vertu’s demise...mobile phones for the ultra-wealthy. its handsets – precision engineered and...

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UPFRONT 26 V ertu was established in 1998 by Nokia to produce premium mobile phones for the ultra-wealthy. Its handsets – precision engineered and handmade with superior materials – ranged from $6,000 to well over $60,000. “Vertu was a heady mix of technology, design and telephony services,” says Mark Izatt, who oversaw global marketing for the company. Nineteen years and three owners later, in July of this year, Vertu wound up and entered liquidation. For nearly two decades, Vertu phones were made in a nondescript facility in rural Hampshire, in southern England. As liquidators pick at the company’s remains, the factory floor that once hummed with the labour of artisans lies empty. The company was smothered by years of mismanagement, fierce competition from smartphone manufacturers and high production costs. In the end, impeccable design failed to compensate for the limited functionality of its phones. But with more than 1,000 employees by 2012 and around 500,000 phones sold, Vertu has been the most successful attempt to date to capture the upper echelons of the mobile phone market. And for its many admirers, Vertu’s rise and fall is a cautionary tale. “Vertu was created when Nokia was in its heyday, with a 40 per cent market share around the world,” says Ben Wood, chief of research at CCS Insight, a market intelligence firm. The intention of its designers was to produce phones in the vein of Swiss watches. “If you had nice cars and nice watches, a Vertu phone was a nice companion product,” said Wood. Craftsmen worked with ceramic and the skin of alligators and ostriches. Rubies accentuated the keys. Vertu’s scratchproof screens were made with Hampshire-grown sapphire crystals. (Despite Apple’s best efforts, Vertu remains the only manufacturer to achieve this.) At $50,000, the Signature Clous de Paris phone featured black sapphire keys and 18 carat red gold. Other handsets were designed in partnership with Ferrari and Bentley. A private commission, Vertu’s most expensive phone sold for around $388,000. Nevertheless, the company prioritised quality, authenticity and service, rather than bling. With a dedicated concierge service, Vertu customers could book hotels, Charlie Mitchell examines the rise and fall of the luxury handset maker Vertu’s demise PF_102017.P26-29_Upfront_Vertu.indd 26 9/19/17 4:47 PM

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Page 1: Vertu’s demise...mobile phones for the ultra-wealthy. Its handsets – precision engineered and handmade with superior materials – ranged from $6,000 to well over $60,000. “Vertu

UPFRONT

26 27

OCTOBER

ISSUE 142/ TECHNOLOGY

Vertu was established in 1998 by Nokia to produce premium mobile phones for

the ultra-wealthy. Its handsets – precision engineered and handmade with superior materials – ranged from $6,000 to well over $60,000. “Vertu was a heady mix of technology, design and telephony services,” says Mark Izatt, who oversaw global marketing for the company. Nineteen years and three owners later, in July of this year, Vertu wound up and entered liquidation.

For nearly two decades, Vertu phones were made in a nondescript facility in rural Hampshire, in southern England. As liquidators pick at the company’s remains, the factory floor that once hummed with the labour of artisans lies empty.

The company was smothered by years of mismanagement, fierce competition from smartphone manufacturers and high production costs. In the end, impeccable design failed to compensate for the limited functionality of its phones. But with more than 1,000 employees by 2012 and around 500,000 phones sold, Vertu has been the most successful attempt to date to

capture the upper echelons of the mobile phone market. And for its many admirers, Vertu’s rise and fall is a cautionary tale.

“Vertu was created when Nokia was in its heyday, with a 40 per cent market share around the world,” says Ben Wood, chief of research at CCS Insight, a market intelligence firm. The intention of its designers was to produce phones in the vein of Swiss watches. “If you had nice cars and nice watches, a Vertu phone was a nice companion product,” said Wood.

Craftsmen worked with ceramic and the skin of alligators and ostriches. Rubies accentuated the keys. Vertu’s scratchproof screens were made with Hampshire-grown sapphire crystals. (Despite Apple’s best efforts, Vertu remains the only manufacturer to achieve this.) At $50,000, the Signature Clous de Paris phone featured black sapphire keys and 18 carat red gold. Other handsets were designed in partnership with Ferrari and Bentley. A private commission, Vertu’s most expensive phone sold for around $388,000.

Nevertheless, the company prioritised quality, authenticity and service, rather than bling. With a dedicated concierge service, Vertu customers could book hotels,

Charlie Mitchell examines the rise and fall of the luxury handset maker

Vertu’s demise

PF_102017.P26-29_Upfront_Vertu.indd 26 9/19/17 4:47 PM

Page 2: Vertu’s demise...mobile phones for the ultra-wealthy. Its handsets – precision engineered and handmade with superior materials – ranged from $6,000 to well over $60,000. “Vertu

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buy tickets and access private members’ clubs around the world. Pre-programmed ring tones were recorded by the London Symphony Orchestra. “The intention was to create something better, not just more expensive,” said Mark Hill, who spent a decade at Vertu in various senior roles.

Vertu emerged from the vision of former Nokia design chief Frank Nuovo. It was over breakfast in 1997 with eventual co-founder Peter Ashall in Santa Monica, California, that the company was born. Shortly thereafter, Vertu was funded by Nokia for the first round of development, and officially launched in Paris in 2002. Immediately the brand was disparaged for its extravagant prices.

