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« Was That 007 at Shanghai GP this past weekend? | Main | Paging Truth Police: One Last Time - the Reality of Nokia when CEO Elop Took Charge as CEO, and What Was Not Broken »

April 20, 2012

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So Vatar

Tomi,
the real bad thing is that it is now too late for Nokia to survive. Their cash burn increases, and they are running into liquidity problems. They still show net cash of $5 B, but their bonds are rated almost junk, means their cost to get liquidity increases. At the same time vendors want to see cash before they deliver their wares, and carriers won't pay any faster. Add losses and add lost trust, and you have the recipe for failure.

This is a classical financial downwards spiral, leading into cash shortage, illiquidity and bankruptcy. The only hope is that someone takes over Nokia and sell its parts.

They do not have products to sell that would be able to cut this viscous cycle. WPs are duds, and the rest of the line up gets old (even the N9 is yesteryear's phone).

I cared for Nokia and still do, but realistically the game is over.

Matthew Artero

Hello Mr. Bond,

Good work as usual. Of course the Nokia spin will continue to be that Nokia was on its way out anyway so Elop's blunders are not the real cause as something had to be done anyway and nobody had another viable answer.

Nokia Board will never fire Elop because they lack the ability to see the forest from the tree that is in front of them. None of the Board has the required experience to understand the business of pleasing customers at the individual human level. They only have the ability to see technology and big business decisions but the individual consumers are the foundation; but a foundation with a mind of its own that decides what it will support.

Nokia's Board is like military leaders who fail in battle because they disregarded the intelligence reports comming in from the fields of battle. They will never replace Elop because they do not have the ability to comprehend what is going on and are unable to handle the responsibility of choosing the correct replacement.

In Elop they found a scapegoat that allows them to wash their hands of responsibility and that was their true goal and the limit of their ability.

Just as they use the excuse that Nokia was on its way out anyway they will also use the excuse that they couldn't have gotten anyone better. They will continue to disregard Tomi's observation that Nokia was defeated by companies that did things that Nokia was also capable of doing.

msr

And Ellop remuneration for this great achievement of destroying this great company was $10.3m in 2011 including a $2m salary. Its difficult to not be shocked.
http://www.fiercewireless.com/special-reports/10-highest-paid-executives-wireless-2011?utm_source=FierceWireless-homepage-slideshow

Matthew Artero

This failure of Nokia is in line with Nokia's history. Nokia got out of its other businesses like making rubber boots where it had to pay a lot of attention to pleasing individual customers. Nokia hated having to do that for those lower profit margins.

When it got into the new technology of cellphones they were free from that. When a technology is very revolutionary it is very easy to make profits and let the technology make the decisions rather than individual customers.

The time came when the technology was no longer considered revolutionary and it was time to once again pay attention to individual customers. But by then Nokia had changed its culture away from being attentive to individual customers.

Of course Microsoft is the wrong partner to compliment Nokia's weekness as it also does not compete in the required manner for success. Microsoft's existence on desktops and laptops is so pervasive that it primarily competes by maintaining lock-in and path dependence. The very thing Nokia was doing before Microsoft came along.

Somehow the world is supposed to beleive that it is correct for Microsoft to maintain its customers and offer them a path from one upgrade to another but it was wrong for Nokia to do the same thing.

karlim

Tomi,

Your information/evidence about Lumia sales boycott might be a bit outdated.

