Nokia heard
the call of
cell phone lovers
Nokia heard
the call of
cell phone lovers
by Andrew Leckey
A walk
through the streets of Helsinki is like nowhere else in the world.
In
sharp contrast to the historic backdrop provided by this city's ornate and
imposing architecture, a carryover from its rule by the Russian czars from
1809 to 1917, its streets are filled with thoroughly modern people constantly
jabbering on cellular phones.
And
not just people in business attire. Grandmothers. Children. Folks in work
clothes. People with groceries in their arms. Old men with canes. Streams
of people braving freezing temperatures and gingerly stepping around snowbanks,
all the while holding cell phones to their ears. At one traffic light, I
counted eight people either chatting on the phone or listening intently
as we waited.
Nearly
60 percent of Finns now own cells phones, compared to 25 percent of Americans
and 33% of the Japanese population. The number of cell phones in Finland
has surpassed fixed-line phones, a precedent inspirational to all cell phone
manufacturers.
Nearly
one-quarter of the world's cell phone handsets today are made by Finland's
own Nokia Corp., whose stock constitutes half the asset value of the Helsinki
stock exchange. It wrested leadership of its competitive field from Motorola
Inc. in spectacular styleoperating profits last year up 75 percent, sales
rising 51 percent and split-adjusted earnings per share increasing 66 percent.
Expecting
mobile phone penetration in a number of countries to eventually reach 100
percent, the company has been providing a steady flow of slick new handsets
to keep things fresh. Most recent are the breakthrough Nokia 7110, which
permits Internet access, and the budget-priced 3210 expected to attract
young customers.
Behind
Nokia in sales are U.S.-based rival Motorola Inc., which stuck too long
with analog rather than digital technology, and Sweden's L.M. Ericsson Telephone,
stalled by less-than-inspired recent models on dealer shelves.
Yet
no one at Nokia is gloating. Everyone knows 1998 is a tough act to follow.
The competition is smart, the business tricky. Execution if vital.
"My
daughter, who used to be on the national team for gymnastics, says that
when you do a vault on a balance beam and feel really good about it, you
must quickly put it out of your mind or you'll be sure to fall in your next
vault," said Jorma Ollila, the 48-year-old president and CEO of Nokia,
who took time to talk with me at the company's two-year-old glass-and-steel
headquarters in suburban Espoo as he prepared for the following day's annual
meeting. "This company must continue to execute well without becoming
complacent and feeling too good about what we've done."
Expecting
the company's mix of 60 percent mobile phones and 40 percent telecommunications
infrastructure and other products to remain the same for a while Ollila
stresses flexibility in preparing for the future convergence of technologies.
There will also be ongoing acquisitions of relevant businesses and a lot
of shifting around of key executives.
"If
people stay put in positions for years, they become stale, soft, believing
too much in their ideas because they're continually mulling the same mixture,"
said Ollila, in charge since 1992. "Changing one's job to another part
of the business, even if you've done well where you are, gives a positive
shot."
Nokia
has been listed on the New York Stock Exchange as an American Depositary
Receipt since 1994 and more than half its shareholders are U.S.-based. It
is therefore more driven by shareholder value than typical large, bloated
European firms that think only "big picture" and are mostly concerned
with opulent management quarters.
"It's
a fact of life that we intend to grow 25 to 30 percent each year, that we
have high requirements of research and development, that our marketing is
important and that we must excel in management and logistics," asserted
the pragmatic Olli-Pekka Kallasvuo, executive vice president and chief financial
officer, who divides his time between Finland and Dallas. "I don't
spend time worrying about it.'
Selling
products in 130 countries, Nokia must have worldwide research and development
capabilities. It has manufacturing centers in Finland, Dallas and Asia (Korea
and two Chinese factories). The recently expanded Salo, Finland, plant that
I visited has eight production lines (average age of workers 28 years old)
making several handset models including one for Japanese featuring the ultra-streamlined,
shiny platinum style popular there.
"Our
new production line ends close to where it begins so everyone can see the
outcome of that line," explained Riku Luomaniemi, plant manager, as
we walked the catwalk above a brightly lit production area the size of two
football fields. "We have no offices here, with managers in low cubicles
so everyone can see us and we can set an example in our attitude toward
work."
The
investment community feels that ever-modest Nokia is setting an example
for its industry, a spirited one in which rivals inevitably counter with
nifty handsets of their own.
"Nokia
came out with phones more attractively designed and functional than competitors
and makes sure it has appropriate handsets for specific market segments,"
noted Sean Faughnan, analyst with J.P. Morgan in London. "The long-term
outlook for Nokia stock remains strong, our only reservation being that
its shares are at a high multiple and the company faces tough profit comparisons
the second half of the year."
With
only 4 percent of its sales coming from its small home country, Nokia must
try to keep a step ahead worldwide.
"Besides
coming to the market early with digital handsets, Nokia correctly estimated
the size of the mobile phone market so it could meet demand," concluded
Wojtek Uzdelewicz, analyst with SG Cowen & Co. in Boston, who recommends
both Nokia and Motorola. "It also successfully bet on the more efficient
three-volt technology, rather than the previous six volts."
Faughnan
and Uzdelewicz are neutral near-term on Ericsson stock, yet confident about
its longer-term prospects in such a high-growth business.
©1999 Tribune Media Services,
Inc.
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