Was there a role of innovation waves shaping Nokia’s stock price—causing wealth accumulation and annihilation? There appear to be five significant waves shaping Nokia’s stock price over 20 years. It began with the emergence of Nokia in driving cellular communication—a reinvention wave of wireline telephony. Soon after, Nokia won the growing mobile handset market through its aesthetic, durable, extending talk time, and easy-to-use design—forming the powerful second wave. But this wave did not last long due to commoditization, a threat from PDA-like smartphones, and a lack of focus on dominant design for managing information. As a result, Nokia’s share price started falling. Nokia made progress in imitating PDA-like features in mobile phones, giving birth to the N series; but, the rising wave was not very strong. Ironically, this weak wave was hit by Apple’s strong iPhone, washing out Nokia with disruptive innovation effects.
Like all other great inventions, the telephone has been evolving in episodic form—through reinvention and incremental advancement. Soon after the beginning of the mass-scale diffusion of Graham Bell’s wireline telephone, the US patent office in Kentucky issued a mobile or wireless telephone patent in 1908. Within ten years, in 1917, Finnish inventor Eric Tigerstedt filed a patent for a “pocket-size folding telephone.” In the following year, 1918, for the military trains, the German railroad system tested wireless telephony. However, over 50 years since the first patent, the development of two-way wireless or radio communication remained limited for serving the battlefield communication for the military. Notable attempts to offer mobile communication for civilians started in the 1950s as car phones.
Forming the technology base for entering the telephone reinvention wave
As a paper mill, Nokia entered the business world in 1865. Over 100 years, Nokia expanded its business in diverse areas, including rubber, tire, and nuclear power. However, in the 1970s, Nokia concentrated on developing technology capabilities in the area of telephony and information systems. The entry of Nokia into the networking and radio industry in the 1970s seeded Nokia’s future. Nokia started making professional mobile radios and telephone switches.
Furthermore, as the Soviet Union became a primary market for Nokia by the late 1970s, Nokia also co-operated on scientific technology with the Soviet Union. Nokia imported many leading-edge technology components from the USA and integrated them into solutions to export to the Soviets. This cooperation reached so deep that the U.S. government became increasingly suspicious. In the late 1970s, Nokia intensified its technology base by acquiring companies. In the acquisition portfolio, Television maker Salora and Swedish electronics and computer maker Luxor AB are notable.
Notable innovation waves shaping the rise and fall of Nokia’s stock price
- Forming the undercurrent of the reinvention of telephony—reaching the take-off point
- First wave—the emergence of Nokia as a driver of reinvention of telephony
- The mobile phone reinvention wave and Nokia handset innovation wave raised Nokia stock price at the top
- Fall of handset wave due to commoditization and lack of focus
- Rise of Nokia’s smartphone wave out of imitation
- Disruptive innovation effect of iPhone—destroying Nokia
Forming the undercurrent of the reinvention of telephony—reaching the take-off point
The increasing popularity of radio communication started to form the undercurrent of mobile phones, both within and outside of Nokia. Hence, it was natural for Nokia’s joint venture with leading Scandinavian color TV manufacturer Salora to create Mobira Oy, a radio telephone company, in 1979. In 1981, Mobira launched the Nordic Mobile Telephone (NMT) service–connecting Sweden, Denmark, Norway, and Finland. This was the world’s first international cellular network. It was also the first network to allow international roaming. Soon after, the company launched the world’s first car phone, dubbed Mobira Senator, weighing around 10 kg. To emerge as a significant driver of the mobile phone reinvention wave, Nokia acquired Mobira in 1984—giving a new name to this mobile telephone company, Nokia-Mobira Oy.
In the same year, Nokia released Mobira Talkman, weighing 5kg—50% less than the car phone released a couple of years ago. Nokia promoted this 5kg phone as the first transportable phone, as it could be used outside the car. The acquisition of Schaub-Lorenz and the computer division of Ericsson’s Information Systems strengthened Nokia’s technology base further.
Three years after the release of Talkman, in 1987, Mobira released the first compact phone, Cityman 900. Due to its weight of just 800gm, it was the world’s first hand-held mobile telephone. Hence, despite its $5,456 price tag, it sold like hot cakes. Further excitement came due to its use by Soviet Union president Mikhail Gorbachev to make a call from Helsinki to Moscow in October 1987.