For U.S. - you base the boycott theory on a sampling of a total 14 AT&T stores on a first day of sales (Monday, April 9th) done by Cnet and NYTimes. 5 stores in Manhattan by CNet, "a handful of stores" (probably no more then five) by an analyst in Ohio. Who actually found 1 sales clerk who knew Windows Phone well, recommending Lumia. So - in total 13 stores, not recommending Lumia. Here are the articles:
http://news.cnet.com/8301-30686_3-57412215-266/is-at-ts-sales-force-prepared-to-sell-the-nokia-lumia-900/
http://bits.blogs.nytimes.com/2012/04/09/att-lumia-retail/

A week later Gizmodo did its own survey of 36 AT&T stores all around U.S And found absolutely no evidence of boycott. With most of sales staff enthusiastically recommending Lumia. With phones sold out in many stores (though I admit - from a very low stock). Here's Gizmodo survey:
http://gizmodo.com/5903117/att-stores-are-almost-completely-out-of-lumia-900-stock

This week Ars Technica also checked out 3 stores in Albany, NY. And found AT&T staff enthusiastically recommending Lumia 900. Some of them even going as far as tell a customer that Lumia is better then iPhone:
http://arstechnica.com/gadgets/news/2012/04/salespeople-say-the-darndest-things-secret-shopping-the-nokia-lumia-900.ars

So in total 40 AT&T stores-36 from Gizmodo, 3 from Ars Technica and 1 from CNet pushing Lumia. 13 stores pushing something else. Seems that there is no AT&T Lumia boycott, after all. And AT&T is as strongly behind Lumia 900 as their public statements say.

Back to Finland. If I remeber correctly, you based your evidence of Lumia boycott there on 6 shop survey by MTV network in early March. When commenters pointed out that all Finnish carriers publicly said that Lumia is #1 on their February bestseller list - you dismissed that. Arguing that the boycott just started in early March because of high return rates. If that's the case - Lumia sales had to fall off quickly. But now carriers have released their bestseller data for March and Lumia is still at the top of the charts. Lumia 800 #1 on Elisa and Sonera, and #2 - behind iPhone 4S on DNA. Lumia 710 #3 on Sonera, Elisa and #9 on DNA. HEre are their press releases with sales data for March:
http://www.dna.fi/DNAOy/Media/Tiedotteet/Sivut/DNAn%20myydyimm%C3%A4t%20puhelimet%20maaliskuussa%202012.aspx
http://www.elisa.fi/ir/pressi/index.cfm?t=100&o=5120&did=17945
http://uutishuone.sonera.fi/2012/04/03/nokia-lumia-jatkoi-soneran-myyntilistan-karjessa/

Contrary to MTV claims - real sales data for the full month of March shows absolutely no evidence of boycott.


So Vatar

@ Karim:
You still do not understand: It does not matter if there is a sales boycott or if there is none. Fact is that Nokia sold only 71 Mio feature phones and 12 Mio smart phones in this quarter. There is no way that Nokia is able to survive on this low sales volume with this downwards momentum. Additionally they need cash, need to make money. Giving products away for cheap cannot save them.

Nokia has no attractive flag ship devices, there is nothing that garners consumer interest in their mid range phones, and the collapse of their feature phones shows that customers don't care for these either.

Debating if there is or is not a sales boycott is like arguing if the mouse found dead in the burnt down house died because of lack of oxygen, because the fire burnt the skin, or because the the falling ceiling hit the head. The mouse is dead.

darwinphish

Tomi:
Does the ASP reflect the rebates Nokia offered to US & Canadian customers?

cycnus

@karlim

If there is no boycott, then Nokia is in deeper trouble.
It means that there is only a few percentage would consider WP7 as their phone.
Which mean no matter how hard nokia try it will fail very hard.

svensson

It's worse than I imagined. Nokia is soon to be S40 dumbphone provider for the third world only! I totally agree with Tomi now that Elopism isn't working for the late giant.
They deliberately killed the Symbian sales by stopping production and distribution in order to clear the wall for Lumia. It failed and the sales dropped like a rock in water. I may be a Nokia fan BUT I will never buy Lumia, let them go bankrupt when they are so unwilling to listen to their customers. Do Android, do MeeGo, do Symbian, do S40, do everything at the same time like Sammy does, what is wrong with that?

mdev

If, by some miracle, Elop is removed from Nokia, they must not do the same mistake again. Do not kill WP in public, kill it behind closed doors. But I am afraid that it too late and the the "agreement" with Microsoft contains a "poison pill" for Nokia if it tries to break with his "partner".

n900lover

From the financial report:

"Our agreement with Microsoft includes platform support payments from Microsoft to us as well as software royalty payments from us to Microsoft. In the first quarter 2012, we received a quarterly platform support payment of USD 250 million (approximately EUR 189 million). We have a competitive software royalty structure, which includes minimum software royalty commitments. Over the life of the agreement, both the platform support payments and the minimum software royalty commitments are expected to measure in the billions of US Dollars. The total amount of the platform support payments is expected to slightly exceed the total amount of the minimum software royalty commitments."

