The Rise and Fall of Nokia

JUAN ALCÁCER TARUN KHANNA CHRISTINE SNIVELY

9-714-428

REV: FEBRUARY 21, 2014

The Rise and Fall of Nokia

In 2012, Nokia, an over 100 year-old communications and technology corporation headquartered in Espoo, Finland, was the world’s leading mobile handset manufacturer, a position it had held since 1998. Yet, in September 2013, Microsoft purchased Nokia’s Device and Services business for €5.4 billion. “A sad ending to Nokia’s once great handset business,” an analyst commented.1 For decades Nokia had led the telecommunications (telecom) industry in handsets and networking. What were Nokia’s missteps over the years? What should Nokia have done differently?

Nokia evolved from a pulp and paper manufacturer in the 19th century to a consumer electronics manufacturer in the 1980s before turning its attention to mobile phones in the 1990s. The company had successfully reinvented itself several times over, relying on flexibility in response to shifting markets and a focus on design and engineering innovation. By the late 2000s, however, Nokia’s position as market leader in mobile devices was threatened by competition from new lower-cost Asian manufacturers, and Apple’s 2007 release of its iPhone established an entire new category—the smartphone. These moves put pressure on Nokia at both the high and low end of the market, and by 2011, the company’s revenues had dropped significantly. (See Exhibit 1 for financial data.)

In 2012, Nokia posted an operating loss of €2.3 billion2 and was bumped from the top manufacturer position by Samsung, despite maintaining a 24% market share, largely due to sales of low-cost handsets in emerging markets. That year, CEO Stephen Elop dropped Nokia’s in-house operating system, Symbian, for Microsoft’s Windows Mobile OS.

By 2013, Nokia’s Devices and Services business was for sale, at a deeply discounted price. Some saw the sale as a boon for Microsoft; one analyst said, “Microsoft had to do this. The future is in mobile devices, not PCs, and they need to increase their focus and investment on mobile. I am not sure this will work, but I also don’t see that they had a choice.”3 Others were even more skeptical. “Microsoft and Nokia may have simply thrown a rope to one another, cried ‘Save me!’ and jumped off a cliff in unison.”4

Nokia’s Early History: 1865-1970s

Nokia Ab, founded in 1865 as a timber company near the town of Nokia, Finland, grew into a significant pulp and paper concern over time. By the mid-20th century, Nokia had taken several steps to move beyond its roots in timber and rubber. By the late 1960s the company had merged with

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Professors Juan Alcácer and Tarun Khanna, and Associate Case Researcher Christine Snively (Case Research & Writing Group) prepared this case. This case was developed from published sources. Funding for the development of this case was provided by Harvard Business School, and not by the company. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.

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This document is authorized for use only in Strategic Analysis for Executives by Jai Joon Lee at California State University - Sacramento from September 2014 to March 2015.

714-428 The Rise and Fall of Nokia

several Finnish concerns, including a tire and rubber footwear manufacturer and a cable and electronics manufacturer to form Nokia Corporation. The newly-merged entity had five core businesses: rubber, cable, forestry, electronics and power generation. Bjorn Westerlund was named CEO.

Nokia produced the first wireless phones in Scandinavia for government services such as fire brigades, police, and railways, building on requests from the Finnish defense forces to produce military radio-phones. In 1971, Nokia began selling analog car radio-telephones. That year Nokia also began developing its own computers and released the Mikro Mikko office computer. By the early 1970s Nokia had a 80% market share of computer sales in Finland.5

The 1970s saw Nokia take its first steps toward dominance in a nascent telecom industry. The company supplied networking infrastructure including base stations and links to Salora, Finland’s top radio and television producer, to produce car telephones and network support structures. It established Telefenno Oy, a 50/50 joint venture with a state-owned telecom networking company, to develop and market network equipment for wireless networks. Throughout these years, Nokia managed delicate relations with the Finnish government.6 During the 1970s, Finland was run by the left-wing Social Democratic Party, which had controlled much of the electronics and telecom networking industries.

Nokia Under Kairamo (1977-1988): Era of Growth

Kari Kairamo, an engineer with expertise in wood processing and the paper industry, was named CEO in 1977. In 1979 Nokia entered into a joint venture with Salora to create the radio telephone company Mobira Oy. Mobira produced the first car phones on Scandinavia’s Nordic Mobile Telephone (NMT) network, launched in 1981 as the first international cellular network7 three years after Motorola launched the Advanced Mobile Phone System (AMPS) network in the U.S.8

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