Suppliers bear the brunt of declining Nokia fortunes

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A group of limited edition mobile phones are on display at the Nokia flagship store in Helsinki, Finland. Picture - Bob Strong/Reuters

Nokia’s changing fortunes are affecting its suppliers, leaving them to shift strategy in order to survive a market tightened by increasing competition between Apple and Google.

Finland-based Nokia’s struggles are due to the continued consumer shift from feature phones to smartphones, which is reshaping the global supply chain. Suppliers are trying to shore up revenues in reaction to Nokia’s lagging business by finding new niches and diversifying business partners.

However, component makers are discovering current dominant smartphone players like Apple and Samsung have cut them out by manufacturing their own chip devices.Apple and Google collectivelycontrol 62 per cent of the global smartphone market with iOS and Android, respectively, giving both companies major influence in the global supply chain.

For suppliers like ST Microelectronics – a European semiconductor company based in Geneva, and Texas Instruments – based in Dallas, Texas, the market dominance adds pressure on manufacturers to turn around sales and earnings, as they attempt to plug revenue gaps once filled by Nokia.

Texas Instruments shipped 85 percent of its processors to Nokia last year for the recently discontinued Symbian handsets, and blamed its second-quarter 13 percent profit dip on Nokia.

In contrast, Qualcomm, which makes application processors for many Android handsets, now leads in applications-processors revenue, with almost a 47 percent share in the first quarter, up from just over a third a year earlier, according to Strategy Analytics.

“It’s a lesson learned that you have got to be very careful about who you tie your fortunes to,” says Jagdish Rebello, an analyst with market-researcher iSuppli. “You have got to be nimble and ready to react, and I think some companies haven’t done that.”

JOB CUTS

Digia Oyj, a supplier of Nokia, said on Thursday it had agreed to cut 170 jobs in its Finnish operations, and could cut up to 80 more as it revamped its business.

Most of the job cuts would come from its mobile business unit, the company said.

“The substantial decline in demand of the product creation services that started during the first quarter of 2011, and the resulting fundamental change in the mobile market has permanently changed the operational environment,” Digia said.

Nokia has used Digia as an external product design house.

BATTLE OF SMARTPHONES

While Nokia is losing out, rivals Apple and Google are ramping up efforts to reassert themselves, creating avenues of opportunities for parts makers.

Research In Motion, maker of the iconic Blackberry handsets, is going back to the drawing board to release new handsets with its new QNX operating system at the beginning of next year.

RIM’s shift will also affect its suppliers, like Marvell Technology, whose second-quarter profits fell almost 13 percent from the previous year, indicating the company’s downturn has far-reaching implications. A boost in RIM’s fortunes would also shore up its suppliers.

And Microsoft, with its new partnership with Nokia, hopes to flood the market with Windows Phone devices in a bid to carve out a bigger slice of the pie. Their partnership will play a key role in both companies’ new strategies to regain traction in the market.

Like suppliers, both Microsoft and RIM are launching new initiatives to get a share of the quickly changing smartphone market.

Nokia’s shares fell as much as 2.3 percent in Helsinki on Wednesday but was up 0.5 percent to 4.20 euros later during the trading hours.

Sources: Reuters, Mobiledia, sfgate

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