Bloomberg News

Finns Mourn Loss of Icon Nokia as Microsoft Takes Over

September 04, 2013

Nokia Store

A Nokia store in Helsinki, Finland, on Sept. 3, 2013. Photographer: Tomi Setala/Bloomberg

Finland’s biggest corporate success story is over and Finns are trying to make sense of what’s left.

Liisa Hannula, a 26-year-old soon-to-be teacher in Helsinki, has always had a Nokia phone. Now she says she might opt for a Samsung smartphone instead.

“Nokia is one of Finland’s main brands and it’s what I tell people abroad -- that Nokia phones are from Finland,” she said. “Now I can’t say that anymore.”

The sale of Nokia Oyj (NOK1V)’s handset business to Microsoft Corp. (MSFT:US) sent shock waves through its home country, where the phones are a source of national pride and at one point were carried by 90 percent of Finns. After introducing its first handsets three decades ago, Nokia emerged as Finland’s first major global corporation and symbolized the country’s transformation into a technology-driven economy.

Nokia, based near Helsinki in Espoo, took off in the 1990s to become the world’s largest mobile-phone maker. At its peak in 2000, it generated about 4 percent of Finland’s gross domestic product. That fell to about minus 0.2 percent in 2012, an unsustainable position driven by heavy losses, according to Jyrki Ali-Yrkkoe, an economist at Helsinki-based researcher ETLA. The deal with Microsoft will help it generate as much as 0.3 percent of GDP next year, he said.

‘Sensible Deal’

“Nokia has been the flagship company in Finland even as its fortunes have waned,” Ali-Yrkkoe said by phone. “It’s going to take some time for Finland to recover from the shock and get used to the new Nokia.”

Still, mounting losses at the company made it clear to many Finns that Nokia needed to change. Union representatives say they see opportunities for their members in yesterday’s deal.

“Nokia partnering with Microsoft leaves us more at ease than if it had been Samsung, Huawei or similar,” Antti Rinne, who heads trade union Pro representing about 3,000 highly skilled workers and managers at Nokia, said in an interview on broadcaster MTV3. “This deal was sensible for Nokia and the partner they chose seems to be the safest one, considering the alternatives.”

Microsoft licensed Nokia’s brand to use with its low-end handsets for 10 years and said yesterday it will invest about 250 million euros ($329 million) in a new data center in Finland to benefit from an electricity grid that suffered downtime only once in 30 years. The government negotiated with Microsoft “for a long time” to get the investment, Economy Minister Jan Vapaavuori said in a statement.

Following Google

It’s following in the footsteps of Google, International Business Machines Corp. (IBM:US) and Russia’s Yandex NV (YNDX:US), which have opened data centers in the country. Intel Corp. opened a research facility near Helsinki last year.

“We should look at the silver lining,” Alexander Stubb, minister for trade and European affairs, said by phone yesterday. “From now on we will have two huge information technology giants in Finland.”

Nokia started as a wood-pulp and paper company in 1865 before expanding into rubber, electronics and eventually telecommunications. Once the world’s largest smartphone maker, Nokia’s market share topped 50 percent before Apple Inc.’s iPhone and Google Inc.’s Android operating system were introduced about six years ago. Nokia has lost more than 80 percent of its market value since then and no longer ranks among the top-five smartphone makers.

‘Most Successful’

“Nokia is the most successful Finnish company of all time, which in its heyday brought Finland enormous amounts of wellbeing and international prestige, raising Finland’s self-esteem,” Economy Minister Vapaavuori said. “The biggest impact is on an emotional level. It’s the end of an era in Finland’s economic history.”

The timing of the deal, less than three years after Chief Executive Officer Stephen Elop joined from former employer Microsoft, prompted several of Finland’s biggest newspapers to speculate as to the motivation behind his job switch. Ilta-Sanomat, the biggest tabloid, called him a “Trojan Horse” who assisted Microsoft all along. Elop, the first non-Finn to run Nokia, will now return to Microsoft.

“I wonder if everything is as we have been told,” said Sirje Liemola, 56, who works as a saleswoman at a Helsinki department store. “Was the intent to drive Nokia down and then buy it cheap?”

Creating Icons

Peter Wootton, a spokesman for Redmond, Washington-based Microsoft, declined to comment.

Nokia became an icon after pioneering the mobile phone in the 1980s, a product that later helped pull its home nation out of a three-year recession induced by a banking crisis and the loss of its main export market as the Soviet Union collapsed. After contracting about 6 percent in 1991, the economy grew 4.5 percent on average in 1994 through 2000.

Elop told reporters Finns are “rightfully proud” of what Nokia has stood for over the past almost 150 years as a “source of inspiration and strength.”

Yet the company’s failure to maintain its market dominance means “Finns have been distancing themselves emotionally from Nokia for some years,” said Jyrki Alkio, editor in chief of the Tekniikka & Talous magazine, who has watched Nokia’s ascent and decline over his 23-year career as a journalist. “If this had happened three years ago, it would have been a shock. We have finally grown to accept that we are not Nokia and it doesn’t define our identity.”

National Pride

Still, for decades Finland’s national pride was rooted in Nokia’s phones as much as it was in sports heroes like Formula 1 champions Mika Hakkinen and Kimi Raikkonen.

“Finns used to be known for Raikkonen and Nokia,” said Liemola. “I heard what Elop said, that Finns should be proud. I think we were proud, and we would have been more so if Nokia had remained Finnish.”

Nokia’s 94 percent share-price plunge from its 2000 peak left thousands of engineers looking for work after the company curtailed local development and moved production to Asia. Nokia’s Finnish employment fell 40 percent in six years through 2012, according to the Economy Ministry. Finland’s economy is suffering its second recession in four years as weak export demand is exacerbated by an ailing forest industry and the decline of Nokia.

‘New Opportunities’

Finland shouldn’t throw in the towel just yet, Europe Minister Stubb said.

“Never underestimate the implications of the Finnish sisu, in other words Finnish perseverance and courage,” he said yesterday. “There is huge potential in Finnish engineering and you will see that blossoming within the next few years.”

The shake-up will be good for the country, according to Ilkka Paananen, CEO of Supercell Oy, the maker of tablet games including “Clash of Clans” and “Hay Day.”

“Finland needed this,” he said in a posting on Twitter. “Now let’s all wake up and get to work. New opportunities are everywhere!”

To contact the reporter on this story: Kati Pohjanpalo in Helsinki at kpohjanpalo@bloomberg.net

To contact the editor responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net


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