So, the CEO announces the end of the operating system and the shift to the new rival operating system. But when he does so, it is nearly a year to when the first phones on the new system will be available. Wot? Wouldn't that be the act of a madman, a lunatic? You might think so, I could not possibly comment (quoting fictional UK Prime Minister Francis Urquehart of the BBC TV series House of Cards).
I have been pondering that timing. Not the decision. I have said many times I think on the surface of it, the decision by Nokia to abandon Symbian and its MeeGo migration strategy only weeks from when the first MeeGo phone was to launch and after Symbian's first ever honest iPhone clone N8 was tearing up the sales charts - that was clearly a boneheaded move - on the surface of the parts we could see. But nobody is that stupid. There must be much more to the decision, things we cannot see (yet) and time will tell if the Microsoft gamble turns out to be a big winner (increasingly unlikely but is still possible, or shall we say, plausible haha)
This blog is not about whether Elop's decision to switch suddenly to Microsoft is the right decision. This blog is about the bizarre timing of the announcement. And all of the analysis in this blog is pure conjecture, is my reasoning, with me pretending to be Sherlock Holmes and trying to piece together a picture knowing I do not have all pieces to the puzzle. But the timing is so very odd.
I just wrote the blog about the dire state of Nokia this year. They just annouced a profit warning. I projected in February, only days after Elop's famous Microsoft announcement, what would happen to Nokia market shares, average sales prices, total revenues and profits this year. That picture was very sad, but I wrote back then that it was the best case scenario, where I was trying to see the best in the opportunity. Many felt that blog was very severe and that I was too harsh on Nokia. Now we have official Nokia numbers and they are indeed far worse than even I could forecast. Nokia is having its worst year ever and is certainly setting the world record for self-inflicted market share suicide.
This blog is not about that either. This is about the timing in February. You see, the weird part is, that Nokia is in trouble now - explicitly because Stephen Elop had to open up his mouth on February 11.
He had absolutely no business reason to do so! His first Microsoft phones on the original time table were not due until early 2012 (as articulated by Nokia Chairman Jorma Ollila at the time) and even in the new accelerated delivery schedule, the first Microsoft powered Nokia smartphone will appear in Q4. And when Nokia says Q4 it means end of December, not beginning of October (assuming the phone is not delayed. Almost all announced phones by Nokia recently have had delays from the annouced earliest date - the N8 was delayed by more than a year).
So if Nokia and Stephen Elop did make the Microsoft selection on February 10 as legend currently has it (some think it was decided months earlier, possibly as early as Elop's hiring decision by the Nokia Board) then Nokia was under absolutely no obligation of any kind to immediately publicize the decision then and there.
Nokia knew at the time, that they would not deploy on the then-current version of the Microsoft Phone 7 operating system. Nokia would wait for the next version, due in summer or autumn of 2011. That meant that Nokia's first Microsoft powered smartphones could not be sold until close to the end of the year at the very earliest. Nokia knew this in February.
Nokia also knew that the announcement would instantly damage Nokia's Symbian based smartphone sales, catastrophically. In some markets, some operators have pulled all Nokia Symbian phones from the shelves altogether. This was all predictable, I was not the only one saying this almost instantly after the announcement was made on February 11.
A 'smart' CEO would have waited until perhaps October, when the first new Microsoft Phone 7 powered Nokia phones were in prototype stage, to announce the Microsoft partnership. This way the current Nokia Symbian smartphone sales would have proceeded very 'normally' from February through October, and the damage would only have come few weeks or maybe months before the replacement phones were available. That is the textbook basic management standard way to do this. This is not rocket science.
WHY DID HE RUSH IT
Stephen Elop clearly rushed the announcement. I am not talking about the decision (which may also have been rushed, we don't know). But if the first phones come in Q4 or Q1, close to a year later, and he insists on announcing in February - knowing full well this will destroy the sales of his only cash cow - Nokia's smartphones counted for only about a third of Nokia's revenues but about 85% of profits at the time - then yes, this was a deliberate, contemplated and purposeful early announcement of something to happen much later.
Why? That has been on my mind for a while, and I have some hypotheses. I wasn't sure if I'd bother to blog about them but as I had to blog about the sudden Profit Warning, then this becomes quite relevant.
