Nokia Leading the Telecommunications Revolution: Mid-1990s and Beyond

Forbes's Fleming Meeks credited Ollila with transforming Nokia from "a moneylosing hodgepodge of companies into one of telecommunications' most profitable companies." Unable to find a buyer for Nokia's consumer electronics business, which had lost nearly $1 billion from 1988 to 1993, Ollila cut that segment's workforce by 45 percent, shuttered plants, and centralized operations. Having divested Nokia Data in 1991, Nokia focused further on its telecommunications core by selling off its power unit in 1994 and its television and tire and cable units the following year.

The new leader achieved success in the cellular phone segment by bringing innovative products to market quickly with a particular focus on ever smaller and easier-to-use phones featuring sleek Finnish design. Nokia gained a leg up in cellphone research and development with the 1991 acquisition of the United Kingdom's Technophone Ltd. for $57 million. The company began selling digital cellular phones in 1993.

Ollila's tenure brought Nokia success and with it global recognition. The company's sales more than doubled, from FIM 15.5 billion in 1991 to FIM 36.8 billion in 1995, and its bottom line rebounded from a net loss of FIM 723 million in 1992 to a FIM 2.2 billion profit in 1995. Securities investors did not miss the turnaround: Nokia's market capitalization multiplied ten times from 1991 to 1994.

In late 1995 and early 1996, Nokia suffered a temporary setback stemming from a shortage of chips for its digital cellular phones and a resultant disruption of its logistics chain. The company's production costs rose and profits fell. Nokia was also slightly ahead of the market, particularly in North America, in regard to the shift from analog to digital phones. As a result, it was saddled with a great number of digital phones it could not sell and an insufficient number of analog devices. Nevertheless, Nokia had positioned itself well for the long haul, and within just a year or two it was arch-rival Motorola, Inc. that was burdened with an abundance of phones it could not sell, analog ones, as Motorola was slow to convert to digital. As a result, by late 1998, Nokia had surpassed Motorola and claimed the top position in cellular phones worldwide.

Aiding this surge was the November 1997 introduction of the 6100 series of digital phones. This line proved immensely popular because of the phones' small size (similar to a slim pack of cigarettes), light weight (4.5 ounces), and superior battery life. First introduced in the burgeoning mobile phone market in China, the 6100 soon became a worldwide phenomenon. Including the 6100 and other models, Nokia sold nearly 41 million cellular phones in 1998. Net sales increased more than 50 percent over the previous year, jumping from FIM 52.61 billion ($9.83 billion) to FIM 79.23 billion ($15.69 billion). Operating profits increased by 75 percent, while the company's skyrocketing stock price shot up more than 220 percent, pushing Nokia's market capitalization from FIM 110.01 billion ($20.57 billion) to FIM 355.53 billion ($70.39 billion).

Not content with conquering the mobile phone market, Nokia began aggressively pursuing the mobile Internet sector in the late 1990s. Already on the market was the Nokia 9000 Communicator, a personal all-in-one communication device that included phone, data, Internet, e-mail, and fax retrieval services. The Nokia 8110 mobile phone included the capability to access the Internet. In addition, Nokia was the first company to introduce a cellular phone that could be connected to a laptop computer to transmit data over a mobile network. To help develop further products, Nokia began acquiring Internet technology companies, starting with the December 1997, $120 million purchase of Ipsilon Networks Inc., a Silicon Valley firm specializing in Internet routing. One year later, Nokia spent FIM 429 million ($85 million) for Vienna Systems Corporation, a Canadian firm focusing on Internet Protocol telephony.

Acquisitions continued in 1999, when a further seven deals were completed, four of which were Internet-related. Meanwhile, net sales increased a further 48 percent in 1999, while operating profits grew by 57 percent; riding the late 1990s high-tech stock boom, the market capitalization of Nokia took another huge leap, ending the year at EUR 209.37 billion ($211.05 billion). Nokia's share of the global cellular phone market increased from 22.5 percent in 1998 to 26.9 percent in 1999, as the company sold 76.3 million phones in 1999.

Nokia's ascendance to the top of the wireless world by the end of the 1990s could be traced to the company being able to consistently, over and over again, come out with high-margin products superior to those of its competitors and in tune with market demands. The continuation of this trend into the 21st century was by no means certain as the increasing convergence of wireless and Internet technologies and the development of the third generation (3G) of wireless technology (which followed the analog and digital generations and which was slated to feature sophisticated multimedia capability) were predicted to open Nokia up to new and formidable competitors.

Perhaps the greatest threat was that chipmakers such as Intel would turn mobile phones into commodities just as they had previously done with personal computers; the days of the $500 Nokia phone were potentially numbered. Nevertheless, Nokia's 25 percent profit margins were enabling it to spend a massive $2 billion a year on research and development and continue to churn out innovative new products, concentrating on the various standards being developed for 3G wireless networks.