Charles Arthur of the Guardian’s take on Nokia. What do you think?
This article titled “Nokia’s revenue and profit trends point to its key problem: commoditisation” was written by Charles Arthur, for theguardian.com on Friday 10th September 2010 22.01 UTCHere is the problem that Nokia faces: it’s getting more revenue from selling phones – but its profits are falling.
As the graph above – drawn from Nokia’s financial results going back to the start of 2002 – show, the mobile phone division (which is what these figures show; they exclude the enterprise and Nokia Siemens Networks revenues and profits) has been doing well, in money terms.
But the profits are heading south. The long-term trend actually flatters Nokia; its problems have been accentuated since the third quarter of 2008 – when Android began to become a factor in smartphone sales. If you drew the line using the past couple of years, then you’d hit zero profit before the end of 2012. That’s highly unlikely, but trends are something for executives to be aware of – and to reverse where necessary.
By the end of 2009, despite smartphone sales having increased by 24% worldwide according to Gartner, Nokia’s phone profits (which includes smartphones and “dumb” mobile phones) were – on an annualised basis – the lowest they’d been in the entire eight-year period, despite the revenues being the second-highest.
That speaks of Nokia’s product being commoditised – that the average price and profit per phone sold is dropping.
The question for the incoming chief executive Stephen Elop is whether that’s a satisfactory state of affairs.
And one other thing he might want to think about: since the beginning of 2008, those figures have included not just mobile phone sales, but “devices and services”. That excludes Nokia’s biggest acquisition, Navteq, which is broken out in the results and seems to generate a small operating profit (though the amortization of the .1bn price tag still seems to be taking its toll).
By “services” one has to assume Nokia means things like its Ovi store, launched in mid-2009 – which hasn’t set the world alight; you have to look quite hard to find any meaningful statistics (here’s some from March: about 1.5m downloads per day, compared to the iPhone App Store’s 30.5m apps per day.
It’s with apps that Nokia has its toughest challenge. Apple has it easy: there’s essentially one product that developers write to – the iPhone. Yes, there are differences between the newer and older ones, but the basic interface is the same. And every app that an iPhone user downloads ties them a little more tightly to the platform: abandoning it would mean giving those up (though of course you can switch operator and carry your number – and phone – with you).
Nokia, with its much bigger and more diverse range of phones, has more of a challenge there: it’s harder to attract developers, but more importantly for someone looking to shift to another Nokia, there’s the compatibility question – will your apps be portable? Will they work? And if you haven’t downloaded many apps (which the Ovi Store stats seem to suggest – Nokia, remember, has the biggest smartphone share, which means that Ovi apps are spread rather thinly) then it’s going to be easier to just shift to another phone.
And people aren’t being too complimentary about Elop either. “A suit”, says Business Insider, which says the company has made “the same mistake again – hiring a manager, not a product visionary”. Joe Wilcox goes further: “No disrespect intended, but Elop wouldn’t be my first choice to run Nokia, nor would he make my list of top-100 candidates. If someone handed me a list of people not to choose, Elop would be among the top five. I love Nokia. I lauded its handsets for years. But this great company has pissed away market share and bungled the most basic innovations since Apple launched iPhone in June 2007. Elop may be the greatest mistake of all and sure sign Nokia won’t effectively execute against Google’s rising Android Army or Apple’s iOS cultists.”
So welcome, Stephen Elop. You’ve got a big bundle of problems and everyone’s going to be watching you. Something tells us it’s going to be very different from running Adobe’s sales operation, Juniper Networks, or Microsoft’s Business division – the one that cranks out Office and Sharepoint.
And here are the numbers from Nokia’s financial results in a handy table. (I’ve used the “Reported” figures, which include amortization.)
| Nokia | revenue | operating profit |
|---|---|---|
| Mobile phone division only | ||
| 2002 Q1 | 5438 | 1208 |
| 2002 Q2 | 5398 | 1171 |
| 2002 Q3 | 5633 | 1249 |
| 2002 Q4 | 6742 | 1642 |
| 2003 Q1 | 5476 | 1311 |
| 2003 Q2 | 5513 | 1276 |
| 2003 Q3 | 5620 | 1257 |
| 2003 Q4 | 7009 | 1707 |
| 2004 Q1 | 4080 | 1029 |
| 2004 Q2 | 4050 | 802 |
| 2004 Q3 | 4520 | 848 |
| 2004 Q4 | 5871 | 1107 |
| 2005 Q1 | 4527 | 869 |
| 2005 Q2 | 4864 | 789 |
| 2005 Q3 | 5203 | 880 |
| 2005 Q4 | 6217 | 1060 |
| 2006 Q1 | 5869 | 1085 |
| 2006 Q2 | 5875 | 979 |
| 2006 Q3 | 5949 | 779 |
| 2006 Q4 | 7076 | 1257 |
| 2007 Q1 | 5583 | 936 |
| 2007 Q2 | 5931 | 1252 |
| 2007 Q3 | 6131 | 1388 |
| 2007 Q4 | 7438 | 1858 |
| 2008 Q1 | 9263 | 1883 |
| 2008 Q2 | 9090 | 1565 |
| 2008 Q3 | 8605 | 1602 |
| 2008 Q4 | 8141 | 766 |
| 2009 Q1 | 6173 | 547 |
| 2009 Q2 | 6586 | 763 |
| 2009 Q3 | 6915 | 785 |
| 2009 Q4 | 8179 | 1219 |
| 2010 Q1 | 6663 | 831 |
| 2010 Q2 | 6799 | 643 |
| source: Nokia financial results | ||
| note: since 2008 Q1 figures include “devices and services” | ||
| All figures in € millions |
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