Nokia: From Dominance to Redemption – A Journey Through History

Introduction

The Nokia ringtone is perhaps the most iconic sound of the early 2000s, a nostalgic emblem marking the dawn of the mobile era. At that time, Nokia stood tall as the undisputed leader in the global cellphone market, commanding over 50% of the industry and annually selling more than 100 million phones. This dominance not only made Nokia a powerhouse in mobile technology but also propelled it to corporate heights, boasting a peak market capitalization nearing $300 billion.

However, Nokia’s fortunes took a drastic turn with the advent of smartphones. The company’s annual phone sales plummeted dramatically, dwindling to less than 20 million units per year. Concurrently, their revenue plummeted from a staggering $60 billion to a mere $6 billion, reflecting a stark decline exacerbated by annual losses of $6 billion.

In an effort to salvage Nokia’s floundering mobile business, Microsoft intervened, acquiring Nokia’s phone division for $7.2 billion. Yet, this move proved disastrous as Microsoft eventually wrote off the entire acquisition cost and sold the residual assets for a paltry $350 million.

Despite these setbacks, Nokia has managed to survive and even thrive in recent years. Presently valued at slightly over $20 billion, Nokia has reentered the phone market independently following Microsoft’s departure, achieving remarkable success.

In a recent highlight, Nokia’s smartphone sales tripled, buoyed by the popularity of the Nokia C100, which secured a spot as the 15th best-selling smartphone in the US. Consequently, Nokia has reported some of its strongest financial quarters in the last 15 years, amassing nearly $5 billion in annual revenue.

While Nokia’s current performance pales in comparison to its former market dominance, the company’s resilience in avoiding bankruptcy has been commendable. With a price-to-earnings ratio of just 5, Nokia’s undervaluation in the market suggests potential for further growth.

As we delve deeper into Nokia’s journey, it becomes evident that the company has not only survived but has also begun to recover amid the smartphone revolution.

The fall begins

Jumping straight into the beginning of the downfall, Nokia’s apex year: 2007 was pivotal. This was the fateful year that the iPhone was announced, so it’s not surprising that it was also the peak of Nokia but it wasn’t all doom and gloom.

In fact, Nokia actually already had a foot in the smartphone race before the iPhone. In 2005, they released a Linux based mobile operating system called Maemo, which they shipped with their Nokia 770 tablet. They were also relatively early to making touch screen phones, the first of which they launched in October 2008.

But while Nokia had the right overall idea, they fell short from several aspects starting with software. For the longest time, Nokia was always known for hardware. They made some of the most durable and reliable phones on the market. In fact, people would often describe their phones as being bricks but what Nokia didn’t realize is that people were willing to sacrifice durability for functionality. Phones were rapidly evolving from being calling devices to being small computers, something that Nokia completely overlooked.

As such, instead of embracing Android and coming out as the main competitor to the iPhone, Nokia wasted their time making their own crappy OS called Symbian. Not only was Symbian clunky and lacking basic functionality, but more importantly, it had virtually no support from developers meaning that users were more or less limited to the in house apps. But, it wasn’t just the software side of things where Nokia was lacking.

Pretty soon, they were lacking on the hardware side of things as well. It seems that Nokia thought that hardware just meant durability as they would neglect upgrading the internal components and specs. Just think about this. Nokia was literally selling phones that didn’t even have 3G capability while iPhones and Androids had already moved onto 4g. Yeah, it was really bad.

Speaking of Androids and iPhones, Nokia also dropped the ball when it came to branding their smartphones. Apple and Samsung hit this out of the park with the iPhone and Galaxy branding. But, when it came to Nokia, there really was no branding, I mean, just listen to these names. Nokia 5800 XpressMusic, Nokia 603, Nokia 701, Nokia 808 PureView like what does 808 even mean?

I have no idea and I think is how most consumers felt as well. Nokia probably felt that the Nokia name itself was enough to appeal to customers which brings us into our next pitfall: overconfidence.

Nokia largely overestimated the value of their brand, and it’s not surprising why, they were basically synonymous with cell phones. But, this was actually a massive disadvantage. They key point to note is that Nokia was synonymous with cell phones, not smart phones.

So, if anything, Nokia needed to work extra hard to shift away from this association with brick phones, but they ended up doing the exact opposite as they let this association drive customers to Samsung and Apple.

So, to sum things up, Nokia was overconfident while they dropped the ball on software, hardware, and branding. But, just as things were looking worse than ever in the early 2010s, they would see a glimmer of hope from Microsoft.

Microsoft drops the ball

You see, it wasn’t just Nokia that had missed out on the smartphone revolution. Someone else that had missed out and was desperate to make their way back in was Microsoft. As such, these two would decide to join forces and take on the smartphone industry together.

