What’s a Leaner Nokia Look Like, and Where’s its Balance for R&D and Marketing?

The smartphone market has changed radically in the last few years with the advent of Android-based phones and Apple’s iPhone. The entirety of the mobile ecosystem, once dominated by Nokia, underwent a fundamental realignment in recent years, with Nokia losing the most in the transition to the iPhone era.

The company’s seen its stock fall by -87.67% into the single digits. To keep up with competitors, Nokia has partnered with Microsoft to release Windows-based phones.

The Finnish phone maker is now knee-deep in transitioning its smartphone line to the Windows operating system, resulting in declining shipments for the company.  Sales of the company’s older Symbian-based phones have plunged, while its new Microsoft Windows 7-based handsets haven’t been able to make up for the loss so far.

The competitive reality of the cellphone market in 2012 was led by smartphones. Smartphones represent the fastest-growing segment of the cellphone market, and will account for nearly half of all wireless handset shipments for all of 2012. Samsung’s successes and Nokia’s struggles in the cellphone market this year were determined entirely by the two companies’ divergent strategies in the smartphone sector.

Like other technology companies, one of the major reasons for Nokia’s decline is its lost balance between research and marketing.   While Apple also devotes significant resources to R&D, their marketing campaigns have led the charge in the smartphone era.  Nokia has spent over $40 billion on R&D in the last 10 years compared to around $10 billion for Apple. While Nokia dissipated its research in developing hundreds of products, Apple concentrated on making and marketing a few great products.

Road to Recovery?

Nokia, which has been having a difficult time of it in recent years as its Symbian-based devices lose ground to low-priced smartphones running Google’s Android operating system, finally has some good news.

Nokia’s commitment to Windows Phone is finally bearing fruit, and its devices are selling once more.  For the first time in several months the Finnish giant saw a notable uptick in sales, with its new Lumia phones reaching 4.4 million in the fourth quarter, bringing its total smartphone shipments to 6.6 million devices.  Nokia sold 2.9 million Lumia smartphones in Q3 2012 compared to four million in Q2 and two million in Q1.

Nokia’s Asha family — its low-cost devices powered by Symbian with support for internet browsing over 3G and Exchange-compatible email — is also selling well in emerging markets.  Total fourth-quarter handset sales including 9.3 million Asha smartphones reached 86.3 million units.

Nokia Siemens Networks, the company’s equipment joint venture with Siemens AG of Germany, also had an operating profit of 13 percent to 15 percent of sales.

“This is clearly very positive news from Nokia as it both shows that the company’s new Lumia product launches are performing well and that the NSN networks business has gained good momentum,” said Louis Landeman, an analyst at Danske Bank A/S in Stockholm. “The company’s restructuring programs are reducing costs faster than expected.”

A Leaner Nokia

Nokia mobile phone manufacturing operations has been completely revamped in recent months.  Their efficiency measures include key market areas, prioritization, support functions, streamlining non-core businesses and functions, including possible reductions in sales activities and reduction in jobs. Nokia cut as many as 10,000 more jobs, shutting down both production and research sites.

The job reductions, and the shutdowns of research and development centers in Ulm, Germany, and Burnaby, Canada, and a handset factory in Salo, Finland, will save the company over two billion dollars by the end of this year. The changes also include new product launches, management changes, restructuring, cutting costs by killing nonviable products (Symbian, Meego) and selling off its Finnish headquarters.

In addition to working on mobile business, Nokia Siemens Networks has focused on improving the performance of its wireless network. The unit accounts for 7,000 jobs, or nearly a quarter of its global workforce, and is now refocusing its operations to concentrate on higher-margin mobile network sales.

“Nokia has reached the trough and is looking into an L-shaped or U-shaped recovery,” Neil Mawston, an industry analyst at Strategy Analytics, said. “The recent efforts on shrinking the company’s size have been necessary. Nokia has done a good job in cutting its costs. It’s looking a lot leaner going into 2013.”

The network venture will probably have a first-quarter operating margin of 3 percent, plus or minus 4 percentage points, Nokia said. Since the summer, Nokia has gained $4 billion, while Apple’s stock has lost around $100 billion.

Asymco predicted the prospects for Windows Phone may be improving in 2013. But higher-end, unlocked smartphones running Windows 8 are selling anywhere between $500 – $700. To stick to higher sales, a leaner Nokia at some point will need to introduce cheaper Windows 8 models.  Nokia still stands a chance to transfer its 260 million Symbian users to Windows Phone as these Nokia users upgrade to smartphones.

In a market like China, Nokia has partnerships with China Mobile, the largest mobile carrier company in China. Nokia also signed a partnership with China Unicom, the second largest mobile carrier in the country. China Mobile is subsidizing the phone, which would increase the demand even further in the country.

Nokia’s Lumia 920 phone gained a lot of publicity, good reviews and there is strong demand. Nokia seems to be getting back on track, and as more people see the benefits of the Lumia, Nokia can better compete with Apple on the hardware side, and Android on the OS side.