Dec 5, 2009

Nokia’s strategy of doom? [Strategy]

When the largest cell phone manufacturer in the world decides it will drastically reduce its production in the fastest growing cell phone segment, something certainly is not right. Our friends at Gizmodo, tell us that Nokia is going to halve their production in the Smartphone market.Nokia_logo
Before I go any further, here’s a few statistics to put things into perspective. One in every three persons who owns a phone has a Smartphone in his hands – and that’s all around the world. In the US, this number can only be higher. Furthermore, the market has been growing like crazy and will continue to do so in the foreseeable future.  All this without even mentioning that Nokia has taken a beating this year w.r.t the Smartphone market share. It lost over 10 percentage points in just one quarter while the Smartphone market grew by close to 4%. Obviously, the Apples and the bluberries Blackberries have been on a roll.
As Giz points out,
In a webcast yesterday, Nokia's Chief of Smartphones Jo Harlow claimed: "We see ... really fierce competition certainly in the high end, but we also see it in the mid to low end of smartphones increasing"
This tactic of releasing dumbed-down handsets which look, feel and act exactly like the last 50 models to be sold was mentioned at Nokia Capital Markets Day earlier in the week by Olli-Pekka Kallasvuo, who wants to bring prices down to increase margins. Cutting smartphone production in half for 2010, Nokia's claiming it launched around 20 high-end devices this year. 20? They obviously have a different opinion on what's considered a premium handset, if that's true. Antti Vasara, the Head of Smartphones R&D at Nokia, stated that: "We have cut down unnecessary differentiation, so that we have a far more focused portfolio for next year"
Is releasing just one Maemo device (the far-superior platform to Symbian) considered "unnecessary differentiation"? We would've called it "offering punters what they want," keeping in mind the N900 has far outsold expectations, forcing Nokia to delay sales in both the US and Europe.
This is serious news. In a previous article, I had pointed to the fact that Nokia was looking at improving its profit margins and not exactly ‘focusing’ on sales figures (they both are obviously intertwined – but a change in focus can affect a lot of managerial decisions). While focusing on profitability is a good thing – and this excerpt from Giz points to the same – it looks like Nokia is looking to streamline its offerings and focus on the mid-to-low end of the market. This has been a strategy that has worked for Nokia in the cell phone market in general. While a streamlining of product portfolio might not be good news for the market (more dumbed down phones never are) but it certainly could be a blessing in disguise for Nokia’s supply chain.
We all know that Nokia has a cutting edge supply chain with amazing responsesmartphonemarkshare times. Many references to its Supply chain excellencePDF can be found on the Internet Archives. It would also be worthy to mention the Royal Philips Fire IncidentPDF where Nokia recovered from a severe supply chain disruption to rapidly outdo the competition. This incident in particular made several supply chain gurus sit up and take notice of Nokia’s supply chain so much so that they were acknowledged to have one of the best supply chains among contemporary companies. Keeping this in mind, it wouldn’t be hard to see the benefits of having a large number of low end smartphones in the market. Especially when the margins come from a quicker response time and a shorter time-to-market.
Amidst the software battle among smartphones, what l with Symbian taking a beating this year, Nokia is going to have to look at a lot more things than just supply chain efficiencies in order to come back strong. As always, no one knows for sure what 2010 is going to hold forth – opportunity for a comeback or opportunity for a disaster. Time will tell – we all will wait and watch.

Dec 5, 2009

Nokia’s strategy of doom? [Strategy]

When the largest cell phone manufacturer in the world decides it will drastically reduce its production in the fastest growing cell phone segment, something certainly is not right. Our friends at Gizmodo, tell us that Nokia is going to halve their production in the Smartphone market.Nokia_logo
Before I go any further, here’s a few statistics to put things into perspective. One in every three persons who owns a phone has a Smartphone in his hands – and that’s all around the world. In the US, this number can only be higher. Furthermore, the market has been growing like crazy and will continue to do so in the foreseeable future.  All this without even mentioning that Nokia has taken a beating this year w.r.t the Smartphone market share. It lost over 10 percentage points in just one quarter while the Smartphone market grew by close to 4%. Obviously, the Apples and the bluberries Blackberries have been on a roll.
As Giz points out,
In a webcast yesterday, Nokia's Chief of Smartphones Jo Harlow claimed: "We see ... really fierce competition certainly in the high end, but we also see it in the mid to low end of smartphones increasing"
This tactic of releasing dumbed-down handsets which look, feel and act exactly like the last 50 models to be sold was mentioned at Nokia Capital Markets Day earlier in the week by Olli-Pekka Kallasvuo, who wants to bring prices down to increase margins. Cutting smartphone production in half for 2010, Nokia's claiming it launched around 20 high-end devices this year. 20? They obviously have a different opinion on what's considered a premium handset, if that's true. Antti Vasara, the Head of Smartphones R&D at Nokia, stated that: "We have cut down unnecessary differentiation, so that we have a far more focused portfolio for next year"
Is releasing just one Maemo device (the far-superior platform to Symbian) considered "unnecessary differentiation"? We would've called it "offering punters what they want," keeping in mind the N900 has far outsold expectations, forcing Nokia to delay sales in both the US and Europe.
This is serious news. In a previous article, I had pointed to the fact that Nokia was looking at improving its profit margins and not exactly ‘focusing’ on sales figures (they both are obviously intertwined – but a change in focus can affect a lot of managerial decisions). While focusing on profitability is a good thing – and this excerpt from Giz points to the same – it looks like Nokia is looking to streamline its offerings and focus on the mid-to-low end of the market. This has been a strategy that has worked for Nokia in the cell phone market in general. While a streamlining of product portfolio might not be good news for the market (more dumbed down phones never are) but it certainly could be a blessing in disguise for Nokia’s supply chain.
We all know that Nokia has a cutting edge supply chain with amazing responsesmartphonemarkshare times. Many references to its Supply chain excellencePDF can be found on the Internet Archives. It would also be worthy to mention the Royal Philips Fire IncidentPDF where Nokia recovered from a severe supply chain disruption to rapidly outdo the competition. This incident in particular made several supply chain gurus sit up and take notice of Nokia’s supply chain so much so that they were acknowledged to have one of the best supply chains among contemporary companies. Keeping this in mind, it wouldn’t be hard to see the benefits of having a large number of low end smartphones in the market. Especially when the margins come from a quicker response time and a shorter time-to-market.
Amidst the software battle among smartphones, what l with Symbian taking a beating this year, Nokia is going to have to look at a lot more things than just supply chain efficiencies in order to come back strong. As always, no one knows for sure what 2010 is going to hold forth – opportunity for a comeback or opportunity for a disaster. Time will tell – we all will wait and watch.