This is part 3 of my Form Book for the major smartphone rivals for this year 2012. I am proceeding in the order of how large the rivals are, starting with Samsung and Apple. Today we look at number 3 globally: Nokia. And the word for Nokia is 'Elopwatch' referring to Nokia's CEO Stephen Elop. He is a dead-man-walking as a CEO. The concept of an independent Nokia (as we know it now), run by Stephen Elop, will not exist at the end of 2012. One of four things will happen - Elop will be fired, or Nokia's smartphones unit will be sold, or all of Nokia will be sold and likely be split up into parts (which might leave the Nokia brand alive as a small entity but not run by Elop) or Nokia will be bought up by Microsoft (and Elop would run Nokia as a handset division of Microsoft).
Why do I say so? Its not because of Burning Platforms, the costliest management memo ever which replicated the Ratner Effect, nor is it because of the February 11 announcement of the Microsoft partnership by Elop when he had no phones to sell, which replicated the Osborne Effect. I have written that these two communication errors created an Elop Effect - self-inflicted wounds - where the issue was not of right or wrong strategy, it was management error in communication - which damaged Nokia severely. I calculated that in 2011 the size of the error in Elop Effect destroyed revenues as big as the size of the annual revenues of Oracle, and destroyed profits as big as those earned annually by Google; while the Elop Effect caused a world-record collapse of market share by any global company that had led its market, in one year, in any industry, ever. Nokia was as big as Apple iPhone and all Samsung smartphones - combined - before the Elop Effect. Now Apple and Samsung have both passed Nokia dropping Nokia to third biggest among smartphone makers.
The fall in market share was not because in 2011 suddenly Apple or Samsung released a dramatic new smartphone that took the world by storm. The iPhone was released in 2007 and the Samsung Galaxy in 2010. The Nokia fall was not because of manufacturing errors like the antennagate of the iPhone 4. The Nokia model line was not obsolete, the Nokia N8 won awards as one of the best smartphones of 2010 and even in December 2011 is still ranked one of the most desirable smarpthones worldwide (for example in China, the world's biggest smartphone market now that China passed the USA). Nokia released several advanced smartphones in 2011 including the E7, the X7 and the N9 that were all warmly received when launched and the N9 was actually considered by many as the best phone of the year.
The latest quarter for which we have global data is Q3 of 2011. And from the start of the year, before the Elop Effect, to the end of October, Nokia's market share in smartphones had crashed from 29% to 14% - this is literally a world record in market share destruction in one year, in any industry, ever. At the same time, Nokia's average sales prices collapsed, the marketing costs shot through the roof and Nokia's smartphone unit which had never in its decade-long history produced a loss, went from over 740 million dollars of profits per quarter to 175 million dollars of losses in Q3.
That all is water under the bridge. I am NOT attempting to say that Nokia should go back to Symbian. I am also not saying that Nokia had been perfect prior to Elop taking over. Nothing of the kind. I had been very critical here on this blog about Olli-Pekka Kallasvuo's management in particular his issues with execution and marketing. I wrote for example on this blog well before the Elop Effect, what is wrong with Nokia and how to fix it (issues of execution and marketing). So lets examine Nokia in 2012 and especially Lumia and the Elop style of management also beyond the smartphones unit. This is going to be a long blog, you may want to get a cup of coffee before we continue..
LUMIA WILL NOT RESCUE NOKIA
Lumia is the new name for the smartphones Nokia sells that use the Windows Phone OS. We have to wait until the end of January to get Nokia's quarterly results and its not even certain that Nokia dares to give us its Lumia sales breakdown. The early hopes were great for Nokia. We hear Nokia spokespeople say the sales are strong but won't give us specifics. A Nokia sales director went as far as to say that the youth are fed up with the iPhone and would switch to the Lumia instead.
The reality is horrendous. One survey found that in those countries where Nokia is launching Lumia, there is only 2% of the consumers willing to buy Lumia. If Nokia managed to sell 2% out of all of Europe (Lumia did not launch in most European countries yet) that would give Lumia a global market share of about 0.5%. If we assume that Microsoft manages as well in Q4 as it did in Q3 (when Windows Phone sales were collapsing worldwide), then the combined 'success' by all Nokia Lumia phones combined with all other Windows Phone sales by other Microsoft partners by Samsung, LG, HTC etc - would still net less than one percent market share for Microsoft Windows Phone in Q4. No wonder Ballmer is furious with his Windows Phone team and demoted his President of Windows Phone a few weeks ago.
The reality is likely to be worse. Another study from Britain by Mobile Please in mid-December found Lumia selling at 1% level for Christmas, up from a tiny fraction in November. The best market reporting was the Netherlands (smallest of the six big European launch countries for Lumia) where one carrier said Lumia had climbed to bestselling phone for December but hadn't been so in November or October. In Germany (four times bigger than the Netherlands) the biggest German carrier/operator doesn't find Lumia phones in the top 5 bestselling smartphones (which are of course iPhones and Galaxies). And just today we hear uSwitch Mobile Tracker out of the UK count that the Lumia 800 did not even end up in the Top 10 bestselling smartphones of the UK for the month of December. This inspite of enormous marketing push including customers receiving a free Xbox360 if they bought the Lumia. In fact no Nokia-branded smartphone, either Windows Phone based or Symbian based made it to the December ten best-selling phones of Britain. That means, that even during the month of December in Britain, Lumia did not match the lowly market research expectation of 2%, and for the full quarter (at least in Britain) Lumia will not even manage 1% of smartphones.
