Didn't those guys make mobile phones?

Photographer: Paul Thomas/Bloomberg

The Rise of Nokia's Also-Rans

Justin Fox is a Bloomberg View columnist. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”
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In 2006, Nokia decided to spin off its also-ran mobile networking equipment business into a joint venture with fellow also-ran Siemens. That same year, French equipment maker Alcatel and its U.S. counterpart Lucent (AT&T's former equipment division), both still nursing their wounds from the turn-of-the-millennium telecom boom and collapse, combined forces.

For Nokia, partially (and maybe, eventually, fully) extricating itself from the struggling infrastructure business seemed like a smart and inevitable move. It remained, after all, the dominant player in mobile handsets (aka phones), and things were going pretty well there. Nokia’s unit sales rose 30 percent in 2006, and it grabbed two points of market share from rivals Motorola and Samsung.

So far, so good. Nokia’s stock price rose about 70 percent in 2007. In June of that year, though, Apple started selling iPhones. And pretty soon the world began to change. Nokia’s handset business didn't change with it:

The 9.9 percent market share in 2014 puts that business, now owned by  Microsoft, in third place worldwide. But it’s deceivingly high, as most of those unit sales are low-end phones. When you look at the smartphone market, which is where all the money is now made, the former Nokia doesn’t even break the top five.

The sale of Nokia’s handset business to Microsoft was completed last April, and it seemed to mark a final humiliation of the Finnish company that had risen from obscurity in the 1990s to become one of the world’s iconic brands. You may wish to blame this collapse on Olli-Pekka Kallasvuo, who was part of the core team of Finnish executives who engineered Nokia’s rise, then served as its chief executive officer from 2006 through 2010. Or you might prefer to point the finger at Stephen Elop, the former Microsoft executive from the U.S. who took over from him and now works for Microsoft again. Or maybe you chalk it up to the inevitable workings of creative destruction or disruptive innovation or something like that. In any case, it happened.

But hey, remember that Nokia-Siemens networking equipment joint venture? It didn’t start off brilliantly -- a big bribery investigation at Siemens delayed the deal by a few months. But under Rajeev Suri -- who was born in India, grew up in Kuwait, started working at Nokia in 1995 and was named CEO of Nokia Siemens Networks in 2009 -- the combined entity began to gain its footing. Nokia Siemens Networks bought Motorola’s infrastructure business in 2010. Then, a year later, it announced that it was focusing the business on mobile broadband equipment and shedding almost a quarter of its workforce.

Just as its parent company was fumbling the switchover to smartphones, then, Nokia Siemens Networks was betting the company on them. And the bet paid off. Not spectacularly -- there was still lots of talk that both Nokia and Siemens wanted out of the venture when the six-year lockup period ended in 2012 -- but well enough to return the venture to profitability. In 2013 Nokia bought out Siemens’ 50 percent stake for 1.7 billion euros (which in those days was equivalent to $2.2 billion). After the handset business was sold to Microsoft, Nokia Networks was pretty much all that was left of Nokia, so in May 2014 Suri was named CEO of the whole company. It’s a company that’s still a major global player in wireless infrastructure:

Acquiring Alcatel-Lucent’s wireless operations would potentially make Nokia the leader in wireless infrastructure. Bloomberg’s Helene Fouquet and Marie Mawad report that the French government -- normally seen as a big roadblock to acquisitions of flagship French companies -- “has actually been facilitating the deal” in an effort to keep jobs in France. So the bigger struggle will be integrating two disparate, dispersed and not exactly world-beating organizations into a company that can compete with Ericsson and Huawei. But Suri has clearly tackled big integration challenges before.

As my Bloomberg View colleague Leonid Bershidsky has already noted, this could be great news for Finland, which during Nokia’s ascent became a global technology power and has been struggling to right its economy since Nokia’s fall. One shouldn't overstate the scale of the comeback: the Alcatel acquisition would give Nokia annual revenue of around 17.4 billion euros ($18.6 billion). At its peak in 2007, that number topped 51 billion euros.  Still, the Finns played an outsized role in the mobile telecommunications revolution. Now an India-born CEO is doing what he can to at least keep them in the game.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Justin Fox at justinfox@bloomberg.net

To contact the editor on this story:
James Greiff at jgreiff@bloomberg.net