Nokia Company Report 2015

Company Report
Nokia: Part 3






Course name: Managerial Economics
Name/Surname: Farid Shahbalayev
Submitted to: Dr. Adrian Stoian
Date of submission: 02.12.2015







Contents:




Introduction 3
New products introduced by Nokia 3
Changes in strategy 5
Barriers to entry 5
Cost advantages and Main opportunities for the company 7
Conclusion 8
References 9








Introduction

After failing to compete with Apple, Samsung and other bigger smartphone manufacturers, Nokia sold its mobile phone business to Microsoft for $7.6 billion on April 25, 2014. It was a significant turning point in the history of Nokia. The company adopted new strategies in both leadership and organizational structure and in its business. Nokia focused more on developing new products such as VR camera OZO, 5G technology and HERE mapping and location intelligence. All these changes are expected to create new opportunities for the company which are discussed further in this report. The purpose of this paper is to analyze Nokia's recent changes in the strategy, new products produced by the firm, company's market position, cost advantages and the main opportunities of the company.

New Products Introduced by Nokia

Nokia currently has three businesses that are leaders in their field: Nokia Networks provides broadband infrastructure, software and services; HERE provides mapping, navigation and location intelligence; and Nokia Technologies provides advanced technology development and licensing.
In March, 2015 Nokia introduced 5G technology. The company expects incredibly large demand for the product in the market. Consumers generate an increasing amount of mobile traffic, which necessitates more capacity and lower latency. 5G will offer an expected peak data rate higher than 10 Gbit/s compared to the 300 Mbit/s LTE (Long-Term Evolution) can offer today, combined with zero latency. In addition, 5G supports the huge growth machine-to-machine (M2M) communication with low cost and low consumption of energy. 5G technology will be used for self-driving cars and next generation of industry automation. (Nokia Government Relations policy paper, p4)
Nokia has been focused on (since 2013) the connected and smart vehicles market for its future growth. Nokia's HERE business offers maps, a location platform and location experiences across multiple screens and operating systems.(Windows, Android, IOS and many others) It has more than 80000 sources of data and offers maps for more than 190 countries, voice guided navigation in 99 countries in more than 50 languages, and live traffic information for 44 countries. (Nokia Corporation SWOT Analysis, p9). HERE is the current market leader and it provides strong market position for Nokia. According to MarketLine, the HERE navigation system is used in every 4 out of 5 new vehicles sold in North America and Europe. (p10) It shows the success of the business and the large contribution to the profit of the Nokia. It has a 25 % year-on-year growth in net sales, with 24% growth in new vehicle licenses for embedded navigation systems. Nokia reported approximately $290million net sales for 2nd quarter of 2015 from HERE business. (News Bites Pty Ltd, May 21, 2015)
On July 28, 2015 Nokia announced OZO, the first commercially available virtual reality (VR) camera. OZO captures stereoscopic 3D video through eight synchronized global shutter sensors and spatial audio through eight integrated microphones. Software built for OZO enables real-time 3D viewing, with an innovative playback solution that removes the need to pre-assemble a panoramic image - a time-consuming process with solutions currently in the marketplace. (Nokia Company, 2015) Nokia expects OZO to be widely used by major studios, production houses and media and technology companies.