I reviewed the Lumia 800 when it was launched, saying that was a very ill-advised phone to release as the first Lumia phone, because it will be perceived as a flagship smartphone yet in its specs it is regressive to past Nokia flagship phones running Symbian and is totally outclassed by the N9. When the Lumia 800 is compared to the iPhone 4S or other contemporary top phones, it suffers instantly by almost every measure. This means that all the big marketing dollars that now go into bringing Nokia users to the stores to try the Lumia, will also be of course comparing it to the iPhone and Galaxy and HTC and SonyEricsson models and will abandon the Nokia brand and leave as a new Android or iPhone user. So the massive Nokia and Microsoft marketing blitz will end up benefiting Apple, Samsung, HTC etc. Again the UK sales data has the Samsung Galaxy S2, the iPhone 4S and the HTC Wildfire S as the three bestselling phones of the UK for Christmas.
There is no evidence that the Lumia is the bestselling phone in any of its early launch markets for the full Christmas quarter Q4, not even in the Netherlands, but there is plenty of evidence that the Lumia is severely failing in its early launch markets, and is bleeding market share to rival brands. This Christmas period is the most important quarter for smartphone sales in any year, and Lumia is failing it.
We will have the numbers at the end of January. But several analysts whose job it is to study the market and estimate unit sales, have all downgraded Lumia sales - nobody, not one, has upgraded Lumia sales estimates. The Lumia 800 is failing Nokia right now. Combined with the damage done by the Elop Effect to Symbian sales, and the lack of support Elop has given MeeGo and the N9 and N950, there is no good news for Nokia in Q4 smartphone sales.
The Nokia market share in smartphones will continue to fall and will be somewhere near 12% when Q4 results come out. The biggest collapse of a global-leader market share ever seen by any brand, under any circumstances including disasters like Exxon Valdez or BP oil spill, including manufacturing errors like Toyota brakes or Mercedes A-Series dangerous at any speed, and including management errors like the launch of New Coke by Coca Cola. Nokia went from growing unit sales, growing revenues, increasing average sales prices and giant jump in profits in Q4 of last year, when Nokia towered over Apple and Samsung and owned 29% of the global smartphone market, to about 12% of that market only a year later.
I keep asking my readers - can you think of any other global-leading brand in any industry that has destroyed so much of its market in only one year? This is a world record in management incompetence.
SPRING Q1 WILL NOT HELP LUMIA EITHER
Then we will hear lots of management propaganda coming from Elop's team, which is increasingly resorting to delusion (youth are tired of the iPhone?) to dirty tricks (sending Nokia and Microsoft employees to post aggressive comments at tech blogs who review the Lumia). But what happens in Q1?
The world's biggest smartphone country is now China. China has launched the N9 using MeeGo. They will launch the Lumia also. But not in time for Chinese New Year which this year 2012 happens on January 23. The Chinese are buying their gifts now, these next three weeks. This period just before Chinese New Year's is when 40% of all smartphones are sold in China. And Elop was not able to get the Lumia into this market? Not in a country where just a year ago Nokia sold over 70% of all smartphones and has had phenomenally deep and close carrier relationships here. So much so, that Nokia has been providing smartphones on China Mobile's proprietary 3G standard, TD-SCDMA.
And what does China Mobile say? They could have taken the Lumia 800 for China. No, they rather took the Nokia 801T - what is also a slate touch screen smartphone, by specs and size and price very similar to the Lumia 800, but optimized for China and.. running Symbian.
So then the second-biggest market? After China the second biggest smartphone market is the USA. Last year at this time we heard that Nokia had finally broken the long boycott of Nokia premium phones, and it was AT&T who wanted to launch the upcoming Nokia X7 and to subsidise the new Nokia flagship phone. AT&T was to be the global launch customer for that smartphone which runs Symbian.
Elop didn't want a US carrier return and Nokia sales success in America as much as he wanted to feed his own Ego, so he cancelled - yes, can you imagine the arrogance of Nokia CEO - after YEARS of fighting to get back to the US market - the new CEO cancels the contract and rather than take the stage with the CEO of AT&T, Elop wanted to be on stage with Ballmer instead at the world's biggest telecoms event in Barcelona last year in February.
So did Elop get AT&T to launch the Lumia 800 instead? No. We now have T-Mobile, which is the smallest of the four big US carriers (half in size of AT&T) to launch the Lumia line. And quite bizarrely, T-Mobile will do that with the lesser Nokia phone, the Lumia 710, a smartphone which seems cheap. This for the spring when the market is full of discounted top line phones. The Lumia 710 launch in the USA will not bring recovery for Nokia.
That is before we get the returns, which will hurt severely Nokia Q1 sales. First, every smartphone has returns, even the iPhone. And after Christmas, the time of returns is the biggest, because many phones are bought as gifts, and no matter what the gift-giver thinks of a given phone, the recepient might prefer another brand or model.
LUMIA RETURNS NIGHTMARE
This year 2011 the returns of any Nokia branded phone will be greater than ever before, because of the Elop Effect. For the Lumia it will be worse than for other Nokia because first of all, most who buy Lumia will be existing Nokia users. They have grown accustomed to a certain way of Nokia working, and will find the new OS different. Some will like it, others will not. The advantages of a new OS will be very quick to see, in the first hours and first days of use. The disadvantages come over the next weeks of use and will often be devastating, where a single difference between how 'Nokia always used to be' and this new Windows Nokia phone, will be so significant, that given customer will feel they have to return the phone.
