Nokia vs Ericsson Risk Discovery

|Risk discovery and recovery: Nokia v. Ericsson |

At 8pm on Friday, March 17th, 2000, a lightning bolt hit an electric line in New Mexico and, somehow, resulted in a fire at the Philips NV’s semiconductor plant in Albuquerque. While the sprinkler system extinguished the fire in less than 10 minutes, it also destroyed the clean room during that process, and with it, millions of cell phone chips that were destined for its two largest customers, Nokia and Ericsson. But how the two companies responded to the crisis couldn’t have been more different.

At Nokia, computer screens indicated delays of shipments from some Philips chips even before Philips called Nokia’s chief component-purchasing manager Tapio Markki on Monday, March 20th. Philips said the fire impacted some 4 million handsets and that there would be a one week delay. Given that it was about to introduce a new generation of cell phones based on the Philips chips, Nokia decided to further look into the issue and offered to fly two Nokia engineers to Albuquerque to help with the recovery. Philips declined the offer and said on March 31, two weeks after the fire, that they would need more weeks to repair the plant, and that several months worth of chip supplies could be disrupted.

Nokia went into textbook crisis management mode. Of the five parts, two were indispensable: one was made by various suppliers around the globe, while the other one was an application specific integrated circuit (ASIC) made only by Philips. A Nokia team, headed by current chairman Ollila, flew to Philips’ headquarters in Amsterdam and spoke directly with Philips’ CEO, Cor Boonstra, in an attempt to find alternate supply. Nokia demanded capacity information about all Philips plants and insisted on rerouting the capacity. “The goal was simple: For a little period of time, Philips and Nokia would operate as one company regarding these components,”...