Smartphone war claims another victim: Nokia slashes 3,500 jobs and closes Romanian factory.

One starts to feel sorry for Nokia. One of the first, most successful and innovative companies in the cell phone business is currently like a cornered boxer that receives blow-after-blow from his much stronger opponents.

Although the brand with a 24.2% market share was still market leader in the overall cell phone market in 2Q11 (chart 1), it suffered a loss of 9.6% in market share Y.o.Y.

And if we zoom in to the much more lucrative smartphone market alone, the brand dropped even from a 37.3% market lead (2Q10) to a worrisome 15.7% in 2Q11 (3rd rank), a huge 17.6% drop (chart 2). Winners in this market were Apple (now market leader) and especially Samsung, that almost tripled its market share and saw a mindboggling sales increase of 380.6%.

Chart 1 Top five overall cell phone vendors; chart courtesy of http://www.engadget.com/

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Chart 2 Top five smartphone vendors; chart courtesy of http://www.engadget.com/

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It´s not easy to say what caused this enormous drop in sales in both the cell phone (-/-15.3 mln units), and the smartphone market (-/- 7.3 mln units). But, partially based on my personal experience, I would name the following reasons:  

• The market for normal cellphones evolved from a growth market to a replacement market and besides that, its market share is cannibalized by the popularity of smartphones 

• The poor quality of Nokia volume models. Where earlier series (1996-2006) were almost indestructible and with state-of-the-art operating systems, later models suffered from wobbly plastic parts, poor lacquer finish, a flimsy plug on the adapter that often causes recharging problems and very average software. Nokia changed from a dead cert into a dubious choice, if you buy a new cellphone subscription-with-phone-included.
   
• The more expensive models are still of excellent quality, but the value-for-money is doubtful in this category.
   
• Nokia totally seemed to miss the smartphone boat with its homemade Symbian operating system, that could not by any means compete with Android or Apple. The February, 2011 deal with Microsoft Windows Phone was seemingly enough to scare even the diehard Nokia fans away.

But at least, it was clear that these extremely disappointing results could not be without consequences. And today the consequences were published in a Financial Times (http://www.ft.com/) article, of which I print the pertinent snips.

Nokia to axe 3,500 jobs and close factory Nokia will axe 3,500 jobs and close a manufacturing plant in Romania, as the Finnish handset maker continued its evolution to cope with the growing impact of smartphones on its markets.

Nokia, the world’s largest maker of cell phones by volume, said the closure of the factory in Cluj would result in 2,200 job losses, with a further 1,300 to be axed at its Location and Commerce division, which includes Navteq, the digital mapping group.

The factory, which took seven months to build at a cost of $88m, was only opened in 2008 as a replacement for a plant in Bochum, Germany.

Manufacturing operations at Nokia’s Cluj factory, which makes low-end feature phones rather than smartphones, will be moved to Asia where feature phones are predominantly used.

Thursday’s move is part of a plan announced in April to cut its operating expenses by €1bn over the next three years, which included the axing of 4,000 staff. The 3,500 job cuts at the Romania plant and at the Location and Commerce divisions are in addition to the earlier redundancies.

The situation with Nokia proves that the cellphone market is an extremely tough market, where you are as good as your latest models. 

Reputations are made and broken in less than a year in this enormously competitive, innovative and volatile market. The most difficult job in the world is to come up with a successful turnaround strategy for this once mighty, but currently suffering brand. And I seriously doubt if the cooperation with Microsoft will be the goose with the golden eggs for Nokia.