York Times Company
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