That is before we look at such issues as the apps (far fewer apps on Windows Phone than on Symbian and Ovi, and many Windows Phone apps are quickly made clones that are not optimized so they are also not utilizing the abilities of the OS). That is before we look at the very poor specs of the Lumia 800, and the fact that many staples of Nokia phone features are now missing, often because Windows Phone does not support those features.
A perfect example of this buyer's remorse is the article at the Guardian where the writer had bought a Lumia 800 before Christmas in Britain, and was already returning it before the end of December.
I am not saying that Microsoft Windows Phone is somehow 'inherently bad'. It is not complete yet, even Microsoft admit that the software is not ready, it is being developed. Where most American consumers did not use smartphones before the iPhone came along (the North American view was still that obsolete view that smarthpones were only for business users, like the Blackberry), typical Europeans are on their 5th smartphone on average - and for most of them up to last year, that was tantamount to a Nokia Symbian smartphone. Its not saying Nokia and Symbian was somehow 'best' or even 'most user friendly' (something the iPhone obviously is) but it was most familiar. And those consumers will feel the Lumia using Windows Phone to be weird, its 'not like Nokia' and for many, that will be a reason to dislike it.
And where any smartphone will have returns, the return rate for the Lumia 800, because of poor specs, poor apps, weird user experience etc - will be higher than ever seen by Nokia. And that will be compounded by the bad press and bad word-of-mouth that Lumia 800 is getting. So many who even liked their Lumia, will see that friends don't approve. Showing the Lumia 800 will be a sign of stupidity by the consumer who will soon be ashamed and will want to return the phone. This is because the Lumia is not receiving any major endorsements in any tech press as a true flagship phone (exactly as I predicted). And that means that in any family there is the one tech geek uncle who points out that the Lumia failed in such-and-such comparison survey, etc
CARRIERS HATE MICROSOFT
But even that is not the end of Lumia. You could say that this is 'normal' for any new product launch. It won't be perfect, it will take time and we have to give Nokia, Microsoft, Windows Phone and Lumia time to roll out the smartphones into the major markets and the time to judge it will be at the end of 2012. That sounds reasonable. In fact, that is how I wrote about the Microsoft-Nokia partnership in February of 2011 when I gave my first view of its chances. I said it was a risky move, but it might pan out, and we would not know until end of 2012 at the earliest - if it could indeed work out for Nokia.
That will not happen. We now have enough information to know the Microsoft Windows Phone strategy is a dead end for Nokia. It cannot work out. Why is that? It wasn't that crazy Elop Effect or various other Elop blunders along the way. The Microsoft mirage was shattered by none other than Microsoft itself. Steve Ballmer went and bought Skype.
I have explained, time and again, that the handset market is not like the PC market. It is not like the home electronics market. In the mobile phone handset market it is the carriers who decide which brand wins and which brand loses - look no further than Micrsoft's Kin youth-oriented phones, killed by the carriers. The Kin brand was dead in six weeks. That is the power of the carriers, even when facing the world's biggest and richest software company of global reach, with synergies across so many other tech and youth brands like Xbox and Zune and Internet Exploder and Windows Mobile; and the PC Office and PC Windows. Six weeks!
I warned my readers in May that when Microsoft bought Skype, it would unleash a backlash from the carriers. I was right. We heard in June that two separate surveys of US reseller stores from Boston and San Francisco had found that the carriers had in fact put all Micrsoft based smartphones into a sales boycott. That has been a continuous problem reported for example by the New York Times still in December that both sales staff at Verizon and AT&T were 'refusing to sell Windows Phone devices to customers'. PC World told us that carriers, especially Verizon have a 'strained relationship' with Microsoft dating back to the botched Kin phone launch. Since the Skype purchase Microsoft based smartphone sales have utterly collapsed worldwide where Microsoft had 3% market share across both of its operating systems a year ago and less than 1% combined market share now.
The very latest news we have again just now in ZD Net on December 29, 2011, that Microsoft will not pay the sales commissions that others do, to sales staff (duh! No wonder their sales are not happening and no wonder the carriers continue to hate Microsoft with this kind of arrogance). Remember, just a year ago, Microsoft was powering about one in ten smartphones sold in the USA. Now when you go to a store, you will be hard-pressed to find any models at all. And that is not because the handset makers have stopped making newer models. Its because the carriers are punishing Microsoft (because of Skype).
I have explained it and argued it here on this blog till I was blue in the face. Some of my readers accept my reasoning, because I have in my past been employed both at several carriers, and at a handset manufacturer. I know the reality from both sides of that fence. But many refuse to listen. So now we don't need to take Tomi's word for it. The past General Manager of Windows Phone sales at Microsoft, Charlie Kindel says it about as plainly as it can be said. He not only confirms the point that the carriers - not the consumers - decide who wins in smartphone sales - but he says that Microsoft has rotten relationships with the carriers. And that recently, Microsoft has been making worse with the carrier relationships "Windows Phone raises its middle finger at mobile carriers". Kindel says Microsoft is pushing hard at carriers and this creates friction. Making bad relationships worse when that is what decides your sales? How idiotic sales management and channel management is this, the 'Microsoft way'? This is Evil Empire all over again.