“At first it was a horrible struggle,” says Nuovo. “It was a completely new market and people were used to subsidised phones.” Vertu phones were sold in just five shops globally on its launch, so customers proved elusive. Later, sales accelerated when Vertu partnered with luxury department stores like Harrods and Galeries Lafayette. “It took until year five to become profitable,” said Nuovo.

In those early years, Vertu experienced solid year-on-year growth, as the brand established itself as a status symbol in the rudimentary mobile phone

“At first it was a horrible struggle. It took until year five to become profitable”

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market. An exclusive customer base comprised footballers and celebrities. Record producer Quincy Jones and musician Seal both owned Vertu handsets. Internationally, the brand had started to take off, with demand strengthening in Russia, Brazil, China and the Middle East. Remarkably, the small Chinese city of Wenzhou had two Vertu stores. As Nokia dwindled, optimism was high among Vertu’s loyal workforce.

Then, in 2007, Apple released the iPhone. Still under Nokia’s ownership, Vertu was wedded to Symbian, the somewhat antiquated mobile operating system of its Finnish parent. Moreover in 2007, the functionality of Vertu handsets was limited to calls and texts. “There was analysis paralysis as they wrestled with Nokia, who insisted they use Symbian,” said Wood. As the mobile phone market shifted and the smartphone established dominance, Vertu was torpid. “The failure of Nokia and its operating system became the failure of Vertu,” said Nuovo.

In 2012, with Nokia walking wounded, the business was sold for around €200 million to EQT, a Swedish private equity group. Dismayed, Frank Nuovo left the company he had created. Though fans of the brand, the new owners had little experience with small companies. “What was needed was an increase in the top line and in the customer base,” said Hill. “That’s a very different philosophy from going in and making the business leaner.” By the time Vertu installed Android technology in 2013, it was already struggling.

Two years later, the business changed hands again when it was bought by the Chinese firm

Godin Holdings. After failing to file its accounts in 2015, Vertu was rumoured to be on the verge of administration. Its most recent accounts, from 2014, showed losses of $69 million on sales of $142 million. PwC, which was auditing the firm, resigned in April 2016. Seven months later some 200 workers were laid off as part

of a major restructuring. In March 2017, the business

was sold for $65 million to Baferton Ltd, a Cyprus-registered vehicle under the ownership of Murat Hakan Uzan. A Paris-based Turkish exile – once sued by US president Donald Trump – Uzan acquired an accounting deficit of $166 million. After

“BMW owns Rolls-Royce. Volkswagen owns Bentley… you need a substantial company behind you to keep up with the technology”

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the manufacturing arm entered administration, his plan to buy back the business for $2.4 million failed. Vertu entered liquidation in July with $596,000 of unpaid wages and a $672,000 hole in the pension pot. (A subsequent auction of Vertu assets in August allowed liquidators to cover unpaid wages.) Total debts stood at $52 million.

At Vertu’s core lay a conflict between luxury and technology; or longevity and regeneration. Under Nokia, handsets were technologically limited. After

2012, Vertu became smartphone-obsessed, trying to compete with tech giants Samsung and Apple. “They were never going to win that race,” said Izatt.

“BMW owns Rolls-Royce. Volkswagen owns Bentley. Fiat owns Ferrari,” said Nuovo. “You need a substantial company behind you to keep up with the technology.” Also, manufacturing, development and marketing are exorbitant if you want to be seen as a truly luxury brand.

The company’s decline in China – one of its largest markets

– sealed its fate. Sales dried up in the country after 2014, following a government clampdown on bribery. Vertu phones were a status symbol in China, where they had greased palms for years.

In spite of its demise, Vertu leaves an impressive legacy. “In the luxury smartphone space, Vertu was the only one that established a critical mass and a brand,” said Wood. Its emphasis on high-quality materials and techniques is recognisable today in the marketing strategies of Apple, which hired two sapphire specialists and marketing guru Bob Borchers from Vertu.

With around 1.5 billion smartphones sold annually, various companies including Mobiado and Goldvish are making premium handsets. In May 2016 amid much fanfare, Israeli firm Sirin Labs launched the $16,000 Solarin phone, which features military-grade cybersecurity. But sales have been lacklustre.

Sirin is still determined to carve out a market, despite laying off a third of its workforce in March. “We have an ultra-niche product targeted to a unique audience base,” said CMO Nimrod May. Perhaps Sirin and others can learn from Vertu’s demise. “We are not happy to see a colleague decline,” said May.

Uzan still owns the brand, technology and design licences, and could potentially resurrect Vertu. Meanwhile, nostalgic former employees remain wedded to their vision and embittered by years of bling-shaming. “Vertu was about bringing together the old world and the new world and doing it with pride,” said Nuovo. “It was never about diamonds.”

STILL AIMING HIGH Despite the demise of Vertu, there are other luxury mobile phone manufacturers, including Goldvish, which has a number of models on the market for eye-watering prices. The Eclipse Diamond Heaven costs $39,000 and is made of alligator leather and features 360 diamonds set in stainless steel. It has 64GB of storage and comes with the latest Android OS. This is a phone to show off, and so don’t expect to get any questions on its performance, not when its looks are so striking. For those who want to spend a bit less, Goldvish’s models start at around $6,000.

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