One of the tasks, that was posed to me as a candidate at the assessment center, was to analyse the current situation of a fictitious company based upon some key figures. Well, why not repeat this little exercise for Nokia? (I mainly do this for myself, in order to get a better understanding of Nokia)
Taking a look at the latest quarterly report published by Nokia, one will find the following:
- In Q3 2009 Nokia’s Devices & Services recorded an impressive sales volume of 6.9 billion euro (that is 1€ per earthling per quarter) and a surprisingly healthy operating margin of 11.4%.
- They employ over 60.000 people, which is 2x more than Apple and 3x more than Google.
- A year-to-year comparison with Q3 2008 however reveals a 20% decrease in sales, and a 51% drop in profit. The number of sold mobile devices declined by 8% to 108.5 million units within the same period, and the average sales prices dropped from 72€ to 62€.
- Multiplying 62€ with 108.5m results in a sales volume of 6.4 billion for its devices. Can I assume that the remaining 0.5 billion are accounted for by Nokia’s services and patent license revenues?
- Nokia’s smartphones sell for an average price of 190€ and generate a stunning 3.1 billion euro of turnover.
- The ‘official’ market share of Nokia (overall, as well as for smartphones) remained constant at 38%.
- 10% of sales are spent on Research & Development [src]
The overall market of mobile devices declined by 7% from Q3 2008 to Q3 2009, to a total of 288 million units. However, in China alone, the number of gray market mobile devices is estimated to increase by 44% from 2008 to 2009 to a total of 145 million units per year, which equals 13% of the legitimate market size [src]. This seems to imply that the overall market is actually not shrinking, but that rather more and more low-end devices are nowadays bought on the gray market. On the other end of the scale, the smartphone market is growing by 4% in 2009 [src] and shows a very fast pace of innovation, and thereby currently also attracts a lot of (online) media attention.
On the low-price sector Nokia is facing fierce competition from Asian’s grey market (mostly supplied by Mediatek) as well as from other Chinese manufacturers, such as TCL and Lenovo. The profit margin is probably rather small in that segment, however as these economies are emerging, also their needs for better devices is developing. And having a strong brand within these emerging markets seems a valuable asset for generating revenues over the next decade.
On the smartphone sector a purchase decision nowadays relies on factors such as hardware, price, software platform (i.e. user experience) and integrated services. Thus, it is the whole ‘solution’ that people are buying, rather than just a phone. With that in mind it is understandable that Nokia tries to shift from a rather hardware engineering company to a solution- and consumer-orientated company. However, transforming a 60.000 people company is an incredible challenge, in particular with a top-down approach.
Services: Internet services are dominated by the reigning giants Google, Microsoft and Yahoo, who all offer a whole range of services (Search, Maps, Email, Calendar, Contacts, Fotos, Videos, etc.) for free and are still able to generate huge revenues by providing context-aware target-specific advertisements. These large players face some interesting competition by ‘independent’ social networking sites like Facebook, Twitter and others. Nokia was very late in the game when it announced to step into that same ring by providing its own services. And now, over a year later, Nokia has not (yet?) been able to meet the high expectations, they were creating by themselves.
Platform: Although Symbian is installed on half of all sold smartphones [see this chart], it is the iPhone OS by Apple and Android by Google who are attracting nearly all of the buzz nowadays [see Google Trends]. Apple and Google have both a highly successful track-record of providing robust and intuitive software and/or services to the end-user, which gives them both a clear head start in the race for dominating mobile OS.
Hardware: It is two and a half years ago that Apple introduced the iPhone. And ever since then the others try to catch with Apple again. Within the last 6 months all major manufactorers introduced new high-end smartphones with touchscreens and cameras equipped: iPhone 3GS, Palm Pre, Motorola Droid, Nokia N900, HTC Hero, Samsung I7500 [again take a look at Google Trends]. The race seems to be getting more interesting again.