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Last Updated: Tuesday, 22 February, 2005, 00:02 GMT
Nokia's battle to stay world's number one
By Duncan Bartlett
BBC World Service business reporter

Nokia mobile phone
Nokia sold more than 200 million phones in 2004

Think Finland - think business - and you may well come up with the name Nokia.

From humble beginnings Nokia has risen to dominate the world market for mobile phones.

When Fredrik Idestam set up business on the banks of the river Nokia in Southern Finland, the telephone had not yet been invented.

It was 1865 and the firm started by making items such as toilet paper and rubber boots. It expanded into other businesses, before deciding to concentrate on electronics in the 1980s.

Forward looking

Nokia launched its first mobile phone, the Talkman, in 1984.

The machine was large and heavy by today's standards but the company was sure one day everyone would want one.

Nokia: 30.4%
Motorola: 15.3%
Samsung: 12.7%
Siemens: 7.2%
LG: 6.5%
Sony Ericsson: 6.2%
Others: 21.7%

Source: Strategy Analytics

That prediction proved correct.

Nokia sold more than 200 million phones in 2004, and last month reported fourth-quarter, pre-tax profits of 1.46bn euros (1bn; $1.9bn), compared with 1.73bn euros in 2003.

That topped forecasts for a fall in profits to 1.3bn euros.

Nokia has always been a forward looking company, says David Wood, of Symbian Technology.

"One thing they identified early on was the fashion aspect of mobile phones, another thing was the focus on usability."

At one point, Nokia controlled 37% of the global mobile handset market. Profits and the share price swelled as a result.

Better prices

Yet new competitors - especially those from Asia - started stealing some of its market share.

Clam shell mobile phones
Nokia failed to predict how popular clam shell phones would be

The rivals were making phones with features and styles that Nokia could not match - and at better prices.

Investors were disturbed, and Nokia's share price - which had risen to heady levels in the technology boom - collapsed.

The share price continued its slide in 2004. Nokia's communications director, Kari Tutti, admits it was a difficult year.

"At the beginning of the year we did lose some market share because we had some holes in our portfolio and the competition brought some good products to the market," he says. "But we have been able to regain some of that market share."

Asian rivals

One problem was that Nokia was slow to catch onto the popularity of folding phones - known as 'clam shells'.

"They do need to have clam shells in the market to really compete with Far Eastern manufacturers like Samsung and Sony Ericsson," says Hugh Morgan, of Mobile Choice magazine.

But Nokia says it has moved to fill that gap.

The extremely rapid growth in business for Nokia in the past few years has been a result of many people buying mobile phones for the first time.

And there are still millions of people in Africa, India, China and elsewhere who long for their first phone, which Nokia wants to sell to them.

Rising costs

However, in other countries such as Britain, 90% of people have already got a mobile - so to grow its business Nokia must persuade them to replace their kit with something more sophisticated.

But to many customers, hi-tech phones - such as those offering advanced third generation technology - appear expensive and complicated.

They have not caught on as the industry had hoped, and some firms have gone bust as a result.

Sensitive to rising costs, Nokia, like so many firms nowadays, is manufacturing in China, where wages are far lower than in Finland.

A look through Nokia's books shows good things and bad.

Its sales continue to grow at an astonishing pace, yet the profit it makes on each of its phones is down dramatically.

With almost a third of the global mobile market, it is still way ahead of its rivals - though the competition is intense.

Nokia is doing all it can to please customers and investors, yet its shares have sunk like a stone.

Perhaps it just goes to show that in business, strange things happen - like a rubber boot maker becoming mobile phone company number one.

Nokia's communications director, Kari Tutti
"We did lose some market share. "

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