Because the only reason why Nokia's market share is in total crash-dive (as is Nokia's average sales prices and revenues and profits) is that timing of the Microsoft announcement. That Stephen Elop had to open his mouth on that fateful February day. If he had remained quiet about this, Nokia's market share would be on its normal trajectory.
How costly was that press conference. I am not talking about market cap or Nokia shareholder wealth (Nokia share prices have fallen about 45% since that February 11 event). No. I mean how much is Nokia voluntarily, willfully, now abandoning its most loyal, highest-paying smartphone customers - gifted to its rivals. This is gonna hurt.
I counted on February 16, in a blog of deep market share analysis, that the total value of the "Nokia Smartphone Customer Give-Away Bonanza" this year, at about 50 million abandoned smartphone unit sales would be worth 14.6 Billion dollars in annual revenues. How big is that? 50 million is bigger than Apple total smartphone sales of last year, and in dollar terms, 16.4 Billion is equivalent to the total annual sales of all of RIM ie all Blackberry sales globally. This is the size of Stephen Elop's timing decision. Or should I call it his timing error (You might say that, I could not possibly comment.)
But gosh. He could have waited to announce near the end of the year. Microsoft is a big company, it wouldn't have vanished in the interim. Steve Ballmer is Stephen Elop's former boss and buddy - and Microsoft desperately WANTED Nokia to join the Windows Phone 7 family. He would understand if Elop said, I'll keep this quiet until we're ready to show the first prototype phones... (not to mention, a good leverage tactic to ensure Microsoft stays on schedule..)
So. He could have waited. And Nokia would not be currently in desperate market share nose-dive so bad, it issued a Profit Warning! Nokia's handset unit has never made a loss. Not one quarter (Nokia the corporation has made losses, but never the handset unit). Now his decision causes the most profitable unit of Nokia to go into the red? And voluntarily hand over 50 million of Nokia's best, highest-paying premium customers to Apple, Samsung, Blackberry, HTC, SonyEricsson etc... The Elop timing (mistake) cost Nokia 14.6 Billion dollars this year. Few CEO's get the luxury of making errors of truly gargantuan size...
And note, those 50 million lost customers are gone forever, not just for this year. They are truly gifted to the rivals. How big is that? If you add all the smartphone sales of SonyEricsson last year, and add all the smartphones sold by HTC, and add all the smartphones sold by Motorola - combined. That is still less than what Stephen Elop's timing now cost Nokia. Think about that for a moment. The 14.6 Billion is nearly big enough to get you into the Fortune 500.. And if Elop had been quiet, that money and market share had stayed with Nokia. They'd be happily reporting strong smartphone sales and profits now, not vanishing customers and disappearing profits.
One last point on that. My calculation was on my 'best case' scenario for Nokia. It has since been proven too rosy, the reality is far worse for Nokia. So the real damage is maybe 60 million customers lost or more, and the lost revenues closer to 17 Billion dollars etc... But I am not now going to try to re-calculate those numbers. We'll know soon enough this year as the facts are revealed in the quarterly results for the industry players.
WHY OH WHY? PAGING SHERLOCK HOLMES
Lets play detective. Lets try process of elimination to try to find the answer. Here are what I think are the most obvious alternate reasons why he rushed his decision. Lets assume he did not do it because he's an idiot. You might think that, I could not possibly comment.
So what possible cause? Could it be Microsoft? Is it possible that Microsoft somehow insisted? Not possible. Microsoft needed Nokia, Nokia did not need Microsoft. Microsoft had to pay Nokia billions just to join. Nokia was also closely wooed by Google to join the Android family, which would have given Elop a lot of leverage. He also had his Symbian OS which was showing far better competitiveness by February than the tremendously underwhelming Microsoft Phone 7 operating system (which is selling so badly that it is still even outsold by the obsolete Microsoft Windows Mobile system which has been discontinued). And Elop had the partnership with Intel to make the MeeGo operating system. So it was Microsoft who desperately needed Nokia to come to save the endangered Microsoft smartphone operating system venture, not the other way around.
If the story was leaked at some point, Nokia could always respond with 'no comment' until it was time to announce. A 'public secret' that Nokia would soon shift to Microsoft would have a far smaller effect on any current Symbian based Nokia sales than the February official announcement did.