THE DREAM THAT TURNED INTO NIGHTMARE
The Microsoft path for Nokia is a dead end. Lumia cannot save Nokia. The carriers have very long memories. It took them years to pardon Nokia from its previous transgression (the launch of the N-Gage gaming smartphone with its indendent app store). No matter what Nokia CEO Stephen Elop says or does this year, no matter what Microsoft CEO Steve Ballmer says or does this year, nothing will help recover Lumia this year. The carriers not only hate Elop for all the broken promises relating to the Elop Effect, Burning Platforms, Ovi store etc, they truly hate Microsoft for its Skype purchase. The single worst platform Nokia could acquire is Microsoft Windows Phone. Its not just like the platform was on fire when Nokia bought it, now we find that it is also radioactive, so the firemen cannot even go try to put out the fire. Anyone who gets in contact with the Microsoft platform will die of radiation poisoning. Thanks to Ballmer and his Skype purchase.
In February of last year, the Microsoft strategy was deemed highly risky. Since then the Nokia market share has crashed, as has the price of the Nokia share price. Since then we have learned that the early Lumia phones are not Wunderphones. The Windows Phone OS is nice, but its no iPhone-beater and no match for Android. The Microsoft ecosystem is growing nicely but its nowhere near 'the third ecosystem' and at best today could be called the sixth ecosystem (behind Symbian, Android, iOS, Blackberry and bada, perhaps tied or slightly ahead of Microsoft's older OS, Windows Mobile).
The carriers revolted against Microsoft and now even Ballmer admits the Windows Phone has failed - by replacing the head of his Windows Phone unit - and an ex-Microsoft exec admits the carriers hate Microsoft. And that ex-Microsoft manager acknowledges that even with Windows Phone last year, Microsoft kept making matters worse, as he put it, 'giving the finger' to the carriers. Meanwhile we have seen the next Lumia phone, Lumia 710 is also no Superphone. The biggest smartphone markets have spectacularly failed to allow the Lumia into their gift-giving season, China and USA selling Lumias only after the gfts are done. And in Europe we see the Lumia is failing miserably and will likely see nasty return rates.
There was a nice fairy tale told to us by the master Con-Man Stephen Elop who is great at convincing people. He promised us Nokia had a nice future with Microsoft and he forced his employees to abandon the paths they had built for a decade at Nokia. Now we find that what Elop claimed was burning - was not. We find that the platform he wanted Nokians to jump to - is itself not only on fire, but is so poisonous, it is radioactive and cannot survive. Meanwhile Nokia's platforms did not burn and even after Elop tried to set up many fires, the platforms still stubbornly stand proudly as the biggest ecosystem (by far).
If Nokia truly had 'no choice' and was forced to migrate to Microsoft, then perhaps what Elop is doing would make sense. Except that it is not. Nokia is still not only manufacturing new Symbian based smartphones - Nokia keeps introducing NEW smartphones that run on Symbian ! The Nokia family of operating systems is four OS's in production, one recently ended, and yet another new one being developed. There is S40 that powers five out of every 6 mobile phone handsets that Nokia manufactures (it is an OS for featurephones ie dumbphones). There is Symbian which even in Q4 will power at least four out of every 5 smartphones Nokia sells. Then the last part of 1 out of 5 Nokia branded smartphones is still split roughly in two. There is MeeGo on the N9 and N950 which may outsell the Lumia series using Microsoft Windows Phone. MeeGo is Linux Based. So too is the next OS that Nokia is developing to replace the S40 basic phone OS, called Meltemi. And there was Maemo, another Linux based OS that powered Nokia's N900 flagship. Of these six operating systems, the Nokia developer tools called Qt are compatible with S40, Symbian, Maemo, MeeGo and Meltemi. Yes. Nokia has developer tools that allow using one tool set to develop apps that will run on five separate OS platforms that Nokia has now or has made before, or will produce in the future. The reach of Qt today is over one billion handsets in use (ten times the reach of all Blackberry smartphones in use, or all iPhones or all Android smartphones in use).
The only OS that is not compatible with Qt is Windows Phone. Qt is even compatible with Android and future Blackberries. So the developer who programs using Qt has the theoretical reach of programing once, publishing several times to reach.. 70% of the installed base of smartphones - and next year about 75% of all new smartphone sold - AND reach a featurephone installed base that is .. TWICE AS BIG as all smarpthones of any brand and any operating system ever made (including Nokia's own smartphones).
What is wrong with this picture? Why is Elop not promoting the world's obvious first ecosystem? Why is he actively torpedoing the Qt environment, to the degree that Nokia's CTO resigned in protest.
Which brings me to MeeGo. Nokia has the hottest smartphone on the planet right now. Not the Lumia 800, but the Nokia N9, which you might find selling in such hotbed tech countries as .. Kazakhstan and Nigeria and New Zealand and Norway. The reviews of the handset are superbly glorious. The software of MeeGo is praised by many as being better than that on the iPhone - something few Nokia-watchers ever thought possible. The N9 and MeeGo utterly blow the doors off the Lumia 800 using Windows Phone. The only fault MeeGo and the N9 have is a modest app portfolio, because of the Elop Effect and Mr Elop's active destruction of the Nokia ecosystem and ignoring the Qt developer environment. For a CEO who says the battle is about ecosystems, that he is not supporting Qt is definitely one of the biggest crimes of any CEO running any company ever. But lets stick to MeeGo.
