Nokia: The “great company curse” is stalking Nokia. Apple and other smaller rivals are running rings around the Finnish giant in the smart-phone sector. History suggests that when technology firms with small market shares start making serious inroads, it is often a sign the incumbent' days on top are numbered. Size and bureaucratic inertia make it difficult for the incumbent to adjust.
Nokia says it is holding its own in high-end phones and claims more than 40 per cent of the smart-phone market in the second quarter. But the definition for such devices is vague. Few consumers would agree that Nokia’s handsets compare favourably to Apple’s iPhone or Palm’s Pre. Apple is clearly gaining — it sold 3.8 million iPhones in the quarter ending in April, more than double the amount sold a year previous. Better gauges of smart-phone standing may be prices and margins. Since consumers covet them, high-end phones are expensive and profitable for their makers. Yet the average sales price (ASP) for Nokia's phones has now slid for six straight quarters. And margins are now about half what they were five years ago. In contrast, BlackBerry maker Research in Motion has increased its ASP, and its margins have correspondingly held up far better.
Nokia has recovered from similar design lags before. In 2004, it missed the switch to folding clamshell phones because it initially dismissed the trend as a fad. The firm went back to the design studio and eventually came out with a new slate of successful phones, but only after several profit warnings.
But any gap is harder to bridge now because the market is largely mature. Close to half of the world’s population already has a phone, and the other half may not be able to afford one. Nokia itself thinks global handset sales this year will shrink around 10 per cent. That means manufacturers have to persuade mobile phone users to switch or upgrade. That calls for handsets with attractive new features. Unlike five years ago, also-rans won't be tided over by fast-expanding markets. If Nokia doesn’t catch up with the new leaders, they could soon begin to eat away at the entrenched Finnish giant.