Could it be the Investors and/or Wall Street? That does not explain February. The Nokia share price had stopped its downward trend and started to pick up a gradual upward direction. Stephen Elop was the new CEO and Nokia was under bad times, but starting to do a bit better. If the share price had been in free-fall then maybe. But no, nothing dramatic, on the contrary.
Could it be Jorma Ollila or the Board? Ollila definitely would see almost instantly that this announcement would damage Nokia's 2011 performance, quite severely. And he'd been under pressure by the investors to fix Nokia's profitability problems and share price - this would obviously hurt both and that was easily predictable to anyone who had worked in the mobile phone handset business for many years (or decades as in the case of Ollila). If anything, he would be cautioning to delay the announcement. To me it seems far more likely that Ollila and the Board were consulted on the Microsoft decision part, but Elop didn't tell them he'd announce it the next day. They knew the decision yes, but probably the timing of the announcement was a total surprise to the Board (to which Elop could say, it didn't occur to him to even mention it..)
Could it be his ego? Stephen Elop and the Noki-Soft Micro-Kia buzz did suck the oxygen out of the Mobile World Congress that was about to begin in Barcelona. He had a lot of face time with big execs of the industry and was a lot in the press. But that would happen in any case when the Microsoft deal would be announced. Elop was already a highly desired Nokia spokesperson, easily on TV and the press almost as much as he'd want - far more so than in his previous job as a senior exec at Microsoft in the shadow of Steve Ballmer and Bill Gates. I cannot see him making this massively expensive an (error) just to get more visibility than what his new Nokia top job was already providing.
Conspiracy Theory? What of the gossip that this is a cunning plan to plant Elop into Nokia, to deviously do all the damage he could, so Nokia's price would crash and he'd be able to sell Nokia to his former masters, Microsoft at a bargain price. Its a nice conspiracy theory yes. But first, the steps he did in 2010 didn't exactly sit in that pattern (remember, Nokia's share price was slightly growing by February). He could have sabotaged Nokia quite effectively in smaller steps along the way from many months earlier, rather than in this one, monsterously visible (error).
If there is a corporate take-over of Nokia by Microsoft in say the next 18 months or so, with a vastly discounted Nokia share price - then I am pretty sure there are FCC regulations that kick in, and the behavior of the 'ex Microsoft' new Nokia CEO would come under exceptional scrutiny no doubt. And any collusion in deliberately sabotaging the stock price of a publically traded company, I do believe there are insider trading laws about that, and all kinds of rules about stock price manipulation etc. And that explicitly the executive in charge of a corporation is prohibited from such actions.. But I am not a lawyer nor an investment banker haha..
WHY OH WHY, TELL ME WHY
What can it be then? I would welcome any theories by you, my readers. Honestly, please add your comments here, if I think its really valid, I'll add it to this blog story with reference to you. But yes, lets go to my thinking. Clearly Stephen Elop knew he didn't have to announce on February 11, and he could have waited until say October or November and save 'his' company billions of dollars. And that his rush to announce decimate Nokia's market share as well as its brand and share price. So he had to do it - deliberately - and - inspite of the costs involved.
He knew what he was doing, and something was so compelling that he felt he had to announce then and there, in February, rather than wait.
So my theory. Hang on, this is a bit convoluted. Lets first assume its reasonably fair that the replacement of Symbian was part of the deal to get Elop, that he negotiated as part of his management freedom to save Nokia, when he joined the company and negotiated with the Board about his terms. We know Anssi Vanjoki was also in those negotiations as a rival candidate for CEO and at least judging by all that Anssi has said and done in public, he would have insisted on keeping Symbian.
We also know that late in 2010 Elop did negotiate with the other operating system providers. RIM had said no. Google and Microsoft had wanted Nokia and both had negotiated at length from at least in December. We can guess that Nokia had also approached Apple who would have of course said no.
So its very clear that Elop has a 'mandate' to kill Symbian (and its fair to say, he also had the right to kill MeeGo - probably at his discretion - because one of his first decisions was to postpone the nearly-ready first MeeGo device - that caused MeeGo's then-boss to resign in protest. And then in early 2011 he killed the first MeeGo phone - causing the then-boss of MeeGo at Nokia to resign also in protest).
