02 January 2009

Nokia CEO Olli-Pekka Kallasvuo
We Rely On Dominant Position To Weather Crisis

In the last few weeks, the global economic slowdown, combined with unprecedented currency volatility, has resulted in a sharp pull back in global consumer spending and because of that, back in Novemeber, the world's largest mobile phone maker issued a profit warning for the fourth quarter after seeing a sharp cutback in spending by consumers on handsets.

The Finnish company had already shocked investors in September by lowering its third quarter 2008 mobile device market share outlook, partly because of aggressive price-cutting by competitors. It was the first year-on-year decline in three-and-a-half years.

As a result of the rapid change in global consumer spending, which has
impacted the mobile device market, Nokia is predicting that the handset industry's sales will decline by 5 per cent "or more" in 2009 compared with this year because of the economic downturn. It underlines how the world's leading mobile manufacturers are seeing almost 15 years of uninterrupted hyper growth come to an end. The only other decline in handset sales was in 2001.

In an interview with the Financial Times, Olli-Pekka Kallasvuo, Nokia chief executive, insists that the company is better placed to cope with the downturn than its competitors. In handset-making, economies of scale are crucial and Nokia has them.

According to Gartner, the research firm, Nokia sold 118m mobiles in the third quarter of 2008 - close to the combined sales of its four nearest rivals: Samsung, Sony Ericsson, Motorola and LG. Such dominance enables Nokia, for example, to have superior purchasing power with suppliers of components for its mobiles.

Mr Kallasvuo says: "When times are tougher, people who have stronger positions fare relatively better than the competition . . . So, overall, I believe many of our competitors will have limitations here in terms of their ability to do things."

He also highlights the strength of Nokia's brand and its solid balance sheet - the company had net cash of €2.9bn ($4bn) at September 30.

Such is Nokia's confidence in its prospects that it has a target of increasing its market share of mobile sales in 2009, including smartphones - handsets that double as mini computers. Nokia has had a weaker range of smartphones for much of this year because it did not have handsets using touchscreen technology but the company is now addressing the shortcoming.

Nokia's goal of increasing its market share in 2009 may also be assisted by the trend of consumers "trading down" to cheaper mobiles.

The company's enduring strength has been in low to mid-priced mobiles and Mr Kallasvuo says: "The fact that we are commercial in all price points will give us the possibility, if the trade down happens, to sell another device, which is not always the case with competitors who have a more limited portfolio."

Given the downturn, Nokia could well find it hard to persuade consumers to pay extra for the services it is starting to offer on mobiles. These range from digital maps and music to games, and Nokia is predicting they will generate €2bn of revenue for the company by 2011.

Mr Kallasvuo insists Nokia's relations with the mobile phone operators - its most important customers - have not been damaged by its foray into services. Most of the operators have their own mobile services and therefore Nokia's foray could jeopardise some of their revenue.

Five things to know about Olli-Pekka Kallasvuo

1. His first mobile phone weighed five pounds.
2. He currently uses the Nokia E71.
3. His favorite book is "Catch-22."
4. His role model is former Finland President Martti Ahtisaari, winner of the 2008 Nobel Peace Prize.
5. The company he most admires is Procter & Gamble.