Now. Any reasonably sane CEO, who witnesses that his company has produced a HIGHLY DESIRABLE product, that is beating the most feared rival (the iPhone) in head-on comparisons - that is a high price and high profit product - would have to be mad not to sell that product in every country in every market on every carrier and every store. The chance of a global hit product is so rare in mobile (Motorola's Razr, Apple's iPhone) that Nokia has actually never had a global hit product. Here it is. The N9. Only a total moron would refuse to sell the N9 everywhere, while it is hot.
But wait. The N9 is a genuine Nokia product made in Nokia factories (the Lumia 800 is a Compal-manufactured phone made in Taiwan with only a Nokia badge stamped onto it). The N9 used genuine Nokia components, the Lumia 800 has components Nokia has never used before. The N9 using MeeGo is 100% compatible with Nokia developer tools Qt and the Ovi store and Nokia staples like the dual camera, and recent Nokia innovations like NFC (the Lumia 800 doesn't). The N9 was designed by Finnish smartphone engineers who have designed globally dominating smartphones that up to last year outsold the total global smartphone production of the iPhone and Samsung combined. The Lumia 800 is designed by US West Coast handset 'experts' who are best known for failed phone companies like Danger, Palm, Motorola, Compaq, HP and Microsoft's own Kin phones.
So. The sane CEO would run these two rivals side-by-side, wouldn't he (or she)? Sell the MeeGo based N9 in every market where it is desired (including every European country that launched the Lumia). Remember, the Lumia is not manufactured in Nokia factories! So this 'decision' would not be a 'choice' of one factory producing either Lumia or N9, it means rather - RATHER - that Nokia's factories, which are now on idle, at half-capacity - can be ramped up to use more of their idle capacity. There is no fight for components, the Lumia runs Qualcomm chips, the N9 runs on Texas Instruments chips etc. And there is no question of marketing costs - the N9 is already in full production and sold in 29 countries on five continents! Only a madman would refuse to sell the N9 in every market.
Especially, as the N9 is highly profitable and the Lumia is not. If the N9 would be released to every major Nokia market, the Nokia smarpthone unit would switch from making losses to making profits in the next full quarter! What is wrong with Elop? He is a madman in charge of Nokia
It gets worse. The N950 ! The N950 is the 'big brother' to the N9, it is the QWERTY variant to the N9. It is what the E7 was to the N8. There is a second, brand new, MeeGo based superphone, that Nokia is currently MANUFACTURING. But Elop refuses to let it be sold anywhere! It is only made in small quantities and given out to friends and developers. What kind of lunacy is this? Nokia has two - count them two - smartphones running the world's best smartphone OS - one developed by Nokia - takes not one penny more of devleopment time or resources - and one that doesn't cost one penny of a license fee (oh yeah, every Lumia phone costs Nokia a licence fee paid to Microsoft!). And Elop refuses to sell the N950 anywhere.
Any sane manager who replaces Elop, will study the numbers and instantly launch the N9 and N950 in every traditionally strong Nokia market. Then the new CEO will reverse the idiotic Elop announcement that Nokia will not offer more MeeGo based phones. And the new CEO will capture millions of sales of the N9 and N950 using MeeGo - and restore the full support of Nokia behind the Qt developer platform to draw new app development for MeeGo.
ELOP IS A CLOWN AS A MANAGER
So lets ignore his mistakes in the smartphone OS issues. That actually was not the biggest problem that Nokia faced when Elop was hired. The operating system is only one part of software with apps another big part (think maps). Software is only one part of the non-hardware part of a mobile phone handset experience (services usually being the bigger part, think Ovi store). But the hardware is the majority of any Nokia smartphone's value. The screen, camera, radio technologies, battery, CPU, memory etc. So even at the smartphone unit, all OS work would be a tiny minority of the total business unit's work, staff, costs, time and value. Yes, a very important part, but the OS is a tiny minority of what is a Nokia smartphone today.
Remember, beyond smartphones, Nokia has the dumbphones unit which makes more money and produced 5 out of every 6 handsets that Nokia sells today. And that unit is not touched by the Windows Phone OS. And beyond the handsets, there is NokiaSiemens Networks, the telecoms networking division where nearly half of Nokia's employees are working, and which delivers over a third of Nokia's total revenues. Then there is Navteq the navigation and mapping unit, etc.
Stephen Elop was hired to run Nokia Corporation, not only to migrate Nokia from Symbian and MeeGo to Windows Phone. The smartphone OS 'project' should reasonably take less than 1% of the total time that the CEO devoted of his available resources in 2011. But the Microsoft 'story' seems to have obsessed Elop and he can't wait to be on camera to talk about Microsoft (one of six OS's for Nokia phones).
ELOP WAS SUPPOSED TO FIX EXECUTION PROBLEMS (NOT MAKE THEM WORSE)
But all analysts of Nokia agreed in the summer of 2010 when Elop was being hired - that Nokia's biggest problem was in its excution. Management. The previous CEO, Olli-Pekka Kallasvuo had overseen a series of major catastrophies from the N97 flagship phone that was even admitted to be a failure, to the N8 which was literally a year behind schedule when it finally shipped in late 2010.
This was what Nokia Chairman Jorma Ollila said when Elop was announced as the new CEO. Ollila said that Elop brought a "proven record in change management." Elop himself echoed the same several times such as on January 3 Elop said "Nokia needs to change faster" on February 9 Elop wrote " We have some brilliant sources of innovation inside Nokia, but we are not bringing it to market fast enough" and on June 2 again the same theme, very clearly "Mismanagement - not a lack of innovation - is what ails this company." The consensus view of all major analysts of Nokia (including me on this blog frequently) was that fixing Nokia's execution problems was a primary need for the new CEO. Elop himself has consistently admitted to this need.