Rapid weight reduction of the user ends mobile device from 10kg to 800gm, 1200% reduction, just over 06 years intensified the potential of the growth of mobile reinvention wave of the telephone. Such development drove Nokia to the take-off point.
First wave—the emergence of Nokia as a driver of reinvention of telephony
Nokia management divested units like flooring, paper, rubber, and ventilation systems to concentrate on the technology business. It divided the rest into six business units—having telecommunications and mobile phones. Hence, Nokia-Mobira Oy became Nokia Mobile Phones in 1989. Soon after, in 1991, Nokia’s leadership decided to focus solely on the telecommunications market. Consequentially, the company started selling off its data, power, television, tire, and cable units. In the same year, Nokia equipment powered the world’s first GSM call– made by the then Finnish prime minister.
The emergence of Nokia’s first hand-held GSM phone Nokia 1011, in 1992, started a new wave of innovation and growth for both the mobile industry and Nokia. This device, weighing 495gm, had a talk time of 90 minutes and could store 99 contact numbers.
The continued progression of the mobile handset, the emergence of mobile network technology standard GSM, Nokia’s leadership position in both equipment and technology, and Nokia’s leadership focus on the mobile telephone gave an apparent positive signal about the unfolding future potential of Nokia. Hence, investors started taking a position in Nokia’s stock, which led to a rise from 0.15 Eur in 1991 to above 3 Eur in 1995—a 20 times rise over four years. Therefore, between 1990-1995, there is a clear correlation between the rise of Nokia stock, the telephone reinvention wave, and Nokia’s lead in driving the wave.
The mobile phone reinvention wave and Nokia handset innovation wave raised Nokia stock price at the top
After a period of relaxation from 1995-to 1997, the market started picking up a strong signal of ramping up both the mobile phone reinvention wave and Nokia. The strong signal emerged from three forces. First, the mobile phone will grow as a powerful reinvention wave, creating a vast market, partly due to the use of alternate technology core—giving mobility. The 2nd force came from the policy decision to allow competition to enter the telephone industry, which used to be a state monopoly. And the third force came from Nokia’s lead in mobile equipment and handset making.
In particular, the release of the 2100 series handset in 1995 gave a strong signal. Contrary to Nokia’s prediction to sell 400,000 units, the series succeeded in around 20 million handsets sold worldwide. The successive release of the Nokia 8110 slider phone in 1996 redefined the telephone handset—as a fashionable gadget. The success of the 6100 series with a sale record of 41 million helped Nokia surpass Motorola. Consequentially, in 1998, Nokia became the world’s top cellular phone maker.
With Nokia’s net sales growth over 50% year-on-year, operating profits shot up nearly 75%. Hence, the stock market’s response in appreciating Nokia’s stock was not an isolated event. The release of other handsets and the rapid diffusion of mobile phones led to Nokia’s stock price gaining momentum.
This wave of ramping mobile phone reinvention and Nokia’s success in keep gaining market share led to Nokia’s share price appreciation. From 1996 to 2000, Nokia’s share price appreciated from 2 Euro to over 62 Euro—over 30 times. Hence, there is a strong correlation between three waves: (i) the mobile phone reinvention wave, (ii) Nokia’s emergence as a dominant player in the handset, and (iii) Nokia’s stock price.
Fall of handset wave due to commoditization and lack of focus
Despite the spectacular success, in 2000, Nokia started suffering from erosion in its stock price. First of all, Nokia failed to develop a dominant design. Instead, Nokia got obsessed with releasing an increasing number of models, one for each small target group. For example, in 2003, 2004, and 2005, Nokia released 11, 9, and 18 new series of handsets, respectively. The next one is that Nokia kept playing with electronics and keyboard design while customers started demanding software-centric features for addressing content consumption and management.
On the other hand, the smartphone, as a combination of PDA and phone, started showing a threat to Nokia’s handset as an electronic gadget. Hence, the market started predicting the likely decline of Nokia’s dominance. Furthermore, competitors started imitating Nokia’s design, making once highly successful differentiating features a commodity.
