NEW YORK-Nokia Corp. plans to roll out 40 handsets next year as part of the company’s series of projections. The Finnish vendor also said it is on track to meet its goal of delivering 35 handsets in 2004. However, the company said it plans to pare down its research and development to 9 to 10 percent of its net sales by 2006.
In its Capital Market Days last week at the Roosevelt Hotel in New York, company Chairman and Chief Executive Officer Jorma Ollila said his company is responding to a shift in demand patterns and the role of operators.
“Industry dynamics have shifted, and we have been adapting our mindset, customer approach, product portfolio and technologies to sharpen our competitive position,” he said.
However, Ollila stumbled a little before finding the words to answer an analyst’s question about why the company has failed to meet its target of 40-percent market share and 10-percent growth during the past few years.
Ollila said Nokia has performed well in spite of not meeting those targets, pointing out that a company of such a size could not continue to soar with profits without some hiccups. “It’s not a religion” that Nokia has to meet such targets, he commented.
Ollila outlined the following targets for the company moving forward:
c The company will move faster than market growth in mobile devices and infrastructure;
c It will achieve a mobile device operating margin of 17 to 18 percent within the next two or three years;
c Its enterprise business will break even in the first half of 2006.
Ollila announced what he identified as his company’s five priorities. They are product competitiveness, customer satisfaction, R&D effectiveness, demand-and-supply network alignment and end-to-end capability.
Nokia’s diminishing margins drew questions from the media and analysts, but the company’s executives responded with what they thought was a good performance with respect to the competition. Rick Simonson, the company’s chief financial officer, observed that Nokia’s operating margins trumped all of its competitors. Olli-Pekka Kallasvuo, executive vice president and general manager, mobile phones, referred to Nokia’s leading market share in markets around the world, including in Asia, Europe and North America.
In spite of Nokia’s pre-eminence in the markets, surging players such as Siemens AG and Samsung Electronics are challenging its position.
Ollila believes that his company’s multi-radio strategy will reinforce the strengths of its handset offerings, which encompasses a variety of designs from flip to clamshell to slides.
Simonson noted that Nokia’s strategy of focusing a lot of its investment in low-end phones is paying off as many untapped markets are poor and will gravitate to those handsets.
Emerging markets in Asia, Latin America, Middle East and Africa hold great potential that Nokia plans to tap into, Ollila echoed. Indeed, Nokia projects that 80 percent of new subscribers will come from emerging markets. “We hope to grow faster than the market in value and volume,” Ollila said
For 2005, 70 percent of Nokia’s handsets are expected to have color, many will be MP3-enabled and the percentage of its third-generation phones will rise to 10 percent from its 3 percent this year, Ollila said. The number of smart phones released this year totaled 20 million, Ollila said, and it will rise to 200 million by 2008, while camera phones will jump to 600 million in the same year from 20 million this year.
On infrastructure, Ollila said industry has stabilized and Nokia has adapted, evidence by its customer wins. Ollila said Cingular L.L.C.’s merger with AT&T Wireless Services Inc. provides opportunity for Nokia not only in handsets but also in the network gear. “It gives us an opportunity to leverage our strengths in W-CDMA in other markets.”
On R&D, the company said its plan is to cut waste and tailor its efforts toward an end-to-end strategy to make the most of its resources for “core and context,” according to Pekka Ala-Pietila, senior vice president and chief technology officer.
The company said at the moment, its R&D runs at about 11 percent of net handset sales through the end of 2006. R&D costs are about 18 percent for infrastructure. But Nokia plans to bring both down through efficient allocations of tasks and resources. Nokia also plans to work to reduce cycle times for its products by 50 percent. The company also plans what it calls 90-percent hardware and software customization of products for carriers. Although the hardware will be carrier exclusive, it plans to bring flexibility to the effort so that it can be expanded to other operators.
