Innovation in the phone industry; intense competition

It has recently been reported that Samsung is successfully competing, and possible overtaking, Apple. A Financial Times article written by Song Jung-a and Joseph Menn (Financial Times, Accessed 28/10/11).

Recent statistics demonstrate how Samsung has thrived in the smartphone market “as shipments rose 40 per cent in the third quarter” after ‘shaking off’ technology patents. Despite Apple being Samsung’s main rival, they are also their biggest customer so very few details were release to avoid worsening their relationship.

According to strategic analytics, “Samsung’s rise has been driven by a blend of elegant hardware designs, popular Android services, memorable sub-brands and extensive global distribution”. Despite a decline in iPhone sales in the third quarter, their recent model (the iPhone 4S) received 4 million orders in the first three days of release; a new record for Apple.

Reports show that Samsung is the “world’s second most profitable handset maker after Apple”. Samsung’s profit margin is 16.9% compared to that of Apple whose operating margin was 30.8% in the third quarter. The phone industry is extremely competitive, especially now that Nokia have recently entered the smartphone industry with the clear aim of leading the market over Apple and Samsung.

A make or break moment for Nokia

A video published on the Financial Times website, ‘A make or break moment for Nokia?’ illustrates the importance of innovation, research and market awareness. Daniel Harrahan reports on Nokia’s current and future position (FT Video, Accessed 26/10/11).

A summary: Nokia has recently launched two new smartphones in an attempt to compete with Apple’s recent model (iPhone 4S) and Samsung’s Galaxy Nexus.

There was a time when a high proportion of people owned a Nokia phone, however, this has all changed due to the changing markets whereby Apple and Samsung are now the dominant leaders in the key smartphone market where higher margins are achieved. Despite lost ground in the higher end of the smartphone market, they have been the market leader in the more basic and affordable models which are, today, still popular in the developing world. Nokia’s ignorance of smartphone growth has cost them heavily; leading them to play 2 year catch up (not an ideal place to be in today’s technological driven world). Not keeping in touch with the market and changes in customer wants is very risky; especially in the technology industry which is ever changing.

Stephen Elop, Nokia’s new Chief Executive, believes these recent additions to be a jump into the unknown but have secured a partnership with Microsoft. The Nokia Lumia 710 and 800 are “broadly based on existing software and hardware” but are more affordable Windows phones. Many critics and specialists deem these new releases to be essential for Nokia’s future and “for any meaningful earnings growth over the next few years”. Elop is a highly committed, dedicated and determined individual who believes there is no question that the Lumiar models can challenge Apple and Samsung.

The CEO’s great intention is to be “today’s leaders in smartphone design and craftsmanship” and believes their “tenacity and will” will help achieve this.

He says:

“We will make sure that things we learn along the way are factored into the next things we do so that we are committed to a direction. We know there will be some things that work well and some things where we need to work - that’s ok as long as we are a learning organisation and moving with urgency, we’ll work through those challenges”.

Geoff Blabber, CSS Insight Analyst, reports that Nokia’s “portfolio gap at top end of their device mix and not being competitive in that part of the market has a detrimental effect on other segments and particularly their ability to price competitively against Chinese competitors in the entry level so the top end is crucial”. Specialists believe that smartphones will soon dominate the mobile phone industry and enter the price bracket of basic, feature phones. Therefore, Nokia need to enter and obtain market share in the smartphone market else they will fall behind (ever further) and find it extremely difficult to maintain its name.

It’s not just Nokia that aim to achieve from this re-launch and heavily invested future. Their secured partnership with Microsoft enables the software provided to compete against their rivals; Apple and Android.

Nokia are fully aware of the formula require to compete; knowing what to deliver with regards to hardware and software in addition to the contents and services included. There is a recognised demand for an alternative to the Android and iPhone; illustrating the importance of research and development and the affect this can have on consequential innovative products.

Elop understands that Nokia’s significant changes aren’t going to happen overnight because large investments are required to grow and successfully compete with rivals and dominate the market. Nokia needs to focus on convincing the public to love the Nokia phone again and appreciate its comeback.

Elop: Nokia can compete with iPhone

In an interview with the Financial Times’ Technology Correspondent, Maija Palmer, Elop highlights the hard work involved in these releases (FT Video, Accessed 26/10/11).. Both were developed within 8 months in time for a crucial time of year; the Christmas market. Elop’s transformation plans will take time, one step at a time. However, carries the philosophy of “learn, refine and keep going”; one which is highly motivating for the workforce to drive their innovative and creative ideas. When questioned about Plan B for in case Plan A fails, he responded “Plan B is to make sure Plan A is successful”. This illustrates a highly determined individual who strives to achieve and could really help Nokia’s comeback into the market. The CEO believes that the Lumiar 800 is the “first real windows phone” because it “brings the real forms of differentiation to life”. The Microsoft partnership could ensure that Nokia stay ahead of the market, achieving competitive advantage over its rivals, re-brand and reposition Nokia as the dominant leader they once were.

A key factor for Nokia here onwards is to increase its investments, constantly monitor the market keeping up-to-date and continue to pursue its innovative products.

Elop promises us that there is “a lot more innovation and excitement to come”. We’ll see…

References:

Financial Times [online], Available from: http://www.ft.com/cms/s/2/a49dccce-0148-11e1-b177-00144feabdc0.html#axzz1cBMKtKUD Samsung beats Apple in mobile stakes (Accessed: 28^th October 2011)

FT Video [online], Available from: http://video.ft.com/v/1241782455001/A-make-or-break-moment-for-Nokia- A make or break moment for Nokia (Accessed: 26th October 2011)

FT Video [online], Available from: http://video.ft.com/v/1241772331001/Elop-Nokia-can-compete-with-iPhone Elop: Nokia can compete with iPhone (Accessed: 26th October 2011)