Executive Summary - Marietta Collegemcis.marietta.edu/.../2011/12/Pro5-from-Aixi-Xu.docx · Web...

Nokia on the Global Market:

How to Compete with Other Companies?

Cissy Aixi Xu

WRIT 305

December 5, 2011

Nokia

Executive Summary

This report is intended for business people who want to learn about Nokia’s problem

and how these problems came about. The paper also works out the solutions to the

problems based on a lot of research. The introduction, benchmarks,

recommendation, shareholder concerns, conclusion and appendixes are six integral

parts of this paper. Documents from the New York Times, technology research from

Gartner, a video from YouTube and other resources are referred to in this paper.

Moreover, two personal interviews are also included.

Under the global mobile market, the smartphone market plays an important role.

This report analyzes the current situation of the global smartphone market especially

Nokia and other main smartphone manufacturers’ positions under the smartphone

market on the basis of a lot of resources that covers documents, tables, and figures.

Nokia’s problem about losing sales and the cause of problem are pointed out by

analyzing the background information.

Based on the research about Apple and Samsung, the report exemplifies the current

situation of those two main smartphone manufacturers and how they can achieve

success in the global smartphone market. Nokia can benefit from those companies’

experience.

According to the Nokia’s own situation and experience from Apple and Samsung, the

report recommends the solutions with three ideas so that Nokia can make its focus

on each part of the global mobile market, especially the part of top-end smartphone

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market. Several figures, documents and video are applied to make the

recommendations convincing.

The report answers several questions by shareholders’ concerns about the old

Symbain system and the advantages of shareholders after the windows phone is

released in the market. The report also points out several reasons why people do not

want to buy the new windows phone.

The conclusion part stresses that making partnership with Microsoft is a right

decision to Nokia, and the company can be succeeded to compete with other

companies and have a stable position in the global mobile market by performing the

strategies recommended.

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Table of Contents

INTRODUCTION................................................................................................................................ 4

BACKGROUND INFORMATION............................................................................................................................5

Current situation of the global smartphone market.....................................................................5

Current situation of Nokia under global market............................................................................6

Current situation of other big companies (Apple, Samsung, and etc.)..................................8

Profit margins for different levels of smartphones........................................................................9

PROBLEM OF NOKIA........................................................................................................................................10

Definition of the Problem........................................................................................................................ 10

Cause of the Problem................................................................................................................................ 10

BENCHMARKS................................................................................................................................. 11

APPLE INC..........................................................................................................................................................11

SAMSUNG...........................................................................................................................................................12

RECOMMENDATION..................................................................................................................... 13

CHANGING THE FOCUS ON TOP LEVEL SMARTPHONE................................................................................13

HAVING NEW WINDOWS PHONE WITH NEW TECHNOLOGY...................................................................13

KEEPING THE BASIC PHONE MARKET..........................................................................................................16

SHAREHOLDER CONCERNS........................................................................................................ 17

CONCLUSION................................................................................................................................... 18

APPENDIX A: GLOBAL SMARTPHONE MARKET FIGURES................................................19

APPENDIX B: VIDEO OF NOKIA AND MICROSOFT...............................................................20

APPENDIX C: FIGURES OF U.S. SMARTPHONE MARKET...................................................21

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Introduction

Nokia is one of the biggest global telecommunication companies, and the company

holds the highest percent of global mobile sales until the second quarter of 2011.

Nokia’s competition on the global market has a long history. However, since April of

2010, the company lost a big amount of its mobile sales in the global market. At the

same time, other big phone companies earn more and more profit from the global

market, like Apple Inc., Samsung, LG, and Research In Motion. Therefore, Nokia

should realize that it is a very serious problem about losing the mobile sales, and the

company needs to find a proper way to solve the problem immediately.

Background Information

Current situation of the global smartphone market

Current situation of Nokia under global market

Current situation of other big companies (Apple, Samsung, HTC, and etc.)

Profit margins for different levels of smartphones

Current situation of the global smartphone market

The global smartphone market plays an important role in the overall mobile market,

which covers over 25 percent of worldwide mobile sales since the second quarter of

20111. “Sales of smartphone’s were up 74 percent year-on-year and accounted for

25 percent of overall sales in the second quarter of 2011, up from 17 percent in the

1 "Gartner Says Sales of Mobile Devices in Second Quarter of 2011 Grew 16.5 Percent Year-on-Year; Smartphone Sales Grew 74 Percent." Technology Research | Gartner Inc. 11 Aug. 2011. Web. 23 Oct. 2011. <http://www.gartner.com/it/page.jsp?id=1764714>.