Remember what I wrote on February 14 about how Nokia got to that point, the hiring of Elop was not about Symbian or Microsoft, it was about Nokia profitability and share price (and to some degree its USA presence) not about Symbian. Symbian was one little detail in a far bigger picture for Nokia's Board at the time.
A NEW HOPE
So the signs to me are very clear, that Nokia's new CEO Stephen Elop has the right to kill Symbian. He dutifully proceeds to interview the candidates and makes his decision (or recommendation to the Board) to go with Microsoft. So far so good, the facts bear this out. But why the date of February 11? Why the outrageous rush. The decision was made the night before - and Elop famously called the CEO of Intel (co-developer of MeeGo and Nokia's 'strategic partner') only the night before to inform him that Nokia was abandoning Intel and MeeGo and going with Intel rival Microsoft instead. No wonder the Intel CEO was steamed after the call..
We know from the timing that Elop deliberately did not want to make the announcement earlier (and bring the decision earlier) so as to not damage the single best selling season in the world's biggest phone market and one of Nokia's best markets, China. The backlash in China now is indicating just how hard the Chinese feel they were duped into buying obsolete Symbian phones in late January and early February. That was a calculated move.
So what is so 'important' that he cannot wait until October? It cannot be the networks unit or Navteq, these were not significantly impacted by the timing or the announcement even. It cannot be the dumbphones unit either, while it is suffering from the decision, the effects are similar, but far more mild than the effects at the smartphones unit.
This helps narrow the likely answer. So if its smartphones, what is related to Feb 11? Selection of Microsoft (no real immediate Nokia impacts) means end of Symbian and end of MeeGo with related staff layoffs etc. A-ha..
I think Elop's own behavior gives clues also which is the relevant point here. He had campaigned actively to sabotage MeeGo from the very first actions he took at the Nokia helm. So he did not need February 11 to terminate MeeGo, he had been doing it already with the operating system delays, the handset delays, the first handset cancellation etc. Elop didn't need to so anthing on Feb 11, to end the Nokia involvement with MeeGo. No, it is likely the other one. Symbian.
He had to announce Feb 11, because of Symbian.
What had happened very recently that didn't exist when he was hired, that now was so critical to Elop? Remember, Elop was so convinced when he was hired last summer, that Symbian was so obsolete and useless, Elop was given permission to end the whole operating system. It was part of his employment contract. That is how deeply Elop believed last summer that Symbian was a critical factor preventing Nokia's return to success. Elop honestly believed so strongly that Symbian is a key barrier to Nokia's success - that Elop (not the Board) insisted Symbian's death must be put in writing into his contract.
And he made it his top priority. Stephen Elop had personally been engaged in at least two months of negotiations to pick Symbian's replacement. This is his first major action as boss (resulting in the layoffs of 7,000 Nokia employees - it is a very big act by the new incoming CEO). He was utterly committed to ending Symbian. And he authored that ridiculous error-filled memo 'Burning Platforms' to help set the Nokia operating systems on fire, and get his decision moving internally.
So, could he have waited till October. Of course. He could have fired those 7,000 people in October just as easily and written pretty prose about burning oil platforms at that time just as well. Now, why didn't he? What has changed between summer of 2010 and February 2011?
I think it is the Board's commitment to end Symbian...
I think Elop was afraid, if he didn't announce Microsoft on February 11, he would soon have to keep Symbian.
I think Stephen Elop placed his personal preference and choice ahead of the good management decision favorable to Nokia.
In the summer of 2010 when Elop was being headhunted for the CEO job, Nokia's latest Symbian version was honestly, accurately described and tested as clumsy and very poor in its touch-screen use. Symbian developers themselves were making apologies about how bad it was. Anssi Vanjoki took the extraordinary step of apologizing in public on Nokia's behalf about it. The smartphones using Symbian, most notoriously the then-current flagship, N97 - were not anywhere near the class of the iPhone or the Android phones. That is his first real experience of Symbian and based on which he decides Symbian has no place in Nokia's future. Remember, it is not necessarily the Nokia Board's view, they were also interviewing Anssi Vanjoki, a strong proponent of Symbian, its future evolution and the migration path to MeeGo.
