Nokia Corp., facing sharp shifts in the global cell phone industry it helped pioneer in the 1990s, turned to a 25-year company veteran as its next chief executive after Jorma Ollila said he plans to step down in June.
The new chief executive, Olli-Pekka Kallasvuo, the head of Nokia's mobile phones division and formerly its chief financial officer, will inherit a company facing questions about its future strategy when he takes the helm of Nokia, the world's largest cell phone maker by sales. Nokia recently downgraded its outlook for the third quarter as its customers are becoming ever-more demanding, and amid pressure on its profit margin and a surge in its main competition.
Ollila, who in his 13 years at the helm transformed Nokia from an unwieldy conglomerate into a highly profitable company focused on mobile communications equipment, had been expected to retire as chief executive when his contract expires next year. But the likely successor for Ollila, 54, had not been clear. The elevation of Kallasvuo, 52, ensures continuity, the company said yesterday.
Kallasvuo said it is too early for him to comment on strategy, but he made it clear he thinks that Nokia needs to lead industry trends.
Since Kallasvuo became head of Nokia's mobile-phones division in early 2004, he has shown a flair for product mix, improving its handset portfolio. But he has had to cut prices to fend off a determined challenge from Motorola Inc. and other phone makers, hurting profit margins. Kallasvuo also is praised by colleagues and investors for spotting early the sudden surge in demand from emerging markets for inexpensive handsets, an area where Motorola has been striving to catch up with Nokia.
Recently the close-knit management team that worked with Ollila for more than a decade has begun to unravel. Kallasvuo is one of the last remaining members of the small group of Finnish executives that have worked alongside Ollila since 1992. Pekka Ala-Pietila, Nokia's president and a confidant of Ollila, said yesterday he plans to leave Nokia in February.
Nokia said Ollila, whose contract expires next year, is to be nominated for the role of non-executive chairman at the next annual general meeting.
Ollila said at a news conference that he told the board in January that he wished to step down as chief executive in 2006 so he could pursue other interests.
"I am sure that the Nokia organization would benefit also from a bit of change at this level," he said. Ollila said he told the board in 2001 that he would like to step down in 2003, but the board put him under pressure to sign another contract until 2006.
After stellar growth in the 1990s, Nokia has seen its revenue shrink for the past three years as the cell phone market has matured in Europe and the United States. While demand for cell phones in emerging markets is booming, people in those countries cannot typically afford the more expensive models, putting pressure on Nokia's prices and revenue.
"Our competitors are getting better and louder," Kallasvuo said at the news conference. "Nokia needs to lead the change in our industry."
Last year, Nokia's revenue fell 1 percent, to $39.65 billion, while net profit fell 11 percent, to $4.35 billion. In the first half of this year, Nokia's sales were up 21 percent and its net profit up 17 percent from a year earlier, but Ollila warned in July that the profit margins in its mobile-phone division are shrinking because of mounting price competition.
Nokia also was slow to react to the 2003 and 2004 boom in demand for clamshell handsets with sharp color screens, allowing rivals Motorola, of Schaumburg, Ill., and Samsung Electronics Co. of Seoul to win market share.
In the past year, Motorola also has scored some big successes, especially with the slim-line Razr phone.
Ollila helped give cell phones mass-market appeal by ensuring Nokia was quick to adopt digital transmission technologies that allow handsets to be made smaller and with longer battery lives. Nokia also was quicker than rivals to grasp that cell phones would become fashion accessories.
As a result, some observers include Ollila among a small group of leading technology industry visionaries. Ollila also has outlasted most of his peers in the telecommunications industry, many of whom were fired when the late 1990s bubble burst in 2001.
In the United States, Nokia's market share has been sliding. The company has not maintained a strong presence in the handset portfolio of some leading service providers, such as Verizon Wireless, a joint venture between Verizon Communications Inc. of New York and Vodafone Group PLC of Newbury, England. Kallasvuo headed Nokia's North American business in 1997 and 1998.
Ollila, a wine buff and avid tennis player, is regarded by Nokia employees as a forceful and charismatic manager who takes a close interest in his employees' careers. But executives at some cell phone service providers -- Nokia's chief customers -- say they occasionally found Ollila abrasive. Kallasvuo is seen by Nokia employees as more low-key and less confrontational than Ollila.
Nokia said it will announce a new head for its mobile-phones division later in the summer. Kallasvuo will become chief operating officer in October until he takes over from Ollila in June. Ollila said his tenure as non-executive chairman will be for a limited period, but he plans to continue working for an additional 10 years. He did not specify what he plans to do next.
Kallasvuo may set more realistic goals for Nokia than Ollila, said Ben Wood, an analyst with technology research firm Gartner Inc. Ollila said late last year that Nokia is aiming for a global market share of 40 percent and operating profit margins of 17 percent in its cell phone divisions. "You can have one, but you can't have both," Wood said. In the second quarter, Nokia's market share was 32 percent and its margin in its mobile-phone division was 16 percent.