Changes in Strategy
After completing the sale of its Devices and Services business to Microsoft on April 25, 2014, Nokia announced the appointment of new CEO and President, Rajeev Suri and new strategies on operations and leadership team. According to Rajeev Suri, Nokia's new strategy is to develop its three businesses in order to be a leader in the connected world (Network, HERE, Technology). The reason to adopt new strategy is increasingly weak sales in mobile phone industry. Nokia couldn't compete with Android and later with Apple and sales dropped dramatically every year. Therefore, it decided to sell its business to Microsoft and focus more on other three businesses. By focusing on Networks, HERE and Technologies businesses, Nokia aims to create long-term shareholder value.
As new CEO came to the company, Nokia adopted clear operational governance model and strong leadership team. According to the new company strategy, all three businesses will report directly to CEO, who has full accountability for the performance of the company; HERE and Technologies each will have a single leader reporting to CEO. The primary decision-making body will be Nokia Group Leadership Team, which will be chaired by the CEO. (Mark Scott, April 29, 2014)
Barriers to Entry
Nokia put strong barriers to entry for newcomers. There are several reasons why it is hard to enter the market in which Nokia operates: Well established market position, Widespread geographical presence, Robust patent portfolio.
Nokia has established a strong market position across all its businesses. According to the company, Nokia Networks is the third largest company in mobile infrastructure and related services industry. Nokia's HERE business is a world leader in the location intelligence market. And OZO which is one of the biggest projects of Nokia is the first commercially available VR camera with advanced, brand-new technologies in the world. (Casey Newton, July 28, 2015) Strong market position gives a significant competitive advantage to the company and enables it to leverage opportunities from the growing end markets, to drive strong growth in its revenues.
Widespread and diversified geographical presence enables Nokia to reduce costs through economies of scale. The company has four manufacturing facilities in China, one in India and one in Finland. Nokia operates in the US, China, India, Japan, Finland, Russia, Germany, Indonesia, Taiwan, Italy and in many other countries. Because Nokia has very diversified geographical presence, the economic instability in one particular market has little impact on the whole company. It also provides proximity to costumers and creates close relationships. Low cost and customer loyalty to the company put barriers for newcomers to enter the business.
Nokia has established a robust patent portfolio in a range of technology areas, including radio connectivity and networking, multimedia, user interface and software, hardware, product, and mapping and location services. Nokia Networks business owns 4000 patent families with 11000 individual patents and patent applications, Nokia Technologies owns 10000 patent families including 30000 individual patents and patent application. Nokia's portfolio is estimated to be in force even after 10 years. (Nokia Corporation SWOT Analysis, p9) Because this natural barrier disables newcomers to provide similar services or technology, entering the market requires heavy investments on R&D which discourage startups to enter the market.





Cost Advantages and Main Opportunities
Strategic acquisition of Alcatel-Lucent
In April, 2015, Nokia and Alcatel-Lucent signed a contract, according to which Nokia will acquire all of the equity securities issued by Alcatel-Lucent. This merger will make Nokia the leader in next generation technology and services for an internet protocol (IP) connected world. The merger of Nokia and Alcatel-Lucent is expected to capture 35% of the market share, which means the creation of second largest mobile equipment manufacturer in the world only next to Ericson. (p8) This is an example of economies of scale; the complementary portfolios of both companies would enable effective utilization of R&D resources and result in the decline in R&D expenses. The strategic acquisition of Alcatel-Lucent will also enable Nokia to focus on future technologies, including 5G.
Strong focus on growing in 4G LTE market
Nokia is focused on enhancing its presence in 4G LTE market. Strong growth in the smartphone market and the increasing demand for high speed data has led to the growth in 4G LTE market. Considering the fact that Nokia Networks is a supplier to 15 of the world's top 20 LTE operators, this growth in 4G LTE market will increase the revenues of the company significantly. The strong position of Nokia in 4G LTE market will enable it to leverage growth opportunities and drive strong growth in the future.
Strong outlook for connected and smart vehicles market
Nokia has been focused on the connected and smart vehicles market for its future growth. According to industry estimates, connected and smart vehicles are expected to account for 90% of new cars by 2020 compared to 10% currently. Nokia's HERE business is expected to benefit from the growth in connected and smart vehicles market as it is the current leader in the location and mapping services.
Conclusion
After analyzing the effects of the new strategy adopted by Nokia and the main opportunities for the company, it becomes clear that generally Nokia is doing well in the market. Although selling its mobile phone business to Microsoft negatively affected Nokia's brand, the company today is financially robust and has moved from weakness to strength. Nokia has one of the world's best telecom infrastructure businesses, a global leader in the mapping and location business and a stellar intellectual property portfolio. Nokia heavily invests in R&D and develops new products, for example OZO or 5G technology, which are expected to boost the revenues of the company significantly.












References
Casey Newton, " Nokia Reveals OZO, a Futuristing New Camera for Filming Virtual Reality", July 28, 2015
MarketLine, "Nokia Corporation SWOT Analysis", June 12, 2015
Mark Scott, "Nokia Announces New Strategy, and a New Chief to Carry It Out", April 29, 2014
Nokia Government Policy Paper, "5th Generation (5G) of Communication Networks", 2014
News Bites Pty Ltd, "Nokia Has Initiated a Review of Strategic Options for its HERE Business", May 21, 2015
Nokia Company Official Website, "Nokia Announces OZO VR Camera for Professional Content Creators", July 28, 2015
Rahul Garg, "A Strategic Plan of Nokia", 2012







1