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Nokia Plots Its Comeback Plan

(Bloomberg)—Sitting in a meeting room that looks out on a frozen Baltic bay, Nokia Oyj Chief Executive Officer Olli-Pekka Kallasvuo mentions a biography he's reading. It's about Mauno Koivisto, the president who butted heads with his own Social Democratic Party en route to opening Finland's 1992 bid to join the European Union.

"He didn't always pay too much attention to what people were saying," Kallasvuo says, warming to the point. "He believed in what he was doing."

Like the former president, Kallasvuo, 56, has had to develop a thick skin in his struggle to pull Nokia out of its swoon, Bloomberg Markets reports in its April issue.

Since "OPK," as he's known inside the company, took over the world's largest mobile phone maker in 2006, he has been hit by challenges on every front. Nokia, which put a Web browser on a phone during the Netscape era in 1996 and emerged as the must- have brand after its sleek 8110 model appeared in the 1999 movie "The Matrix," has stumbled in modern smartphones. Apple Inc.'s iPhone has been a particular bane.

In 1999, under CEO Jorma Ollila, Nokia reached the highest market value of any European company: 203 billion euros ($275 billion at the Feb. 24, 2010, exchange rate).

In 2007, the one-time rubber and paper maker from the icy realms of Finland posted a record 7.2 billion euro profit. By 2009, earnings had shrunk 88 percent to 891 million euros. Nokia shares tumbled 66 percent from 28.60 euros on Nov. 7, 2007, to 9.84 euros on Feb. 24.

Who's the Biggest?

Apple CEO Steve Jobs added to the pain in January. He proclaimed his company to be the world's biggest mobile device maker by revenue, saying that iPhones, iPods and laptops made up most of Apple's $15.68 billion in sales during the fiscal first quarter that ended on Dec. 26, 2009. Jobs' remark was enough to set the "Nokia Conversations" blog ablaze with comments— some agreeing that the U.S. upstart had an edge, at least in style points.

"I've been pretty down on the Nokia story for a while, partly because of their inability to come up with new devices," says Jeremy Gleeson, a London-based fund manager at AXA Framlington, who sold his Nokia shares in mid-July. "Their best days are behind them, and it's going to take a lot to get them back on track."

Kallasvuo is clawing back in smartphones, the palm-sized devices that typically cost $200 to $700 and can be used to place a call, edit a document or download a TV show.


Industrywide smartphone sales are forecast to surge 60 percent from 2008 to 2010 to account for $80 billion of the $188 billion handset market, according to research firm Gartner Inc.

The day after Jobs took his swipe, Nokia reported fourth- quarter sales of 8.18 billion euros ($11.24 billion) in its devices division, which, unlike Apple, has only one laptop model.

"Nokia is the world's largest maker of mobile devices, using the generally accepted and established definition," Kallasvuo told Helsingin Sanomat, Finland's biggest newspaper.

Nokia's share of smartphones worldwide rebounded to 40 percent in the fourth quarter from 35 percent in the third. Net income jumped 65 percent to 948 million euros, sending the stock up 9.9 percent on Jan. 28. Smartphones make up about 15 percent of Nokia's stable and contribute roughly half of its annual handset gross profit of 9.27 billion euros, according to Credit Suisse Group AG.

Playing Catch-Up

Kallasvuo is playing catch-up. In 2007, when Apple unveiled its touch-screen iPhone, most Nokia models featured 12-key telephone keypads. When Nokia introduced its touch screens the next year, they had cheaper hardware and menus designed for older models.

"What takes two to three steps to do on an iPhone or BlackBerry takes four to five on Nokia's N97," Francisco Jeronimo, a London-based analyst for research firm IDC, says.

Nokia has also struggled to offer the breadth of software that Apple fans enjoy. In January, Jobs bragged that a user had downloaded the 3-billionth iPhone application.

"Nokia smartphones don't have the applications that iPhone and Android do," says Yu Ji, a T-Mobile USA dealer in the Boston suburb of Burlington. "There's no wow feature. If I'm going to spend that kind of money, there's no reason I wouldn't get an iPhone."

Back in the Game

Meantime, Research In Motion Ltd.'s BlackBerry remains the top-selling QWERTY keyboard phone brand. And products by HTC Corp., Motorola Inc. and others using Google Inc.'s Android software are emerging as alternatives to the iPhone. At the end of 2009, almost half of Nokia's smartphones still had telephone keypads only.

Kallasvuo says he has a plan to put Nokia, based in the Helsinki suburb of Espoo, back in the game. The CEO, whose square face and black hair bring to mind Garrison Keillor of radio variety show "A Prairie Home Companion," says Finland's biggest company is changing from a phonemaker to an Internet leader that connects people through social networking and services tied to a user's location. Touch-screen smartphones are just the beginning.

"We're now in a combination of several industries: mobility, Internet, PCs, media, content," he says.

Beefing Up

In July 2008, Kallasvuo forked out $8.1 billion for mapmaker Navteq so Nokia wouldn't have to license maps from Tele Atlas NV or Google to let customers search for the nearest sushi restaurant. He has bought Loudeye Corp. for its music catalog, Cellity AG to manage contacts and Twango Inc. for photo sharing. Downloads on Nokia's Ovi Store—the word means door in Finnish—are up to a million a day. On Feb. 15, Nokia said it would work with Intel Corp. to make it easier to create applications for devices—from phones to tablet computers—from various manufacturers.

"The No. 1 priority is to improve the user experience," says Alberto Torres, whom Kallasvuo tapped to lead design and testing for new phones and software. Torres says his boss isn

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