The analytics firm 24/7 Wall St predicted Nokia's demise back in 2011, citing the company's disastrous financial report for the second quarter of that year.
Many experts still talk about Nokia's impending exit from the market, as the Finns' devices continue to sell poorly.
Many link Nokia's decline to the arrival of Stephen Elop at the helm of the company in 2010 and his "foolish" management policy, which failed to stay ahead of competitors' moves.
What does the future hold for the former leader of the phone market, and why is the company currently losing money? Obozrevatel looked into the situation.
Profits are falling
Last year Nokia's sales fell even further compared with 2011. The loss for the year amounted to €3.11 billion, compared with €1.1 billion in 2011. Smartphone sales fell by 55%, from €2.75 billion to €1.23 billion, while sales of mobile phones in the fourth quarter of 2012 dropped by 19% year on year, from €3.04 billion to €2.47 billion.
However, the company's chief executive, Stephen Elop, who previously headed Microsoft's Business Division, took these financial results in stride, saying that the company's transition period was not yet over.
If you look at the chart of the company's profits from 2004 to 2012, you can see that profits hit their lowest point in the second quarter of last year and peaked in the second quarter of 2007. Elop joined the company in the fourth quarter of 2010, when Nokia was already in trouble, and delivered his famous "burning platform" speech in the first quarter of 2011, after which profits plunged; signs of recovery appeared only at the end of last year.
To recall, in that speech the new head of the company said, among other things: "The battle of devices has now become a war of ecosystems, where ecosystems include not only the hardware and software of the device. Our competitors aren't taking our market share only in smartphones or phones; they are taking it with an entire ecosystem. This means we're going to have to decide whether we build, strengthen or join an ecosystem."
Windows Phone became that "new ecosystem," replacing the old Symbian operating system (OS). According to the company's 2012 financial statements, sales of Lumia phones running the new OS grew by 50% in the fourth quarter. That is what gave the company its small 2% profit.
No time to relax
At the same time, Neil Mawston, a Strategy Analytics analyst quoted by The New York Times, predicted that the release of the Lumia 920 and 820 running the new Windows Phone 8 would not save the situation, since Nokia had no flagship phone to rival the iPhone 5.
Some analysts began saying that Nokia was changing its mobile market strategy and making unconventional market moves, including a shift to budget devices. The low-cost Asha phones sold in developing countries were cited as an example. Elop, too, spoke of regaining market share through such devices.
But feature phones were losing out in the competition with smartphones. According to research firm Gartner, last year alone global mobile phone sales fell by 20%, to €9.4 billion.
That is why many companies began changing their marketing policies and refocusing on smartphones, trying to bring their prices closer to those of basic phone models.
But even if Nokia takes the "path" of low-cost devices, it will face competition there too. According to Francisco Jeronimo, head of research at IDC, the Finnish manufacturer will run into serious competition from Chinese manufacturers such as ZTE, with the battle for a place in the sun being fought over the consumer markets of Latin America, Africa and Southeast Asia. Some curious statistics confirm that this is a difficult path: in 2012, ZTE's share of the global market grew from 3% to 4%, while Nokia's shrank from 24% to 19%.
How the brand was "forged"
Nokia has a long business history, one that began with paper production at the end of the 19th century. Over more than 100 years of its existence, the Finnish company has made cables, tires, televisions and household appliances.
The company moved into telecommunications proper in the 1990s, releasing a phone that ran on its own GSM equipment. It was arguably the 3310 that allowed it to conquer the phone market. The years 2004–2006 were marked by the triumphant march of the N-series smartphones and the "VIP" 8800 model. This went on until 2007 — up to that point, Nokia ruled the global phone market.
And, as analysts say, the Finns should not have rested on their laurels and basked in glory: competitors sensed a weakness! After the iPhone came out in 2007, Nokia had to cede first place to Steve Jobs' creation. But that was only the first blow to the Finnish company.
Later, the Symbian operating system also came under attack from competitors, as Google's Android, which appeared in 2008, grew increasingly popular. Motorola, Sony Ericsson and Samsung also equipped their phones with this newcomer, which ultimately allowed Android to become the second most popular mobile operating system by the end of 2010.
Competition developed at tremendous speed. By early 2011, devices running Google's Android accounted for 35% of the mobile market, while smartphones running the Finnish Symbian OS had a share of only 24%.
Touchscreen models did not save the Finns either. Had they appeared earlier, things might have gone their way, but not amid the fiercest competition, when other manufacturers' models were both cheaper and more efficient.
The change of leadership at the end of 2010 (from Olli-Pekka Kallasvuo to Elop) brought no favorable change. Moreover, Nokia's position was seriously shaken when the company switched to producing cheap budget models and the brand came to be associated with cheap Chinese knockoffs. The Finns' next step was the move to Windows Phone 7, but it did not prove to be a turning point for a return to past success either: not everyone liked this OS, and many Nokia fans never forgave their "phone god" for teaming up with Microsoft.
Of the dead and of revival
What could restore the Finns' former glory? Or are the best times behind them, with a "sell-off" awaiting the company?
The latter — a sale of Nokia — was predicted by Tomi Ahonen, a former executive of the company. In his view, Nokia is already a "walking dead man" that died several months ago and cannot return to the ranks of the top manufacturers. The analysts' downgraded outlook for the Windows Phone OS will play no small part in this, the expert noted.
Anton Marrero, an IT expert and member of the supervisory board of an IT consortium, was more upbeat about the Finnish company's future.
"Any company in crisis is saved by a well-executed restructuring, and Nokia is no exception," the expert noted. "The company must get rid of all non-core assets and unprofitable lines of business and focus on a few successful products. But while the first part is going fine — it doesn't take much brains to make cuts — the second is still unclear. They have yet to create products capable of taking the world by storm. The current lineup does not satisfy consumers."
According to Marrero, the partnership with Microsoft is a sensible and logical decision, since the corporation has operating systems with a suite of applications, its own search engine, and cloud services that include office applications and secure email. In his view, however, betting solely on Windows-based smartphones was a mistake.
"I'm sure that if Nokia had offered consumers Android smartphones alongside its Windows smartphones, sales would have grown," the expert explained. "In 2010–2011, an Android smartphone with the Nokia logo would have outsold the same smartphone with the Samsung logo, because the brand was much stronger and its army of loyal buyers was larger. But for some unknown reason, Google's operating system was effectively declared the enemy, judging by the statements of Nokia's CEO."
Another mistake, the expert believes, was the decision to make budget phones, since this is a step toward killing one's own brand. "How can you talk about prestige if a Nokia phone is available to everyone?" Marrero said. "I still remember the news that Nokia would make phones cheaper than $50. In 2005 that sounded like a sensation. Budget models lower the price bar — that's common knowledge. A better solution would have been to come up with a new brand for cheap devices and preserve Nokia's premium status."
As for a technological breakthrough for Nokia, the analyst believes the company needs to bring a fundamentally new device to market — for example, a gadget that becomes a PC in the office (with a mouse, monitor and keyboard connected to it), a smartphone in your pocket, and an ultrabook while traveling (it can be inserted into a case with a mini keyboard and screen) or a tablet (if the keyboard is detached).