Nokia's Sorry Story: Mistakes And Misunderstandings (part 1)
September 2006 The Nokia N95 is announced
September 2006 The Nokia N95 is announced. Nokia is a popular company, and the N95 is hailed as the next step in mobile computing. Its share price starts to rise, and hits a high towards the end of 2007.
Januray 2007 The iPhone is announced. The world enters a state of hysteria. Steve Jobs is hailed as the biggest innovator in the mobile space. Nokia ignores the noise, and deems the iPhone a passing fad. Who would use a phone without buttons, after all? Steve Ballmer of Microsoft goes so far as to publicly mock the iPhone.
October 2007 HTC announces the first ever Android phone. The G1. iPhone has had its effect on the mobile space and the G1 is a similar device. A full touch-screen phone, powered by an OS with a touch-friendly UI.
Nokias Share Price (Image Source)
Welcome to the sorry story of Nokia
These last two events triggered the downfall of Nokia. Downfall not in terms of market share it is still the global leader there but in terms of mindshare. Nokia failed to grasp the changing face of the mobile industry. It first made that mistake when Motorola introduced the Razr, a flip phone. Nokia didnt have anything to match it. Luckily for Nokia, the Razr fad didnt last too long anyway. Nokia, at that time, was still focusing on small screen candy bar and slide out phones. The N95, a bulky masterpiece, was itself a slide-out. Slide-outs were the future as far as Nokia was concerned.
So when the iPhone came along and mocked Nokia for its multiple buttons, Nokia just looked back in disgust. The N81 had more than 16 buttons just below the screen, and we havent counted the actual keypad yet. Nokia believed the iPhone fad will pass like the Razr fad did. It didnt.
That is when Nokia started to get worried. Once the N95 ride came to an end, Nokia hurriedly pieced together and dished out the bulky 5800. That was its first touchscreen phone, and its response to Apple. Needless to say, it didnt come close to challenging the iPhone. Of course, it sold well, like almost all Nokia phones do.
Nokia next came out with the N97 as its top-segment phone. Nokias flagship. While the 5800 escaped ridicule for the most part, the N97 was burnt to the ground. Bloggers everywhere seethed at Nokia for its half-baked attempt at making a flagship phone. That is when things really started to go downhill.
Nokias stocks take a tumble
(Image Source)
What we really want to do in this analysis is take a look at Nokias share price (shown in the graph by blue) since the announcement of the N95. The N95 seemed to work well for Nokia. Towards the end of 2007, Nokias share price was at its highest. But as the iPhone started becoming more popular, and Android started gaining more mindshare, investors seemed to lose a little faith in Nokia. Nokias stock price fell drastically in 2008. The announcement of the N97 did little to help revive its fortunes. Its share price more or less stayed where it was down.
We have now worked our way to the end of 2008. Nokia has just announced its new flagship on December 22 N97. Nokias share prices have tumbled. The falling price is in tandem with the global recession, but the price has still fallen more than it should have. In a way, the stock seems undervalued.
HTC, on the other hand
The orange line in the graph shows HTC. At the beginning of 2007, it was on par with Nokia. In 2008, as Nokias stock plummeted, HTCs surged to a high. It quickly corrected itself and joined Nokia again. But, come 2009, it overtook Nokia and hasnt looked back since. We, however, are still at the end of 2008.
Nokia continues to gain market share
Moving on a couple of years. As we work our way to the present day, we find that Nokia has retained its position as the global leader in terms of smartphone market share 41%. Learning from the debacle on the N97, Nokia has also announced an all-new line-up of four critically acclaimed smartphones. Yet, Nokias share price remains where it is. HTC hasnt been staying still all this while either. It has quickly grown to be a dominant player in the US. This is reflected by its share price.
But if HTC was amply rewarded by investors for gaining market share, why isnt the same true for Nokia?
And there is where the sorry story lies
Nokia, while it has retained its global leadership, has taken a beating in the US market. While its ex-CEO, Olli-Pekka Kallasvuo (OPK), had promised a US revival for Nokia, its market share there continues to be below 9%. And it has lost a lot in terms of public perception as well. So while it sells millions of phones world-wide every week, the US population continues to see Nokia as a fading force in the mobile space. And that is where Nokias troubles lie. Its investors are majorly in the US. If they start to believe that Nokia is dying, the stock price automatically takes a beating. And that is exactly what has happened with Nokia.
A change of CEO, what now?
The degrading image in the US made shareholders call for a change in top level management. OPK was ultimately replaced by the Canadian Stephen Elop. Getting a non-Finninsh CEO on board seems like a desperate move to placate US shareholders. And it might just work. But Nokias story is much more than a change in management. Its a story of misunderstood intentions. For the past three years, it has not been trying to compete with the iPhone. It doesnt need to. Its touch screen phones are simply trying to ride the iPhone wave. Nokia plays a totally different ball game from Apple. It doesnt cater to an exclusive audience which can afford to spend $600+ on a phone. It caters to a lot bigger market, where the real money lies. Nokias absence in the US isnt due to a lack of good phones. It is due to its insistence, and correctly so, that the telecom operators do not cripple its phones. Nokia is simply not ready to play by the rules of telecom operators, which results in a lack of subsidized Nokia phones, which in turn make Nokia phones seem more expensive in the eyes of the average consumer.
Shareholders do not see Nokias surging fortunes in the rest of the world. They see Nokias failure in the US. That is why Nokia needed to get on board a Canadian CEO. That is why Nokia is now so desperately trying to make headway in the US market, no matter how small it really is for Nokia in terms of number of mobile units sold. If Nokia hopes to revive its sagging share price, it will need to impress the US population. Till then, its share price will remain woefully undervalued.
by: exsmith
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