5

http://www.gartner.com/it/page.jsp?id=1764714


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second quarter of 2010”2. The smartphone market is becoming more and more

important for the global phone market.

Table 1

“Worldwide Smartphone Sales to End Users by Operating System in 2Q11”3 (Thousands of Units)

Operating System 2Q11 Units 2Q11 Market Share (%)

2Q10 Units 2Q10 Market Share (%)

Android (Google) 46,775.9 43.4 10,652.7 17.2

Symbian 23,853.2 22.1 25,386.8 40.9

iOS (Apple) 19,628.8 18.2 8,743.0 14.1

Research In Motion 12,652.3 11.7 11,628.8 18.7

Bada 2,055.8 1.9 577.0 0.9

Microsoft 1,723.8 1.6 3,058.8 4.9

Others 1,050.6 1.0 2,010.9 3.2

Total 107,740.4 100.0 62,058.1 100.0

Current situation of Nokia under global market

Nokia holds 22.8 percent of worldwide mobile sales in the second quarter of 2011 4,

which is the highest percentage of global mobile sales. However, the company’s


3 Ibid

4 Ibid

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worldwide mobile sales were 30.3 percent in the same quarter of 2010, a 7.5 percent

decrease from 20105.

Table 2

“Worldwide Mobile Device Sales to End Users by Vendor in 2Q11”6

(Thousands of units)

Vendor 2Q11 Units 2Q11 Market Share (%)

2Q10 Units 2Q10 Market Share (%)

Nokia 97,869.3 22.8 111,473.7 30.3

Samsung 69,827.6 16.3 65,328.2 17.8

LG 24,420.8 5.7 29,366.7 8.0

Apple 19,628.8 4.6 8,743.0 2.4

ZTE 13,070.2 3.0 6,730.6 1.8

Research In Motion 12,652.3 3.0 11,628.8 3.2

HTC 11,016.1 2.6 5,908.8 1.6

Motorola 10,221.4 2.4 9,109.4 2.5

Huawei Device 9,026.1 2.1 5,276.4 1.4

Sony Ericsson 7,266.5 1.7 11,008.5 3.0

Others 153,662.1 35.8 103,412.6 28.1

Total 428,661.2 100.0 367,986.7 100.0

5 Ibid


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Since the worldwide smartphone market accounts for over 25 percent of global

mobile sales, Nokia’s share of the overall smartphone market “has fallen by nearly

half” from 27.5 percent in December 2010 to 15.5 percent in September 20117. The

figure below shows that Nokia’s smartphone market shares had a huge decline from

2010 to 2011.

Current situation of other big companies (Apple, Samsung, and etc.)

The six main manufacturers of smartphones are Nokia, Apple, RIM, Samsung, HTC,

and Motorola8. Some manufacturer’s market shares were increased rapidly in those

years, such as Apple, Samsung, and HTC. For example, the Apple’s share of global

7 O'Brien, Kevin J. "Crucial Test for Nokia as Latest Smartphones Arrives." The New York Times. 23 Oct. 2011. Web. 25 Oct. 2011. <http://www.nytimes.com/2011/10/24/technology/24iht-nokia24.html>.8 Blandford, Rafe. "Nokia Q2 2011 - Smartphone Sales Fall to 16.7m." All About Symbian. 21 July 2011. Web. 23 Oct. 2011. <http://www.allaboutsymbian.com/news/item/13121_Nokia_Q2_2011_results-smartpho.php>.

8

http://www.allaboutsymbian.com/news/item/13121_Nokia_Q2_2011_results-smartpho.php

http://www.nytimes.com/2011/10/24/technology/24iht-nokia24.html

Nokia

smartphone market was 18.2 percent in the second quarter of 2011, a 4.1 percent

increase from 20109. The reason for those companies to hold more smartphone

market shares is their top-end devices10.

The Figure below shows the changes of smartphone market sales through the third

quarter of 2008 to the second quarter of 2011 for the six main manufacturers11.

Profit margins for different levels of smartphones

“The profit margins for top-end devices like Apple’s iPhone are about 36 percent”,

and the profit margins for mid-end devices are about 1 percent to 15 percent that is


10 O'Brien, Kevin J. "Crucial Test for Nokia as Latest Smartphones Arrives." The New York Times. 23 Oct. 2011. Web. 25 Oct. 2011. <http://www.nytimes.com/2011/10/24/technology/24iht-nokia24.html>.

