New competition may soon have Nokia's number

The Nokia Corp. has proved its superior marketing and customerfriendly technology skills in the last couple of years. The company has soared past competitors such as Ericsson in both sales and earnings in the mobile phone industry. Nokia's success has forced Ericsson and other cell phone makers to find powerful partners to try and compete in niches in the wireless market.

Ericsson has teamed up with Microsoft to create Web-browsing software and Sony to produce multimedia cellular phones. More significantly, the former phone maker, that began as the only serious competition to Nokia, has delegated the actually production of its phones to contract-manufacturing giant Flextronics International of Singapore, and in early September, announced plans to license its cellular technology to nearly any company willing to pay for it. This offering virtually gives, to any and all firms that produce high-tech gadgets, the ability to incorporate wireless technology into any device they see fit. Wireless is becoming a commodity.

This is extremely bad news for Nokia. The company has already been hit hard by the economic slowdown and wireless technology crash. It has seen its share price fall from a high of $60 to $13 in the last year and a half. The only silver lining for the Finnish firm is the fact that is it still posting healthy earnings. Nokia announced on September 11 that its third-quarter earnings target will be met, with margins at nearly 15 percent.

However, the company is soon going to be facing a challenge due to Ericsson's release of cellular technology that was once only enjoyed by a select few. Cell phones are going to follow the same path that personal computers did in the 80's and early 90's. Instead of large companies making the entire product from start to finish, specialists such as Intel Corp. and Microsoft Corp. will soon be making key components such as chips and software, especially as cellular phones turn into wireless Internet devices.

"I see Nokia following the path of Apple," says Roel Pieper, a former executive of Tandem Computers and Royal Philips Electronics. Basically, Nokia, like Apple, may become a technology whose influence steadily diminishes.

Naturally, Nokia disagrees with this prediction, indicating that those who feel this way do not understand the wireless phone industry. They stress the fact that they are producing branded consumer goods, not large boxes.

However, the firm is showing signs of weakness despite its current dominance. Nokia's mobile Net technology strategy consisting of new wireless Web phone systems has virtually stalled. Consumers were not impressed with the awkward new Web phones and Nokia's largest customer, phone companies, are too deep in debt from purchasing wireless Web licenses to complete the system according to Nokia's plan.

Though Nokia has a gigantic lead in this key industry, history has shown that no lead is safe in high technology.

By Justin Rock

Editor

Copyright NVST.com, Inc. Oct 1, 2001
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