So lets examine the Elop style of Execution, if we ignore the Elop Effect silliness with Microsoft and the smartphone OS platforms. What of his real day job at Nokia, as CEO. The 99 percent. The Occupy Espoo project. The main job for which Elop should be evaluated. How well has he helped Nokia execute better?
AN AVALANCE OF FAILURE
The Naming-Numbering-Naming madness. Nokia had announced a naming convention to move away from pure numbers to names. That decision (by an ex Coca Cola Marketing boss no less) was 100% supported by marketing experts around the world. Elop decided that he knows better, and announced that rather than names, Nokia would go to only numbers. That decision achieved global condemnation and two months later the decision was reversed and now Nokia has both names (Lumia, Asha etc) and letters (801T) added to the numbers. Did this back-and-forth flip-flopping help or hurt Nokia execute in this diffucult year when the marketing messages are confused from Nokia to begin with?
The sales guys in America. Nokia had seen the North American salesforce fight heroically the hopeless battle and finally secure a top phone deal with a top US carrier, AT&T. Elop cancelled that contract. Did this help or hurt Nokia execution and did it help or hurt Nokia's reputation and credibility with all Nokia carrier relationships? Nokia's top USA sales President resigned in protest. You make the call. Is this smart management?
While we are on the USA, Elop could have hired anyone from the USA Nokia sales team to lead the USA sales effort. That sales staff was very well known and trusted by the USA carrier community and would have generated trust and respect. He didn't. The mobile phone handset industry is the most complex technology to sell, far more complex than airliners or rocket science etc. And it takes years to acquire working knowledge of a major handset provider's portfolio and recent sales history. You cannot put a total novice to sell a handset maker's portfolio to a major carrier like the big four in the USA. But that is what Elop did, he did not take any experienced Nokia internal sales people - he did not even hire an experienced sales manager from a handset maker like Motorola or LG or Samsung or RIM or Apple in North America. No, he hired a PC industry software sales dude who is ex Microsoft. Someone who has never sold a single mobile phone. Did this help or hurt the 'execution' of Nokia sales?
Talking of US phone sales. The Nokia USA HQ was based in New York, close to the HQ of Verizon. Did the new USA sales guy base himself there? No. Did he go to Dallas to Nokia's office there to be near AT&T? No. Did Nokia set up an office in Kansas near Sprint Nextel? No. The new sales guy whose customers are US carriers - was based in Seattle next to Steve Ballmer's office? Is this helping Nokia sell more handsets in America? Is this move away form being near the customers to being on the opposite side of a CONTINENT - to be smart management to help in 'execution' or is it the act of a clown? (For Europeans to underestand the context - its like placing your Scandinavian head of sales into the Scandinavian sales office based in Athens Greece. Or for my Asian friends, its as far as placing your Japan sales head into the Japan office based in Mumbai India. Sheer lunacy!)
A tablet? The project to develop a tablet PC makes perfect sense for any traditional PC maker like Apple or Samsung, where tablet PCs are manufactured and sold in similar ways to laptop PCs. But a smartphone is sold in totally different ways and the scale of tablets is trivial compared to smartphones. The efforts by pure handset makers to launch tablet PCs are an exercise in futility - witness Motorola and RIM. Sheer sheer madness. And what has 'my priority is execution' Elop been doing? Rather than help Nokia execute better - that is hard work, that is real management - he would rather put very valuable resources to explore a tablet project - which drains smartphone staff and software staff. This is yes, in the best interests of Microsoft but Elop is not the CEO of Microsoft. It is wanton mismanagement by Elop to allow his company to consider a tablet project while his company is plunged from generating big profits to generating big losses. Is this smart CEO management that focuses on 'execution' or is this Elop ignoring his job and rather doing the 'fun stuff' with his buddy Ballmer.
Ovi rebranding? What purpose did that serve to waste valuable marketing efforts this year, to abandon all the good will and results by Ovi branding - still in December CNN was promoting the CNN App on the Ovi store (not the 'Nokia store'). This is 'earned media' the best kind (not only is it free to Nokia, it is trusted more by the audience) - by not just a global media giant - a news organization which is far more trusted than other media giants. And Elop decides that his marketing team is not struggling enough, they now have to explain to confused journalists and developers, that Ovi will continue but the name is being phased out. Why? Is this helping in execution or hurting it. No wonder the Nokia brand fell out of the global Top 10 most valuable brands listing for the first time ever.
Nokia had a competitive advantage out of its scale. Nokia could squeeze the suppliers and get the lowest prices for bulk-discounts, and also get guaranteed 'best customer' delivery promises if there were shortages. This was achieved over two decades and had often saved Nokia where rivals complained of parts shortages. Then Elop decides that rather than use Nokia's regular suppliers like Texas Instruments, Nokia will shift to components from suppliers it has never used, like Qualcomm. Does this kind of disruption help or hurt 'execution'. I think we have perfect evidence of the battery problem that Nokia has already admitted it now has with the Lumia phones, something that would likely not happen if Nokia made Lumia in its own factories using its own components and regular suppliers.
