In my opinion Nokia shouldn't be included in the Rule Maker portfolio because of the nature of its products. I think that mobile communication devices, like many other products (televisions, memory chips, VCRs) will eventually become commoditised, allowing the Japanese electronics companies with their more efficient and cheaper manufacturing processes to come in and make and sell them for next to nothing. Already Japan's Kyocera own Quallcomm's manufacturing arm. Japanese firms completely dominate the market for televison sets, and unless Nokia can consistently introduce new technologies mobile phones could end up just like TVs. I'm not saying that this will definitely happen, only that I consider it to be a strong downside to Nokia's prospects. Any thoughts?
I'd argue three things:1. NOK does far more than phones and that, if you believe in wireless futures, phones will be more than just phones (tho perhaps still commoditized). So, things like wireless LAN and providingg the service equipment and s/w to wireless service providers are big areas of revenue.2. a glimpse at NOK's financials show that they already manufacture very competitively with the Koreans and Japanese in terms of cost because....3. Mobile phones and devices are a lot like computers. The parts that make them up: memory, LED's, embedded chips and some plastic are commoditized. It is the combination that makes the phone unique and that combination requires design ability/smarts and is cheap to assemble most anywhere typically. What I suspect you will see, and is already the case probably, is that NOK and competitors will design phones but outsource assembly locally to major sales areas (to save inventory and holding time and cost as well as shipping costs).Finally, the sale of QCOM's handset arm to very small player Kyocera is IMO a good thing for NOK. Selling that group to ERICY would have hurt. But Kyocera has a very small penetration in the market and a reputation for labor difficulties and faulty execution. So, it is likely less a threat with Kyocera than it would have been with ERICY. Bottom line is that NOK is far far far far far more than phones and a leader in the development of protocols and systems that drive wireless in much of the world. I am not too worried about commoditization in the next 10 years for them or their market.Just my thoughts.. cheers,jgc
I agree with the fact that Nokia does far more than phones, but I dont agree with the comparison with computers. You said that the components that constitute mobile phones are or will be commoditised. That could see the mobile phone hardware industry turning like the PC industry - extrememly tight net margins, and low inventory turns. Fair enough, Kyocera is hardly a dominant player, but it does have better access to Asian markets, and there is nothing to stop the likes of Sony and Matsushita (both companies with strong brand names)from entrering the arena. They would have better access to the necessary components, and despite efficiencies from Nokia, I wouldn't be one to bet against the Japanese production techniques any day of the week. As an aside, another thing to consider is the performance of stock price. Even if Nokia remained the dominant manufacturer of cell phones (as GM has remained the dominant car maker (measured by revenues)), it might not see the best performance. At the moment GM is valued at about $57 billion dollars, whilst Toyota, a company with lower revenues, has a market cap of $162 billion dollars -nearly three times as much. I would like Nokia a lot more if it did something that wasn't related to wireless communications as well. I just don't think that it will be able to maintain top performance over all ten years and beyond - but I'm not going to be as foolish (or maybe that should be something else) to suggest that it won't. Either way, I'm glad to see that someone can be bothered to reply.Bezhan Salehy
Bezhan you wrote: That could see the mobile phone hardware industry turning like the PC industry - extrememly tight net margins, and low inventory turnsand(as GM has remained the dominant car maker (measured by revenues)), it might not see the best performance. At the moment GM is valued at about $57 billion dollars, whilst Toyota, a company with lower revenues, has a market cap of $162 billion dollars -nearly three times as much. Well as a 6 year (at one time) GM employee who was their thru the "Roger and ME" years of 300000 layoffs I guess I oughta respond..There are computer makers and then there are computer makers, just as there are differences in the success of car makers. I agree net margins can get tight, especially if the high end machines stop selling as well which is at least partly a result of not being able to sell new high end features.W/o arguing the unknowable future of wireless features I would add that the main difference between a Compaq and a Dell, are the grossly different gross and net margins and inventory turns. Dell is very successful at generating cash and minimizing invetory holding. Hell it's ROIC is 280% !!!!! (disclaimer I own it long). So, why is that??? Execution. Execute badly and you fail. Execute well and you do well. Executue great and you dominate. All the top RM's have this one thing in common, that is the management strength and stability to generate a plan and execute it to perfection over similar looking strong competitors. Examples: CSCO vs LU (NT executes well and does well), INTC vs MOT, AMD etc (especially 5 years back), MSFT vs anyone (5-7 years ago), and so on....So, our difference in opinion (I think we agree on the facts that exist pretty well) comes from IMO my faith that Nokia will execute perfectly, or much better than its competitors and that it's headstart on wireless apps in Finland will help it do so.As to GM. Well they do lead in revenues but have been steadly losing market share for over a decade, and closer to 15 years. It has been that long as well since they were able to design a car that appealed to younger folks and majority buyers. This comes not from lack of design or engineering talent but a management and system that in my experience seem to actively work against executing anything well, let alone something with dash, verve or style.... Toyota, more than any carmaker in the world executes very very very very (enuff "verys" for you? ;^) well. That again IMO is why they succeed and do well and GM doesnt. Things wont change in thsi regard until GM figures out how to execute...Just my thoughts and thanks for your comments... ps: look up "wired" magazine on the web and search back to Septembers issue which had a major feature on NOK. I found it interesting and you might too. Definitely helped form some of my thoughts on the topic. cheers,jgc
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