NOKIA: FINLAND,S ECONOMIC DYNAMO LOOKS TO THE

UNCLAS HELSINKI 000060 SIPDIS SIPDIS E.O. 12958: N/A TAGS: PREL EFIN ECON FI SUBJECT: NOKIA: FINLAND,S ECONOMIC DYNAMO LOOKS TO THE INTERNET AND DEVELOPING COUNTRY MARKETS TO STAY ON TOP ¶1. (U) Summary: The Nokia transformation from a tire and boot company to a telecommunications powerhouse in just 20 short years is legend in both Finland and the industry. Nokia and the support industry it spawned account for nearly 20% of Finland,s economy. At the end of 2007, Nokia sold 1.5 million phones every day and exceeded for the first time the 40-percent market share of worldwide mobile phone sales. To sustain its global position, Nokia has set its sights on selling a high volume of low end phones at cheap prices in high risk emerging markets. It is also betting heavily on introducing mobile internet and online banking capabilities, enabling Nokia users to bypass traditional personal computers completely. End Summary A brief history of Nokia ======================== ¶2. (U) The Finnish mobile giant began its operations in the small town of Nokia as a wood-pulp mill in 1865. Shortly after World War I Nokia merged with Finnish Rubber Works and Finnish Cable Works; the new Nokia Corporation concentrated on paper products, rubber tires, rubber footwear, and eventually televisions and personal computers. In 1992, the now-legendary CEO of Nokia Jorma Ollila made a strategic decision to concentrate solely on telecommunications. An ensuing boom in mobile phone demand in the mid-1990s rocketed Nokia to the top of the mobile phone market. Today, Nokia is the world,s largest and most successful manufacturer of mobile telephones, with a global device market share of over 40 percent spanning more than 200 countries. Already controlling 60 percent of the market share in China and 85 percent in the Middle East, Nokia is now seeking alternative sources of profit in emerging markets. Despite its successes around the world, Nokia has struggled to expand its presence in the U.S. due to tight control on mobile devices by the primary mobile communications companies. Innovation and integration ========================== ¶3. (SBU) Economic section intern met with former Nokia Enterprise Solutions VP Susan Macke to discuss Nokia,s significant investment in developing markets. Although risks exist with this growth strategy, Nokia has already enjoyed a significant return on its investment in many developing markets. Nokia, like its competitors, is seeking to transcend individual markets and integrate other services into its existing portfolio. The hope is that through marketing, branding, and customer retention, long term profits will extend far beyond the initial investment costs. According to Macke, Nokia is also committing significant energy to developing its mobile internet capabilities. Ultimately Nokia believes it has the ubiquitous device for offering Personal Computer (PC) services to an ever expanding population of customers. In fact, Nokia,s goal is for many users to have their first PC experience via a Nokia brand mobile phone. Additionally, Nokia and Citibank recently announced a mobile banking initiative that will permit financial transactions to be performed via mobile phones. For emerging markets, this means that plastic credit cards may become obsolete. Likewise, consumers, first online banking or &credit8 purchases in these emerging markets will be with a Nokia phone. According to Macke, online advertisers are excited about the interconnected, always-on future of mobile communications. Networks: Going Online ====================== ¶4. (U) The Nokia/Siemens partnership, a 50-50 joint venture established in June 2006 between Nokia,s Network Business Group and Germany,s Siemens is helping Nokia enter emerging African markets. According to Macke, Siemens, strong history with African network providers helped Nokia capitalize on these rapidly growing markets. Infrastructural reconstruction projects also provide Nokia opportunities to test the latest technology, such as the Ethiopian HSDPA network that offers higher speed connections than those offered by many developed countries. Macke reports, however that local network providers are nonetheless becoming very competitive, such as in Kenya and South Africa, so it is becoming increasingly difficult for foreign companies to penetrate some markets. Additionally, recent political unrest in Africa is contributing to commercial uncertainty. Comment ======= ¶5. (U) Nokia,s dominance in the mobile phone industry was confirmed recently by its stellar 2007 fourth quarter results which led to a nearly 15 percent rise in its share price. Nokia has solidified its position as the leader in emerging markets, especially China and India, and is making strong inroads in Africa. At the same time, Nokia,s multimedia unit, which sells advanced phones aimed at consumers in the developed world, more than doubled its operating profit from a year ago. Its top-of-the-line N95 phone, often seen as the key rival to Apple,s new iPhone, was the top profit generator for the group in the last quarter of 2007. Nokia has sold some 6 million N95s so far, compared with 4 million iPhones to date. Its challenge, as is true throughout the industry, is to remain on the cutting edge. Macke wonders if the current management team, which largely led Nokia,s transformation from a tire manufacturer to a mobile phone powerhouse has the ability to also make Nokia the mobile PC/Internet company of the future. End comment. HYATT