Olli-Pekka Kallasvuo, CEO of Nokia Corp., believes his company must become a "solutions company." To achieve this objective, though, Nokia is burrowing deeper into the hardware sector with plans to begin selling netbooks by the fourth quarter.
Who would have thought a "solutions company" must also have a solid hold on commodity hardware?
IBM Corp. followed a different prescription. Big Blue jettisoned its "commoditizing businesses like personal computers and hard disk drives, and strengthened its position through strategic investments and acquisitions in higher value segments like business intelligence and analytics, virtualization and green solutions," IBM said in a recent regulatory filing.
Nokia has a slightly different plan in mind. The company is reorganizing operations, cutting costs in certain areas, adding new elements, revamping product lines and, in a recent dramatic move, becoming a PC vendor with plans to roll out its own version of the popular netbook.
However, the strategy raises more questions about Nokia's future and its ability to compete in a fast-changing market. For instance, does the addition of the netbook to Nokia's product lineup in anyway alter the competitive landscape in the company's favor and how exactly will its entry into that sector help position it for future success?
Additionally, Nokia's foray into the PC market will certainly add pressure to the company's supply chain with limited benefits, according to some observers.
This plan is supposed to help fill out Nokia's product line as communications equipment converged with companies integrating wireless functions into equipment that also offer messaging, video, still camera as well as GPS functions. Nokia's notebook will offer all these capabilities and supposedly help the company gain traction against surging rivals.
The only hitch is that Nokia's netbook, dubbed the Nokia booklet 3G, will retail for 575 euro or $834, making it one of the more expensive products in its category. Of course, the price should drop dramatically for customers after rebates, manufacturer's discounts and hefty telecom service provider subsidies.
Aside from the high price Nokia wants to charge for its netbook, though, it's important to ask why the company is venturing into this segment at all. As the world's No. 1 maker of wireless handsets, Nokia is being forced into a bruising war to defend its turf against smaller rivals like Apple, Sony-Ericsson and Korea's Samsung. Even so, Nokia's market share has stayed relatively unchanged at between 38 percent and 40 percent the last few years.
What seems to be troubling Nokia executives is the growing perception that the wireless handset market is changing so rapidly that the company may find itself a leader in a fading sector. By embracing the netbook sector, Nokia adds an element that enables it market itself as a company in the vanguard of "convergence" products.
"We are balancing short-term priorities with our longer-term growth ambitions as elements of the mobile handset, PC, internet and media industries converge to form a new industry," Kallasvuo said in a statement announcing the company's June results.
"Consumers will increasingly expect devices and services designed as integrated solutions. To capture this opportunity we are accelerating our strategic transformation into a solutions company," he added.
The strategy is anchored on an untested hypothesis: that by covering all product sectors, Nokia and rivals would be best positioned for any future developments. That's not how Nokia got to the top of its market.
By dipping its feet into the netbook sector, Nokia appears to be positioning itself to take advantage of an evolution everybody believes will happen but which nobody really understands.
This strategy might comfort investors who see Apple eating away at Nokia's market share in smartphones but it's not one that helps distinguish the company in the market place. Nokia plus netbook right now is a head scratcher.