The first step in this partnership was letting Stephen Elop, a Microsoft executive take the reigns on Nokia. In late 2010, Elop would join Nokia as their first non Finnish CEO and just a couple of months later, he would ink a deal with Microsoft to become their primary smartphone partner.

Elop justified this gamble as a hail mary that Nokia had to do to survive but really, he had just signed their own death sentence. The problem with the Microsoft partnership was that it solved absolutely none of Nokia’s fundamental issues. Take software for example. Windows Mobile wasn’t a revolutionary OS that was designed from the ground up for touch screen handheld devices like Android or iOS was.

Windows Mobile was really just a janky touch screen version of Windows. As such, developer support was abysmal meaning that Nokia made almost no progress on the software side of things. In fact, you could even argue that they made negative progress as they would start supporting Bing and Bing Maps.

As for the hardware side of things, this was still largely up to Nokia because Microsoft was mainly just a software partner. And as such, Nokia would continue to drop the ball when it came to hardware. The Lumia 630 for example only had 512 MB of ram, no 4G, no flash, no selfie cam, and a 480p resolution screen. And Nokia had the audacity to launch this in mid 2014 just before the launch of the iPhone 6. It’s really no wonder why things didn’t work out.

But despite this, their combined overconfidence was higher than ever as Microsoft was even more overconfident than Nokia. In fact, they would even stage a fake funeral for Apple. Yeah, that aged really well. The one thing that I would say Nokia actually did improve upon was branding. The brand Lumia was far better than just labeling their phones the 603 or the 808, but given that nothing else improved, neither did Nokia’s position.

Under Elop’s leadership, Nokia’s stock price crashed 62%, their mobile phone market share haved, their smartphone market share fell from 33% to 3%, and the company lost €4.9 billion. To make things worse, it seems that Elop was more concerned about saving himself instead of saving the company.

Instead of pivoting to Android or even just expanding to Android, Elop would use the last leverage that Nokia had over Microsoft to force them into an acquisition. Microsoft, who’s options where to either give up on the phone market right then and there or spend $7.2 billion and have one last chance would choose the latter.

Honestly, this was a really smart play by Elop for himself as he would return to Microsoft as an executive after dropping the ball completely with Nokia. But, the same could not be said about Nokia. Just because Nokia had forced Microsoft to take the plunge didn’t mean that Microsoft suddenly had a better strategy.

In fact, remember the Lumia 630 that they launched right before the iPhone 6, well, that was after Microsoft took over. Yeah, I don’t think you’d be surprised to hear that after such failures, Microsoft would just end up neglecting the phone business for a few years before shutting it down completely.

Nokia resurrects

The silver lining about all of this was that Microsoft didn’t buyout the entirety of Nokia. If they had, the entire brand would probably be gone by today. Luckily for Nokia, they only bought out the phone portion of their business but with that being said, this was their main business, so Nokia was left in a pretty bad situation.

All they had left was their network business but looking back, this may have actually been a blessing in disguise.

You see, selling off their phone business forced them to figure out a way to survive without their hero product and that’s exactly what they did. They poured all of their resources into revamping their network business and fixing all their previous mistakes. For example, remember how they were previously neglecting 4G? Well, Nokia would become the first to demonstrate a 5G ready network in 2016.

They also stopped relying so heavily on the Nokia brand because well enterprise customers care way more about value, pricing, and results over branding. And as for their overconfidence, this was naturally completely gone as they were literally fighting for survival.

None of these moves returned Nokia to their former heights but it did salvage the business. By 2017, Nokia would return to the Fortune 500 as they solidified their position as the world’s 3rd largest telecommunications equipment manufacturer, only beaten out by Huawei and Ericsson. And this recovery would be just in time for Nokia to return to the phone business.

You see, after Microsoft gave up on the phone business, they would sell of the remaining parts of Nokia for $350 million. This consisted of two parts. The first was the brand rights to Nokia which were sold to a couple of Nokia executives who created a new company called HMD Global.

The second was the manufacturing and distribution side of Nokia which were sold to Foxconn. Shortly after, HMD Global and Foxconn would enter into an agreement to bring Nokia back to the phone market. But this time, Nokia didn’t make the same mistake of partnering with Microsoft. Instead, they would partner with Google and bring the first Nokia Android to market in early 2017.

To be honest, given how late they were to the market, it’s unlikely that Nokia will ever challenge the likes of Apple or Samsung and return to their former glory. But, that isn’t to say that they can’t have a smaller profitable business selling affordable smartphones which is exactly what they’ve done. In Q3 of 2021, for example, they were able to ship almost 3 million smartphones.

So, on an annual basis, they’re selling about 10 million smartphones which again is only a tenth of what they used to sell but considering the disaster they went through with Microsoft, this itself is quite impressive.