And of those Nokia innovations? Nokia has a vast library of patents and innovations, so much so, that in the patent dispute with Apple, it was Apple who surrendered, Nokia does not pay one cent for Apple but Apple pays an estimated 12 dollars 50 cents per every single iPhone sold, to Nokia as the licensing fee to use various Nokia inventions and patents. And where do we see that now? Take just one example. Nokia Money. Nokia's NFC based mobile payments system that is launched in several countries including India, the world's second largest mobile market. And does Elop's new OS from Microsoft support NFC? No.
COMICAL ALI AND SADDAM HUSSEIN
So when Elop says he intends to help Nokia observing "We have some brilliant sources of innovation inside Nokia, but we are not bringing it to market fast enough" and telling Nokia "I believe we have lacked accountability and leadership to align and direct the company through these disruptive times. We had a series of misses. We haven’t been delivering innovation fast enough." - what Elop then goes on to do, is to abandon those systems that would allow delivery of 'brilliant innovation' and instead adopts systems that force even more delays in not 'delivering innovation fast enough'. This is no doubt what Elop means with 'we have lacked accountability and leadership'. He says one thing and he does exactly the opposite.
Where have we seen this before? With some madmen dictators like Saddam Hussein, Muammar Gaddafi and now Bashar Assad. I am honestly reminded of Comical Ali, the Iraq Minister of Information who would lie directly at camera even when evidence outside was proving him wrong. They all do the same, they look straight into the camera, say one thing that sounds fair or correct, and then go do the exact opposite. At least Dick Cheney had the guts to admit afterwards that he had been wrong to suggest the USA would be greeted as liberators. Just listen to Assad now, on CNN, telling his army is not shooting his citizens. This is Elop. He says one thing and does the exact opposite. He promises help, but he delivers pain.
Sales. Marketing. Branding. Carrier relationships. Suppliers and partners. No matter where you look, the Elop style of management has been one of introducing more trouble, of messing up the existing system, and making matters worse, not better. This is not what he
was hired to do. He was hired - as Chairman Jorma Ollila clearly said - to help Nokia execute faster, not to create more obstacles to Nokia's execution.
Ok, this is now a very long article, sorry about that. Lets see whats in store for Nokia. I see only four likely scenarios for 2012, all are centered around Elop.
First scenario, as he is clearly incompetent. Elop has clearly placed in his management judgement, the interests of Microsoft ahead of the interests of Nokia - he should be fired. I have been advocating this option and I cannot understand how can Nokia's Board be asleep at the wheel. Firing Elop is the option I am hoping for, as it would allow us to have the Nokia we knew and loved, to be as near as possible, still a viable top 3 smartphone maker rival, and return to profits, and start to fight back with the Qt based ecosystem as one of the giants, rather than being a slave to Microsoft. Whoever the replacing CEO would be, the two obvious actions the new CEO would make, is to push MeeGo (with N9 and N950) and restore the full push to Qt (with Symbian, MeeGo, S40 and Meltemi). The logical result in the longer run as the MeeGo smartphones would dramatically outperform Lumia, would be to diminish and perhaps extinguish the Lumia series with Microsoft. Any sane CEO would see that.
Second scenario is that the smartphones unit is sold to Microsoft. This would be a cruel trick and in that process I would hope at least Elop would be packaged in the deal and sent away with the unit. But as all handset experts now agree, the future of the mobile phone handset business is shifting from low-cost featurephones and 'dumbphones' to smarpthones - Elop would have achieved killing the future for Nokia. This would truly be ironic as Nokia invented the smartphone and Nokia was bigger than its two nearest rivals combined when Elop took over. After selling the smartphone unit, what we would have left, is a shell of what Nokia was, with specifically that part eradicated, that brought us all the fantastic innovations from gaming apps to TV-out to optical zoom to FM transmitter to real Xenon flash to HDMI to Carl Zeiss optics to Dolby sound. Remember, Danske Bank has been reporting that these discussions are ongoing and they expect the purchase to happen in the Spring of 2012. And Nokia has separately admitted it is trying to sell the Vertu premium phone unit, and Microsoft has admitted it considered buying RIM, the Blackberry maker, so this is not that far-fetched.
The third scenario sees Nokia bought by a rival (other than Microsoft). The gossip was around last summer when Nokia's share price fell dramatically, that various tech and electronics giants were looking at Nokia, including Google, Samsung and Sony. Google ended up buying Motorola (so it was buying), Sony bought out its partner Ericsson (so Sony clearly was returning to mobile) and Samsung just bought out Sony from the flat-screen TV business they shared (so Samsung was also in the acquisions mindset).
I think its pretty clear to see that such discussions have happened and more is likely to come, if Nokia's share price continues to drop. And if Nokia reports further decline in smartphone market share in Q4, and again in Q1 - with ever worse financial numbers in Q4, and worse still in Q1 - then yes, obviously the Nokia share price will continue on its way down. The potential buyer could be any number of major tech companies in addition to those mentioned, could be Intel, ZTE, Huawei, LG, Panasonic, Sharp, Philips, Cisco, Ericsson, etc etc etc. Remember, just Nokia's patent portfolio alone is significantly bigger than that of Motorola's that Google bought, so even an Apple could want to buy Nokia just for the patents (Apple is now paying a royalty to Nokia for every iPhone produced - note if Apple sells about 160 million iPhones in 2012, the royalty to Nokia alone would be about 2 Billion dollars, why not just buy Nokia, keep the patents, sell the remaining parts of Nokia as scrap). Yes, the strategy by most of the buyers is to keep the parts they wish to have and sell off most other parts. In fact, I did an analysis last summer of what the various parts of Nokia might be worth, and who might want to keep what parts - and sell others. If Nokia is sold, it is likely that the Nokia brand disappears and certainly the total entity we now know as Nokia will be split up and parts of it will be sold.