11 Blandford, Rafe. "Nokia Q2 2011 - Smartphone Sales Fall to 16.7m." All About Symbian. 21 July 2011. Web. 23 Oct. 2011. <http://www.allaboutsymbian.com/news/item/13121_Nokia_Q2_2011_results-smartpho.php>.

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much smaller than the top-end devices12. Most of Nokia’s smartphone’s sales came

from the middle and low ends smartphones, which allows bigger volumes with lower

revenues. Nokia needs to increase its top-end smartphone sales with bigger profit by

applying new technology so that the company can actually compete with iPhone,

Samsung’s Galaxy phone, RIM’s Blackberry, and other top-end smartphones13.

Problem of Nokia

Definition of the problem

Cause of the problem

Definition of the Problem

The problem of Nokia was that the company’s worldwide mobile sales declined

quickly since 2010, and the company was weaker than its competitors in the

smartphone’s market. Nokia did not have powerful top-end smartphone to match

other companies and its smartphone technology of Symbian system was not

improved in those years.

Cause of the Problem

According to an interview with Professor Potash who is the management professor

in Marietta College, the core reason for Nokia to lose its percentage of global mobile

sales in the past years is that the company did not develop the smartphone

technology in time and had no new powerful products to compete with other


13 Potash, Sidney. Personal Interview. 25 Oct. 2011.

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companies at the top and middle ends of the smartphone market14. In a word, Nokia

needs to strengthen its competitive ability and promote more smartphone sales in

the top and middle ends of smartphone market while still keeping its low ends

smartphone sales and basic phones sales to compete with other phone companies.

Benchmarks

Apple Inc.

Samsung

Apple Inc.

As one of the most famous phone in the global market, the Apple’s iPhone is became

the “fastest selling devices of all time”15. People like iPhone because of its “touch

screen, advanced features, and minimal hardware”16. In the second quarter of 2011,

Apple’s sales of iPhone was more than 19,628 thousands of units in the global

market; while at the same time in 2010, the company’s sales was more than 8,743

thousands of units17. Apple Inc. can successfully compete with other companies and

increase its phone sales quickly in those years not only because of its top-end

smartphones but also because of its development on the iSO technology. After

14 Potash, Sidney. Personal Interview. 25 Oct. 2011.

15 Samra, Sandy. "IPhone History." Bright Hub. 19 May 2011. Web. 01 Dec. 2011. <http://www.brighthub.com/ mobile/iphone/articles/82615.aspx>.

16 ibid


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http://www.brighthub.com/%20mobile/iphone/articles/82615.aspx

http://www.brighthub.com/%20mobile/iphone/articles/82615.aspx

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released the first iPhone on June 2007, the company continues to release new

powerful phones every year until 2011 with its new amazing phone: iPhone 4S. And

the price for the new iPhone 4S is not too high, which starts from $199 with a

wireless service plan18. Having the powerful top-end smartphone and changing its

system technology for all time are the two main reasons for Apple to become the

powerful company in the global phone market.

Samsung

Samsung holds the second highest percentage of global mobile sales in the world

that the company’s sales was more than 69,827 thousands of units in the second

quarter of 2011 and at least 65,328 thousands of units in the same quarter of 201019.

Samsung develops quickly under the smartphone market and becomes the first main

smartphone manufacturer now. From the table below, the company’s market share

in the third quarter of 2011 is 20.0%, a 223.3% increase from 201020.

18 "IPhone 4S & IPhone 4 - Black or White - Free Shipping - Apple Store (U.S.)." Official Apple Online Store - Buy Mac Computers and Notebooks, IPhone, IPad, IPod, and More - Apple Store (U.S.). Web. 04 Dec. 2011. <http://store.apple.com/us>.19 "Gartner Says Sales of Mobile Devices in Second Quarter of 2011 Grew 16.5 Percent Year-on-Year; Smartphone Sales Grew 74 Percent." Technology Research | Gartner Inc. 11 Aug. 2011. Web. 23 Oct. 2011. <http://www.gartner.com/it/page.jsp?id=1764714>.

20 Whitney, Lance. "Samsung Outshines Apple in Smartphone Shipments, Market Share." Technology News - CNET News. 04 Nov. 2011. Web. 01 Dec. 2011. <http://news.cnet.com/8301-13579_3-57318644-37/samsung-outshines-apple-in-smartphone-shipments-market-share/>.