As opposed to focusing on innovation through a new wave of reinvention of the handset, Nokia’s management, comprised of business graduates, started paying attention to some common business tactics to maintain the status quo. Hence, the market started dumping stock, resulting in a fall in the stock price from 62 Euro in 2000 to 12 Euro in 2004—a 500% fall.
Rise of Nokia’s smartphone wave out of imitation
To counter the threat of PDA-like mobile handsets, such as Blackberry and others, Nokia focused on adding a Qwerty keyboard to its mobile phone—giving the smartphone’s name. Nokia also started to pay attention to the operating system for innovating out of the software instead of electronics. Such effort led to the release of the Symbian phone Nokia 3650 in April 2003 in the US market. This effort led to the release of the Nokia N series in 2005. This was Nokia’s move to create an innovation wave in the mobile handset—resulting in stock price appreciation between 2005 and 2007. Nokia’s stock price rose from 12 euros to 26 euros, but the rally did not last long. In 2007, Apple released iPhone—seeding the formation of the creative destruction wave.
Disruptive innovation effect of iPhone—evaporating Nokia’s stock price
Despite its success, from 2000, Nokia started getting out of focus. Instead of consolidating ideas and forming a new wave of innovation, Nokia got busy releasing increasing the number of models. It seems that Nokia’s innovation engine became a popcorn machine. Even its’s N series and adoption of the Symbian operating system could not succeed in fueling a new powerful wave. To make matters worse, Symbian exacerbated delays in new phone launches. Instead of having a core reusable software asset, Nokia needed a whole new set of code that had to be developed and tested for each phone model. Compared to Apple’s single iOS, Nokia was juggling 57 different and incompatible versions of its operating system by 2009.
Apple’s keyboard-less, software-centric design and apps are what customers were after for meeting the requirement of a large screen, application-specific apps, and easy-to-use interfaces. Furthermore, Nokia was ignoring the signal of iPhone adoption. Nokia’s reluctance to accept was a typical response of dominant incumbent firms. Hence, while Samsung quickly adopted Android in response to iPhone-like features, Nokia remained busy updating soon-to-be-obsolete models. Furthermore, diverse software platforms and the need for writing and testing model-specific software kept slowing down the release of successive better versions. As a result, Nokia’s stock price kept falling. And its’ wrong partnership with Microsoft accelerated the fall.
Coupling of Rising and Fall of Nokia’s Stock price with innovation waves
In the 1970s, Nokia developed a solid technology base in technology, particularly in radio communication. Nokia kept advancing in the 1980s, forming the undercurrent of reinvention of the telephone as the mobile phone—by changing wireline with wireless. This journey led to taking Nokia to the take-off point of mobile phones. The synchronization of technology readiness, the policy reform of the telecom sector, and Nokia’s lead in leveraging technology in equipment, standardization, and handsets formed a strong innovation wave. As a result, Nokia’s share price appreciated from 1990 to 1995. During the 2nd half of the 1990s, this wave entered the ramp-up phase of a typical S-curve. Hence, Nokia’s share price ramped up too, reaching an all-time high in 2000.
as opposed to consolidating and developing proprietary mobile handset design, Nokia got out of focus; it started rolling out an increasing number of models, targeting all conceivable market segments. Furthermore, Nokia fell short in leveraging software to substitute hardware components. On the other hand, customers were badly after software apps and large screens due to the growing mobile internet. Customers were also after an increasing number of apps for addressing emerging application opportunities. Unfortunately, Nokia’s lack of focus, electronic-centric design, and hard-to-update Symbian operating system led to a slow and inappropriate response. As a result, the market started losing faith in Nokia’s future. Although Nokia regained it with N-series, it was a weak, belated force. Hence, Apple’s iPhone showed up as a creative destruction force. Unfortunately, Nokia resisted and failed to switch, resulting in suffering from the burn of disruptive innovation.
This write-up was prepared primarily as a basis for academic discussion or self-study and is not meant to illustrate either effective or ineffective management, investment styles, or policy decisions. Nothing herein shall be deemed to be an endorsement of any kind. This write-up is for scholarly, educational, or personal use only. Hence, criticism in triggering intellectual discourse is welcome so that we progress in fine-tuning our understanding of unfolding technology innovation dynamics as reoccurring patterns.