The fourth scenario is that Microsoft buys Nokia outright. This is the desperation move by Ballmer, if some big rival comes to the scene and tries to make a hostile takeover bid for Nokia. Ballmer cannot let Nokia be sold to anyone else, because obviously - see above - any sane manager of Nokia will diminish immediately Lumia's influence and sooner or later will extinguish the underperforming Lumia line (vs MeeGo based smartphones). Ballmer doesn't want to buy Nokia but Microsoft can easily afford it. He would prefer to have Elop run Nokia as a Microsoft slave and let Elop gradually over time slim down Nokia by selling the non-smartphones related units like he has already tried to sell the NokiaSiemens Networks unit, and is currently in the process of selling the Vertu unit. But if a rival makes a move, Microsoft has to act and there will be a bidding war. That will turn out to be costly. The buyer whoever it is, will have to then split up the company they bought, and that means again, that the Nokia we now know, will no longer exist. The brand might live on, perhaps bought by a Chinese maker like a ZTE or Huawei or Lenovo or G'Five etc. But that will not be the Nokia we knew.
Incidentially, if Microsoft buys Nokia, that will be a repeat of when Microsoft bought Danger and launched Kin. It will not turn out well, the carriers will punish Microsoft and that version of Lumia will die even faster, than if Lumia is produced by an 'independent' Nokia run by Elop.
If there was poetic justice, the way I would like to see it happen, is that the Nokia Board look at the disappointing Lumia numbers and the strong MeeGo N9 numbers, and after listening to the big carriers of the world - China Mobile and Vodafone and AT&T etc - they decide to shift away from Windows Phone and onto MeeGo based smartphones. Then - haha - to sell the Lumia unit - with Elop attached ...to Microsoft. They would return any Microsoft marketing dollars that Nokia has received. As the Lumia phones are not manufactured in Nokia factories, this would be a relatively easy split. Let Elop take with him his 'Microsoft Mafia' to act as the sales and marketing executives of Lumia. Rent the Nokia name to Microsoft for example for 2 years but split the two and make it clear, that Nokia will not pursue the Microsoft OS. At the current lousy level of USA success, Nokia could even give an exclusive sales license for the USA market (but not Canada and Mexico) for the Nokia Lumia phones to Microsoft. Then get rid of all Microsoft damage done at Nokia and return to the Qt and MeeGo (and Meltemi) based path and restore the Ovi store brand etc.
I don't think Elop would like this but if Ballmer was told by the Nokia Board and Jorma Ollila, that its the only way Ballmer gets to have Nokia Lumia phones, he might insist Elop accepts this...
BAD NEWS WILL CONTINUE
The Nokia market share was down to 14% in Q3. The Nokia share price has fallen to less than half of where it was in February. Now we will get more bad news as Q4 results are announced. Clearly the hope that many investors had for the Lumia series to 'save Nokia' will turn out to be futile - all evidence suggests that the Q4 Lumia results are worse than Nokia hoped. Meanwhile we know there is a battery problem (manufacturing and software problem). We know the China and USA launches are too late to matter. We know there will be exceptionally high returns of Lumia phones. And we hear that the carriers are still boycotting all Microsoft based phones, not just Nokia Lumias. This all means the Lumia sales will continue to be miserable in Q1 and into Q2. The news from Symbian are not any better. Elop is not allowing the N9 and MeeGo (and N950) to sell in countries where it could reverse the tides. So the overall Nokia smartphone market share will continue to decline. I expect 12% in Q4 and probably down to 10% (or even worse) in Q1. Meanwhile Apple and Samsung and Google's Android will continue to shine and show the world how great the smartphones opportunity can be and what incompetents they are at Nokia to fail in this massive growth opportunity.
I am certain that the Nokia share price will continue to decline into early 2012. That means more pressure for Nokia to try drastic means to stabilize it - including selling various units. It means Stephen Elop will come under ever more pressure to resign - and the Board under pressure to fire Elop. The problem is, of course, that Stephen Elop is a master at creating false illusions about himself. His best talent is selling himself. So he manages to fool his audiences into not noticing how badly he is mismanaging his company. But look at Nokia. Nokia's biggest problem a year ago was 'execution' and Elop was hired to fix that. In the past 14 months Elop has not helped fix the Nokia execution matters, he has made matters worse.
So then if Elop is not fired soon, Nokia will find itself split into pieces and sold for scrap, or it will find a hungry competitor coming in to buy Nokia (and then sell parts of it, for scrap). Or the last scenario is that Microsoft buys Nokia just to keep the Lumia line selling a few more months, before the carriers put an end to that and kill of Lumia like they did to Microsoft's Kin phones.
In any way, the Nokia we know now, will not be run by Elop. If you like Nokia the company and would like to still have Nokia branded phones, they you best hope that the Nokia Board fires Elop now, before it is too late. The share price will continue its downward spiral as ever more gloomy news trickle in during the Spring of 2012. Thats why I call the Nokia Form Book the 'Elop Watch'.
This was part 3 in the series. We've done Samsung and Apple. Next up is RIM and we'll be getting into Sony, HTC, Google, Microsoft etc still in this Form Book (and don't worry, most other editions will not be this long).