12

http://news.cnet.com/8301-13579_3-57318644-37/samsung-outshines-apple-in-smartphone-shipments-market-share/

http://news.cnet.com/8301-13579_3-57318644-37/samsung-outshines-apple-in-smartphone-shipments-market-share/



http://store.apple.com/us

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The core reason for Samsung to reach the leadership position of the smartphone

market is “its broad and deep product portfolio”21, such as the first and second

Galaxy phones with Android system. Since the first Galaxy phone was released in

2010, the company continues to develop its technology and “refreshed its selection

to include the latest innovations and most popular features”22. Samsung can be

successful in competing with other companies not only because of its powerful

android phones but also because of its development on refreshing the new

technology.

Recommendation

Changing the focus on top level smartphone

Having new windows phone with new technology

Keeping the basic phone market

21 Ibid

22 ibid

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Changing the Focus on top level smartphone

In the global smartphone market, Nokia has several powerful competitors. In order

to survive, Nokia has to consolidate its position in the worldwide smartphone market

by creating its new high quality smartphone. Because Nokia already has large basic

phone sales and low-end smartphone sales with its high-quality and low-cost

products, the company needs to increase its top and middle end smartphone sales

and attract more smartphone customers23. All in all, Nokia needs to transform its

focus from only low and middle ends smartphones to a wide range of smartphones,

especially the top-end smartphone. (See Appendix A for more global smartphone

market figures)

Having New Windows Phone with New Technology

On February 11, 2011, Nokia began its partnership with Microsoft. Stephen Elop, the

CEO of Nokia, announced that the company would issue at least two new phones

“bearing Microsoft Windows Phone software”24. Those new Windows phones will

aim at both top-end users and middle-end users25. Nokia makes hardware while

23 Sun, Tina." Interview with a Marketing Major Student." Personal interview. 24 Oct. 2011.


25 Ibid

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Nokia

Microsoft provides the wonderful Microsoft Windows Phone software, which is a

powerful combination to compete with other smartphones’ companies26. (See Video

of Nokia and Microsoft announce partnership in Appendix B)

Since the Nokia had partnership with Microsoft and designed its new Windows

phone, the Company finally got a top-end smartphone to compete with other top-

end smartphones, such as iPhone and Galaxy phones. According to Neil Mawston, an

analyst in Milton Keynes England, “Nokia has to succeed at the top and middle ends

of the smartphone business to reclaim a leadership position”27. In a word, having a

top-end smartphone to compete with other companies will be the first important

advantage to Nokia.

Another advantage to Nokia is that the Microsoft software will help Nokia open

doors to the “four largest U.S. operators” that “control more than 90 percent of all

cell phone sales”28. The acquirers of smartphone were increased quickly in the U.S.,

which is the world’s largest smartphone market. For example, the figure below

shows that the recent acquirers of the U.S. market have risen from 35 percent to 41

percent through second quarter to third quarter in 201029, and the recent acquirers

continue to increase until now.

26 Ibid

27 Ibid

28 Ibid

29 "Mobile Snapshot: Smartphones Now 28% of U.S. Cellphone Market." Nielsen Wire. 01 Nov. 2010. Web. 24 Oct. 2011. <http://blog.nielsen.com/nielsenwire/online_mobile/mobile-snapshot-smartphones-now-28-of-u-s-cellphone-market/>.

15

http://blog.nielsen.com/nielsenwire/online_mobile/mobile-snapshot-smartphones-now-28-of-u-s-cellphone-market/

http://blog.nielsen.com/nielsenwire/online_mobile/mobile-snapshot-smartphones-now-28-of-u-s-cellphone-market/

Nokia

But Nokia’s market share of smartphone was only 2 percent while Windows

Mobile/WP7 phones’ market share was only 8 percent by HTC and Samsung users in

the second quarter of 201130 (See draft in Appendix C). This is a good opportunity for

Nokia and Microsoft to get together to enter the United States’ smartphone market

as well as the global smartphone market.

Keeping the Basic Phone Market

Even though smartphone market becomes more and more important in the global

phone market that covers over 25 percent of worldwide mobile sales31, the basic

phone market still spend almost 75 percent of the global mobile sales. On the one

30 "In U.S. Smartphone Market, Android Is Top Operating System, Apple Is Top Manufacturer." Nielsen Wire. 28 July 2011. Web. 24 Oct. 2011. <http://blog.nielsen.com/nielsenwire/online_mobile/in-u-s-smartphone-market-android-is-top-operating-system-apple-is-top-manufacturer/>31 "Gartner Says Sales of Mobile Devices in Second Quarter of 2011 Grew 16.5 Percent Year-on-Year; Smartphone Sales Grew 74 Percent." Technology Research | Gartner Inc. 11 Aug. 2011. Web. 23 Oct. 2011. <http://www.gartner.com/it/page.jsp?id=1764714>.

