Economic problems faced by Nokia

Mobile phone had become the number one worldwide communication tool for all types of people. Mobile phone is one of the highest demand products in business field. This is just simply because of the technology upgrades in the mobile phone. Mobile phone contains various type of communication, from ages it grew from a very large size to a small easy using product nowadays. In the pass, mobile phone is just black and white and its only function is to call and type “sms” to communicate or leave a message for people. For the latest technology, phones are now filled with so many applications and services such as Bluetooth, infrared, the WIFI service, and even changing your phones function. Smart phone is the latest product that is highly demanded from the public. Famous company such as Apple, Samsung, and Blackberry is currently holding the highest mobile phone and services demand in the world. In the past memory, none of these companies produces a better phone then this famous company “Nokia”.  We all knew that Nokia had been doing well in their service just because of how they manufacture all their products. Nokia was the world's largest vendor of mobile phones from 1998 to 2012. However, over the past five years it has suffered declining market share as a result of the growing use of smart phones from other vendors, principally the Apple’s Iphone and devices running on Google’s android operating system.

In 2012, Nokia had release a new product which is the Lumia 920. It is a smart phone but it receives a lot of negative feedbacks and a lot of disappointment towards the public. In September 6^th, Nokia launched their new product the Lumia smart phones and they receive massive thumbs down from their investors. It is stated that Nokia puts a lot of hope in the device by putting in effort in the outlook of their product by putting sporting bright colours , a bigger screen and technology that reduces blur and shakiness in pictures and video but it turned out because people are looking for something more dazzling not evolution. Nokia badly needs a hit because in the past 18 months Nokia faces operating losses approximately 3 billion pounds forcing the firm to cut at least 10 thousand jobs. Its share of the global smart phone market has dropped to less than 10 percent from 50 percent during its peak before the iphone arrived in 2007.

Here is Nokia’s interim report by april 19^th 2012

Summary Financial Information

Based on the graph we could see that Nokia is facing economic problems in 2012, judge by the net sales that had decreased approximately 30%. Based on the operating profit, it faces decline and went into a negative figure. Let us look further into the devices and services graph which is the second category. On its net sales, Nokia faces lost about 40% just by 1 year, this will be a major problem because most of the consumers either lost interest with Nokia mobile phones or there is a better option besides Nokia. Let us divide into 2 categories which are the Smart Devices net sales and Mobile Phone net sales. For Smart Devices net sales it had decrease over 52% from 2011 to 2012, in the other hand Mobile Phone net sales had decrease 32% from 2011 to 2012. It just takes one year for Nokia to burn its hand and it would be a mystery for Nokia to make a come back for the company’s future. In my research, there are 3 main factors that cause Nokia in to such a trouble:

1)      Nokia is burning cash

2)      Nokia’s dumb phone which is the mobile phone business which is the largest is now in a race to the bottom

3)      Nokia’s latest product the Lumia

Nokia is burning Cash

Based on the chart above, Nokia’s net cash went down 24% from 2011 to 2012 which is just a year. Which means year by year the net cash and other liquid asset will decrease by 2 billion pound. “We learn Microsoft provided $250m in "platform support payments". If you back this amount out, you see Nokia's operations have in fact consumed $1.15bn, a significant fraction of the company's $6.4bn net cash. This cannot continue for very long and leads Henry Blodget to worry Nokia could go bankrupt in two years or less.” (Jean Louis Gassee Monday 23 April 2012 09.53 BST)

Nokia’s dumb phone which is the mobile phone business which is the largest is now in a race to the bottom

As the graph above, 16% of mobile phone’s volume had decrease which is not a good sign. The bad part is the average selling price of mobile phone had dropped 18% which is even worst that causes Nokia mobile phone profit to be dropped madly. Nokia is now losing to almost all of the other mobile company especially the release of smart phone which causes the biggest impact towards mobile phone industry. Their only hope would be launching their new smart phone to save Nokia itself. Therefore the Lumia series had been their innovation, but as for Nokia’s smart phones net sales and production are also decreasing badly by 50% for net sales and 51% for production.

Nokia’s latest product the Lumia

Due to the rumours and reviews had been quite negative, this causes major problem for Nokia. “Things don't get better when, according to Reuters, mobile carriers in Europe pronounced themselves ''unconvinced", finding the new Lumia smartphones "not good enough". It is worth noting things could be better in the US where AT&T appears to make a real effort selling Lumias, and where Verizon recently stated its interest in fostering a third ecosystem with Windows Phone devices.” (Jean Louis Gassee Monday 23 April 2012 09.53 BST) There are also big rumours like the existing Lumia smart phones won’t be upgradable to the next OS version the Windows 8. There were so many negative feedbacks that would cause big problems for Nokia to stand up and defend themselves.