This means nokia actually wont get reimbursements for the expenses spent on ms in the form of cash payments but only "free" wp licenses. So indeed, Elop didn't sold nokia, he gave it to ms for free.

Jukka

Nokia used to have along term, publicly announced, dream of 40% market share. They actually rwached it at around 2008. In my opinion, the collapse started at that point. When you have achieved, what you want, whati will drive you forwars? There was no next stateme t as bold ans the 40%

Samsung has long said that they will become number one and overtake Nokia. Now they have done so. Let's see if Samsung can define new ambitious targets to reach for or will they become complacent - just like Nokia did.

cycnus

@svensson,

i think you must also consider that cheap android is entering the US$99 now. and Eric Schmidt said expect the US$ 70 android next year.

So, I don't think S40 will survive fighting against US$ 70 android.

Frame Agreement

@n900lover

Good point. Related risk is that typically companies either agree a fixed term of the minimum software royalty commitments or they agree on the minimum until certain volume is exceeded.

In any case, the minimum royalty payment from NOK to MSFT will be reviewed business as usual at some time in the future hence the situation will turn even worse for Nokia due to higher royalty payments to MSFT.

svensson

@cycnus
How does a 70$US Android compare to 10$ to 20$ superbudget Nokia or random Chinese clone? Answer is it doesn't. Not the same market.

ejvictor

For those questioning Tomi’s “Skype hated by carriers theory” did we see in MS reporting 100 BILLION minutes of Skype in Q1 , up 40%!!!

Remember that most Mobile carriers- especially in USA- started as landline carriers. So you really think they want a super easy Skype client on mobiles to act as the gateway for consumers? Because if Skype is super easy on a mobile then the CEO walks in Monday morning and asks the VP of IT, hey lets move our business land lines to skype!

Kodo's on the blog it seemsto be gaining traction in mass media.
P.S. China GP was spectacular - how gutted were you at Buttons poor pitstop.

KK

@svensson the difference is that $70 Android is for smartphones!

vladkr

As I see in Q1 results published by Nokia, I saw that Nokia sold less devices in North America in Q1 2012 than in Q1 2011. That's quite a performance considering that Nokia sold almost no smartphone there in 2011.

Anyway, there is something surprising I noticed few weeks ago. Going to Costco for my grocery, I noticed that the demo Lumia 710 was off. I asked the seller if I could play with it, she answered me that it is broken, out of order. The same situation appeared at another costco one week after.

I didn't pay attention (I was there for my grocery after all) before a guy from France told me he was p****ed off because Lumia demo devices were systematically out of order at the main retailer chain in France, FNAC (that's kind of Virgin Megastore, or Best-Buy+Nobles book-store+HMV in one).

That's quite a coincidence, isn't it ?

Most financial analysts tend to say Nokia is dead (UBS for instance), some other say that Elop should stay until Feb 2013 (?!?) but it's time for him to face his mistakes; they're way too big to be ignored.

This situation makes me think off a car (Nokia) facing pedal to the metal a brick wall. Elop thinks that Windows will help him to break the wall, so instead of avoiding it, he crashes the car into the wall. The car is severely damaged, but he will try again and again, until either the car, or the wall will break. I think the car (Nokia), will break before the wall.

Jukka

It's kind of funny that the new dumbphone OS Meltemi, which is supposedly a MeeGo spin-off, starts to create more buzz than smartphone flagship OS Windows Phone 8.