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http://blog.nielsen.com/nielsenwire/online_mobile/in-u-s-smartphone-market-android-is-top-operating-system-apple-is-top-manufacturer/


Nokia

hand, Nokia develops the new technology with Microsoft and competes with its

competitors in top- and middle-end smartphone market. On the other hand, the

company should keep its low-end smartphone and basic phone with Symbian system

to compete in this part of the phone market. Nokia should not abandon its Symbian

system right after it has new windows phone because it will still be some time before

people accept the windows phone. Since the new windows phone do not aim at the

low-end smartphone and basic phone market and Nokia has a large number of

customers in those parts of phone market, the company should keep its old Symbian

system not to lose its existing customers until the new windows phone become

accepted by the top- and middle-end smartphone customers. Then Nokia will be

able to produce some windows phones intended for the low-end smartphone

market and even the basic phone market in order to keep its old customers and

abandon the old phone system.

Shareholder concerns

Q: Why not stick with the Symbian system and improve upon it?

A: Because Symbian system cannot be improved based on its technology. The

Symbian system cannot refresh with the latest innovations, and Nokia phones with

Symbian system are normally high-volume and low-profit products aimed at low-

17

Nokia

and middle-end smartphones market or basic phone market. Those products cannot

make more profit for the company, and Nokia cannot compete with other

competitors under the global market by having those productions.

Q: What is the advantage for stakeholders after changing the new windows system?

A: For stockholders who hold stocks of Nokia can earned more profit after Nokia

changes its phone system to Windows because the profit margin of windows phone

are much bigger than that of the Symbian phones. The company will strengthen its

competitive ability and minimize the risk of investment to its stockholders. For

operators who had stocks of Symbian devices before, they can earn more benefit as

they sell the new windows phone with higher profit. For customers who used the

Nokia smartphones with the old system before, they can choose either middle-end

or top-end windows phone with the latest innovations and reasonable price.

Q: Is there any reason for people do not want to buy the new windows phone?

A: Yes. First of all, for people who already used the top-level smartphone with other

companies, they will not want to buy the new windows phone. For example, if

someone has a two-year contract with AT&T to buy iPhone, he/she will not want to

buy windows phone unless his/her contract is nearly end. Secondly, People do not

want to buy windows phone because they cannot afford the high price of the phone.

The price of new windows phone is unavailable for many people so they will not

think about buying this new phone. Third, For people who do not like windows

system or they already have their favorite system, they will not want to buy windows

phone because of their preference or their loyal to other smartphones.

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Conclusion

To summarize, Nokia can earn more Smartphone market shares by its new top-end

windows phone under the global mobile market, which will make the company more

competitive and able to play an important and consolidated role in the worldwide

mobile market. According to the technology research firm Gartner, “Nokia and

Microsoft will succeed gaining 20 percent share in the smartphone market by

2015”32. Although it will be a long time for Nokia to gain its market share because it’s

too late for the company to enter the globe smartphone market, the Nokia Company

will become much better than before with its new windows phone.

Appendix A: Global Smartphone market Figures

Global Smartphone market Figures33


33 Blandford, Rafe. "Nokia Q2 2011 - Smartphone Sales Fall to 16.7m." All About Symbian. 21 July 2011. Web. 23 Oct. 2011. <http://www.allaboutsymbian.com/news/item/13121_Nokia_Q2_2011_results-smartpho.php>.

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Appendix B: Video of Nokia and Microsoft

See the Video of Nokia and Microsoft announce partnership34

34 "Nokia and Microsoft Announce Partnership - YouTube." YouTube. 10 Feb. 2011. Web. 30 Oct. 2011. <http://www.youtube.com/watch?v=xe3ksR8zgXg>.

20

http://www.youtube.com/watch?v=xe3ksR8zgXg

http://www.youtube.com/watch?v=xe3ksR8zgXg&eurl=http%3A%2F%2Fwww.tipb.com%2F2011%2F02%2F11%2Fnokia-windows-phone-compete-apple-iphone%2F&feature=player_embedded

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Appendix C: Figures of U.S. Smartphone Market

Figure of Manufacturer operating system share under smartphones market35

35 "In U.S. Smartphone Market, Android Is Top Operating System, Apple Is Top Manufacturer." Nielsen Wire. 28 July 2011. Web. 24 Oct. 2011. <http://blog.nielsen.com/nielsenwire/online_mobile/in-u-s-smartphone-market-android-is-top-operating-system-apple-is-top-manufacturer/>

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