Remember in the summer of 2010 the N8 was once again delayed. That was to be the first phone with the new Symbian S^3 operating system. So Elop didn't get to see the new Symbian in its real form yet, when Elop decided Symbian was to die.
The pundit and analyst consensus view in the summer of 2010 was that Symbian was hopelessly outdated, comprehensively outclassed, and it could not be salvaged and its time had come and gone. For anyone outside Nokia, coming in with 'fresh' views, it is easy to believe that, and to dismiss any Nokia defenses of Symbian as unreasonable nostalgia.
RETURN OF THE JEDI
Symbian S^3 finally shipped in Q4 on the N8 and then on three other smartphones by Christmas with more in January including the E7. And contrary to what almost all expected, Symbian S^3 is very competitive and user-friendly and close to being on par with Android (nothing is as good as Apple's iPhone obviously) and S^3 dramatically outperformed other touch-screen OS's like Blackberry and Microsoft Windows Mobile and Samsung's bada. There are very many tech reviews in Europe and Asia which rate the S^3 very highly and find it completely modern.
This was not supposed to happen. It was supposed to be so hopelessly outdated that it was impossible to get anything useful out of Symbian anymore. Yet it now in late December in early units and now in January and early February was winning customers over to it en masse. Nokia had several hit phones riding on S^3, so much so, that the N8 reversed Nokia's chronic decline in average sales prices - and turned Nokia's smartphone average sales price to growth in Q4. Driven by the new hit phone N8. Powered by that darn Symbian S^3. And coming up in Q1 were more hit phones to run that same S^3.
This is not conjecture. This is fact. Nokia's Symbian S^3 is a very competitive operating system and in the N8, according to many neutral reviewers, Nokia has its first-ever viable iPhone-rival in the iPhone clone form factor (but at a lower price). And then coming for Q1 was what seemed like Nokia's first iPhone killer (potentially) the 'superphone' in the E7.
What was disaster for Nokia smartphones when Elop was hired, in Q3, turns out a radical turn-around and a legitimate hit product - the N8 - as Nokia's then-flagship - running the suddenly competitive Symbian S^3 - to be followed up by an even more expensive new flagship, the E7, on that same S^3.
That is what happened. And no doubt, he saw the numbers from the January sales - led by awesome Nokia success in China (again, led by N8 and E7).
EMPIRE STRIKES BACK
I honestly do not know. It is honestly conjecture. This is mere hypothesis. But the only reason I can see, why Elop had to rush to announce Microsoft on February 11, was, that he was afraid if he didn't do it then, his 'permission' to kill Symbian would be evoked, and he'd have to live with a Nokia running on Symbian for his tenure, rather than his beloved Microsoft.
So why was he afraid? Maybe he knew that the Board had some members who were wavering. Maybe some internal numbers were leaking. Maybe Jorma Ollila had signalled that there might be a change in that issue.
Or maybe it is sheer smart CEO instinct. Maybe he saw the internal numbers (January sales from especially China) and knew if he has a full 3 months of that kind of sales success for Symbian across all markets, Symbian will be seen too much of a recovery, a kind of Phoenix bird, arising from the ashes, that even with his mandate, he could no longer kill Symbian, for the facts would prevent it. He'd face a management revolt...
I do believe it is Elop's fear of the sudden return of Symbian, which threatened his preferred choice of going to Microsoft, which forced Elop to make his (very costly) announcement on February 11, damn the torpedos, full speed ahead. It is quite possible he didn't discuss this with most of his team even (that he'd announce on Feb 11).
We may never know. We may find out other data in the future that totally invalidates this thesis. But this is how I see it now, June 2nd, thinking about what transpired and pondering on that 'why'. Why that date? Why did Elop announce on February 11, when his first Microsoft phones were scheudled for Q1 of 2012 (at the time). Why didn't he wait until October or November to announce. A decision that cost not millions but literally 14.6 Billion dollars this year alone. And destroyed 45% of Nokia's shareholder value.
Is this the act of a smart CEO or is this the act of a madman? Is Stephen Elop a lunatic? You may well think so, I can not possibly comment.
And that brings us to part 3 of this trilogy. If you thought this was weird, what about the CNBC interview our hero Stephen Elop gave yesterday? He said some strange things in that TV interview. So strange, that one might ask is Nokia CEO Stephen Elop delusional?