AtTheBottomOfTheHilton

Nokia is really already beyond repair and if Finland wants to remain their competitiveness they must restart in a completely new company. Nokia as I would put it is irrelevant, it's just a Microsoft tool and now its importance is zero. Growth is not the agenda and pushing WP7 is the main goal and also the goal is that Nokia dies in the process so that Microsoft can buy parts of Nokia. If you are a Nokia shareholder, then I can only say that you will not see your money again.

Now, when it comes to the success of WP7 it looks really bad. I have absolutely no problems that WP7 phones sell. The more people who gets WP7 experience, the better. WP7 is an absolute disaster when it comes features and technical professionalism. The moaning about WP7 has only begun. I can give you a few bits and pieces on forums what people think:

* There is a consistent moaning about the battery life of Lumias and lost connections. There is a fix for the battery problem but still people experience bad battery life and get inconsistent results from the upgrade.

* The multitasking is retarded. When an application is put in the background it often halts, if there is a phone call, the application exists and you have to restart it. For example if you use Nokia drive and receive a phone call, you have to restart Nokia drive and go through the process of entering your destination again.

* Many people miss T9 and this is not available as standard in WP7.

* There have been reports that the bluetooth support is buggy, difficulties changing the volume of a peripheral headset.

* The volume setting is the same for everything! Due to different sound levels in recorded music this often leads to that if there is a phone call while you're listen to music, the ring signal might give you tinnitus because it is so much louder.

* There are no sound profiles at all.

* Call waiting is not supported.


This was just a few of the complaints. Many missing features are so essential so that you really think that the Microsoft SW engineers are a bunch of village idiots that doesn't understand how to make decent phone SW. From Windows Mobile that had 12% market share, Microsoft has now reduced their market share to currently below 5%. Microsoft's problem is that they don't understand or have the knowledge to understand how to create decent software for handhelds. Recently Nokia us trying to push for features that was available in Symbian to WP7. So how was it, Symbian was a bad OS right? Nokia must implement features that Microsoft doesn't even realize must be there in order to have a decent user experience. They can implement a few features but many of the features found in Symbian will probably be very intrusive to the WP7 OS that Microsoft forbids it or it requires too many resources. So basically what features Nokia was investing in Meego, they now must do it again FOR MICROSOFT!

So if you don't want WP7 to succeed, don't worry. The more people who see the WP7 the more people will be burnt. I don't think they will see the popularity the had with Windows Mobile.

Louis

@ejvictor: The US mobile and landline carriers are also the big ISPs (along with cable companies). They will just adjust their pricing as people move to unbundled services anyway. There is no competition, or possibility of new entrants, in any of these spaces in the US, so I very much doubt they are concerned. They are going to get their $150/mo from people somehow.

michael


http://www.theregister.co.uk/2007/06/05/nokia_budget_growth_reliance/

...But the reality that's emerging from the hard numbers tells a remarkably different story, we learn from a research note issued by Dresdner Kleinwort Investment Bank (DKIB), and seen by The Register.

Nokia is now "reliant" on sub-€50 budget models, says DKIB Research. And far from being the company's past, cheapo handsets may be Nokia's future.

Sub €50 handsets grew to take up 42 per cent of Nokia's sales in 2006, the company's CFO revealed last week. If that's true, DKIB says, "then, one can conclude, the lower priced segment made up all (100 per cent) of Nokia's shipment growth last year"...

dr_zorg

@vladkr

Let me add to your analogy.

Since the happening is a race, the driver of said car has been paid by another team to crash his team's car into said wall. The rival team kills two birds with one stone: they damage the other car beyond repair and they perhaps face a weaker wall when they decide to break it. Or then they might not decide to break it and just drive around it, in which case the rival team is still out of the picture. Win-win situation.

karlim

@So Vatar, cygnus

Oh, I understand Nokia's situation perfectly well. And I do agree with a lot of what you are saying.

