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Financial Times: Doubles partner goes solo

By Christopher Brown-Humesin Stockholm
Published: May 30 2006 03:00 | Last updated: May 30 2006 03:00

Talk about a hard act tofollow. When Olli-Pekka Kallasvuo takes over as chief executive of Nokia on Thursday, he will be stepping into the shoes of Jorma Ollila, who over 14 years built the company into the world’s leading maker of mobile phones, a man repeatedly hailed as one of Europe’s top businessmen.

Not that 52-year-old Mr Kallasvuo appears daunted. “Mr Ollila is a hard act to follow. But I am not looking back, I am looking forward to the tasks and challenges ahead,” he tells the FT.

After 25 years at Nokia, Mr Kallasvuo has the right background for the job. He has been the head of the group’s US operations, its chief financial officer and was most recently in charge of its mobile phone business.

He has been a member of Nokia’s inner circle, known as “Jorma’s Gang”, since the late 1980s. Apart from Mr Ollila – who is joining Shell as non-executive chairman and takes the same position at Nokia on Thursday – Mr Kallasvuo is the only member of Jorma’s Gang still at the company.

The handover comes as Nokia is performing well again.

Its fortunes plunged in 2004 after it failed to spot key market trends, including the move towards clamshell phones.

First-quarter net profits this year were up 21 per cent, after a 29 per cent rise in sales to €9.5bn ($12.1bn), and the company’s global market share rose three percentage points to 35 per cent.

Mr Kallasvuo played a key role in the revival.

Nokia’s handset portfolio has improved and it has exploited the trend towards cheap phones in emerging markets while he has been in charge of mobiles.

“Mr Kallasvuo has become increasingly well regarded,” says Tim Boddy, analyst at Goldman Sachs.

“He has broadened the product portfolio, improved relations with operators and increased the emphasis on design, as opposed to cost-efficiency, in the manufacturing process,”

Mr Kallasvuo says Nokia must remain a growth company. That strategy is easier when the global handset industry is growing rapidly as now. The overall market will grow by at least 15 per cent this year to around 914m handsets, Nokia predicts.

But things will be harder when the market slows and as handsets become more commoditised.

It could also involve delicate trade-offs between market share and margins. Not that Mr Kallasvuo sees it this way. “I will put equal emphasis on market share and margins. The two need to be balanced.”

Mr Kallasvuo repeatedly uses the word “convergence” when discussing his challenges.

“We are expanding from traditional mobile phone telephony. Now we are talking about the convergence of the internet, mobility, IT and music.”

That means Nokia’s competitors will not just be the traditional handset makers, like Motorola, Samsung and SonyEricsson, but IT, software and entertainment companies. And that poses challenges about how and where Nokia expands.

Under Mr Ollila, Nokia’s growth was achieved almost entirely organically. But Mr Kallasvuo suggests Nokia will need to make acquisitions and partnerships to bolster specific areas of competence or develop new areas. “In a situation where the business environment is getting more complex, a pragmatic look at partnerships and acquisitions will be necessary,” he says.

The company could make some big moves if it wanted to – it has €9bn of cash on its balance sheet.

“They need to consider whether to buy a wireline operation to enhance their networks business, given the convergence between wireless and wireline,” says Goldman’s Tim Boddy. Nokia’s enterprise division might also see some acquisitions, he believes.

Mr Kallasvuo is determined to enhance Nokia’s brand, ranked sixth in the world by Interbrand behind companies like Coca-Cola and Microsoft.

“I really believe we have the opportunity to make Nokia the most loved and admired brand in the world,” he says.

The seriousness of this drive is reflected in the appointment of Keith Pardy, a former Coca-Cola executive, as head of strategic marketing. The company has also started rolling out branded stores across major cities, starting with Moscow.

Mr Kallasvuo, known internally as OPK, is not regarded as having the smooth communication skills of his predecessor. “Kallasvuo is more laconic than Ollila and probably a bit blunter sometimes,” says Per Lindberg at Dresdner Kleinwort Wasserstein.

Karri Rinta, analyst at Nordea in Helsinki, describes Mr Kallasvuo’s presentational style as “no-nonsense, stick-to-the-facts”. He says the appointment represents stability and continuity, and is a message from Nokia that no dramatic changes in strategy or focus are needed.

Mr Kallasvuo suffered unwelcome publicity earlier this year when it emerged that he had been fined €31,000 for a minor tax fraud after failing to declare €11,000 worth of imported goods on arrival in Helsinki from Switzerland. In Finland, the size of fines are linked to income.

“It’s been extensively covered and I don’t have any comment on it,” he says.

Mr Ollila will be there in the background, working one or two days a week as non-executive chairman.

It is a partnership that has worked well, and not just at work.

Both keen tennis players, they have played on the same side at doubles – and never lost, according to Mr Kallasvuo. They have yet to play each other at singles.

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