Nokia is on the brink of death, and only has one chance to survive. WP8. And WP7 is, and always was, a temporary patch to get to WP8. Nokia themselves more or less said so last year.

Symbian is finished, Meego/Maemo is dead and even S40 feature phone sales are falling fast - Android has begun doing to S40, what it did to Symbian over the last two years. And Meltemi has very slim chances to stand up to Android in the low end. The only thing that is keeping Nokia as #1 or #2 (depending how Samsung did in Q1) in phone volumes - are cheap S30 dumbphones.

And, if Nokia's WP8 phones fail in Q4, Nokia is dead. And that will be fully Elop's fault. Whatever the failings of OPK, by the end of this year he will have had more than two years to fix them, and keep Nokia even if radically smaller, but a viable and independent company.

Back in late 2010 Elop had an option going Android, or even to try making Meego into viable third ecosystem. And, if WP8 and Nokia in general fails - even Meego wouldn't have been a worse option than WP. And Android, most likely, would have kept Nokia afloat, at least in the short term. I do understand the long term reasons why Elop chose WP exclusive in 2010. But you have to survive short term, for long term to matter. And Nokia surviving short term is under question today.

However, we have to see how the first Nokia WP8 phones do, to see if Elop's strategy was a failure or not.

The things I do not agree with - are crazy Trojan Horse conspiracy theories, what killed Symbian (the Elop Effect) theory, and all those unsubstantiated "carrier boycott" of Nokia and Microsoft theories.

What killed Symbian - was Android. It does not matter much - pre-Feb 11th, post Feb 11th - whenever Android 2.x phones with specs/performance similar to the original Motorola Droid/Nexus One got to a certain price level - they rapidly killed most of the Symbian sales at that price tier. It did that at $400-600 Symbian smartphones in 2010. While Nokia retreated to lower price tiers to keep up the volume. Android did the same in highish volume, mid tier $250-400 price tier in 2011. The reason for Symbian unit volume decline last year. And it started doing the same to Symbian smartphones in the low end of $150-250 this year. Taking the bite out of the top end of S40 too. Simple competitiveness issues, with no need for fancy "Elop effect" and "boycott" theories.

Btw - if you and others insist on Elop Trojan Horse boycotted by carriers effect - how would you explain what happened to Symbian sales in Q1 2011? Whatever harm Elop Effect/Feb 11th did - happened in the first half of last year. When Symbian unit volumes crashed the first time. But, by the second half of 2011 Nokia has stabilized the fall. In Q3 it sold the same amount-16.8M-Symbian units, then it increased Symbian sales to over 18 million in Q4. And then- a sudden and huge 8 million, 40%+ drop in the first 3 months of 2012. A drop even worse than what happened in the first quarter of 2011. Yet there was no "burning platforms", no Feb. 11th this year. And the Q4/Q1 drop is way worse than the one last year. How come? Did Elop Effect stopped to matter in July-December 2011? Did carriers suspend their boycott for 6 months for some reason?

My explanation - the main reason for both Q1/Q2 2011 and Q1/Q2 2012 Symbian unit volume drops was the same. Android getting to the next market price tier.

Yours?

ejvictor

More bad news for Microsoft –Nokia

Lumia Dead end devices! NO WP* for ANY WP 7.5 devices

Thurrott forced a contact with Microsoft to reveal this info and has three reasons why it won't be happening. First, the economics aren't worth it. The current Windows Phone ecosystem is pretty small, and will probably have fewer than 20 million handsets sold by the time Windows Phone 8 is planned to launch.

http://www.phonearena.com/news/Paul-Thurrott-confirms-no-Windows-Phone-8-for-any-current-handsets_id29342

Skype

The European mobile operator TeliaSonera is one such example, as it will shortly introduce surcharges for customers using VoIP services over its network. TeliaSonera is Europe’s fifth largest telecommunications provider, with 157 million subscribers in numerous markets including Scandinavia, Russia, Spain and Turkey.
http://www.neowin.net/news/european-mobile-operator-to-charge-extra-for-voip

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