Again a profit warning from Nokia! Elop inherited a company that was growing sales, growing revenues, growing profits and growing share price. In his first 5 months in charge, Elop saw Nokia's share price climb 11% with the investors liking how he took charge and pursued Nokia's stated strategies.
UPDATE - This blog runs 2,900 words. That is not long by my standards, but it may seem so to you. Why not first hop here to Phonemantra to get the total summary of this long detailed blog.. in only 5 Tweets. Honest! Must-see.
So now. Lets get the 'full version' haha.. After 5 months of growth, Elop suddenly shifted, and proceeded to conduct the controlled massacre of all of Nokia's assets including its existing smartphone platforms Symbian and MeeGo with the Elop Effect - the single most destructive management communciation of all time, in not just mobile or high tech, but in any industry, ever. In just one week of management madness, Elop's catastrophic communications caused destruction to Nokia revenues the size of Oracle, as well as profits the size of Google.
Then he presided over mismanagement that ranged from the catastrophically misguided and error-ridden 'Burning Platforms' memo to silly rebranding to selling Nokia assets to ignoring hit products like the most highly praised Nokia device ever, Nokia N9 which outsold all Lumia phones by 3 to 1 in the first quarter when both were sold at the end of last year. Yes, Moron CEO Elop has the most highly rated and loved smartphone ever to carry Nokia branding, and Elop refuses to sell it in most markets!
But its not just what Nokia produces and sells. You live and die in mobile based on the carrier relationships. Elop is now ruining Nokia carrier relationships to causing a reseller boycott against Nokia.
I warned very clearly on this blog, that while PC makers are smart to pursue tablets (like Apple and Samsung) pure handset makers would be foolish to do so (witness Motorola and RIM). The reasons are overwhelmingly negative against handset makers, no commonality of parts, of retail channel, of branding, of pricing etc etc etc. I very explicitly said many times that any Nokia CEO at this time would be suicidal to devote any resources to a tablet, yet Elop is doing exactly that. Just like RIM took a profitable smartphone growth strategy, mixed in an idiotic tablet PC strategy, and plunged into loss-making - now the same is happening with Nokia. This is a clear sign of management lunacy. Read why tablets good for Apple/Samsung/Lenovo while simultaneously suicidal for Motorola/RIM/Nokia.
Nokia's market share when Elop took charge in 2010 was 33% in smartphones, the future of the handset industry. By Q4 of 2011 that smartphone market share had fallen to 12% - that is a world record collapse of a market leader in any industry! Elop's name will go down as the most incompetent CEO ever. What a shame, for the Microsoft Muppet, to preside over Nokia setting a world record - in destroying its own market share lead!
(update: I usually don't bother to do pictures on this blog, but this is such an important point, I took the time to plot Nokia smartphone sales (blue line) before Elop and since he took over, and compared to Apple iPhone sales (pink line) and Samsung smartphone sales (yellow line) in the same period)
The above picture may be freely used
(Please include link to this blog if you do)
Note how Nokia was steadily growing sales before Elop and well into his CEO tenure, until his idiotic Burning Platforms memo. Then Nokia saw a modest return to growth with the launch and excitement of the N9, Nokia's most praised superphone ever - some analysts rate it better than the iPhone 4S - running on Nokia's brand new MeeGo operating system. Then observe what happened to Nokia smartphone sales when the Microsoft Windows Phone based smartphones running Lumia started to sell. For those wondering why the big jumps in iPhone sales, those are launch of iPhone 4 and iPhone 4S. Same for Samsung the launch of Galaxy S and Galaxy S2.
Note from the picture - Nokia had strong growth in its smartphones until Elop took charge, and was profitable in smartphones every single quarter along the way. After Elop took over, Nokia continued to grow strongly smartphone sales AND make a profit. Only after the disasterous Burning Platforms memo, Nokia sales collapsed and in just one further quarter, Nokia smartphones were plunged into loss-making. Since then Nokia has produced a loss every quarter in the smartphones. (What am I missing. Is this not a textbook case of total management incompetence)
The share keeps falling, I was correct in projecting last year February that Nokia would end with 12% by the end of the year. Based on the profit warning, I am projecting Nokia Q1 smartphone market share likely to be 7.5% for Q1.
NOKIA GLOBAL SMARTPHONE MARKET SHARE UNDER ELOP
Q4 2010 - 29% (almost twice as big as nearest rival Apple 16%)
Q1 2011 - 24% (far bigger than nearest rival Apple 18%)
Q2 2011 - 16% (smaller than new market leader rival Apple 19%)
Q3 2011 - 14% (far smaller than new market leader Samsung 21%)
Q4 2011 - 12% (half the size of new market leader Apple 24%)
Q1 2012 - 7.5%
This is an unmitigated disaster. This is the worst performance of any globally market-leading company of any industry in the economic history of mankind. There was nothing like this ever before, not with Motorola or Palm or Blackberry; not just the mobile industry, any industry! The worst problems we know of, the classic case studies of MBA courses were not this bad, not New Coke, not with Toyota's brake problems, not with Tylenol's killing medicine, not with BP's oil spill, not with British Airways Terminal 5. Nothing like this has ever been seen before in an 18 month period. Elop has presided over the wanton self-induced unnecessary demolition of Nokia's globally dominating market share!
Look at that picture one more time. Up to the peak - 5 months of Elop's leadership - Nokia was growing smartphone sales recently roughly at the same rate as the iPhone (and only slightly less fast than Samsung). And Nokia was doing this profitably - so much so, that at the peak, yes the first full quarter under Elop's leadership Nokia's smartphone unit profits jumped over 70% in just one quarter! Yes, Elop managed the biggest profitability jump in Nokia's history. Nokia was doing well, it was not dying. Nokia was suddenly improving under early Elop management! Look at that picture! Now, since the Memo, Under Elop's mis-management, Nokia has scared away literally 3 out of every 4 loyal customers it had just over a year ago!
Look at the numbers. The situation is not getting better, it is now getting far worse. If a CEO loses 39% of its main business in one year, he gets fired. Elop lost 39% of Nokia's (last loyal remaining) smartphone customers in just the past 3 months! Elop's 2011 was the the worst year of any CEO of a Fortune 500 sized company in history. Elop has now managed to out-do that dubious record with the worst single quarter of any (Global Fortune 500 sized) company ever witnessed in any industry.
For the full year, late last year, I expected Nokia to come to about 8% market share by the end of this year when most smartphones would be Lumia using Windows Phone. That was before all the facts and news came in about Lumia. That was before this profit warning! Still, its clear Nokia has fallen off 'The Cliff'
LUMIA MAKES THINGS WORSE
The Lumia smartphone series is a total comprehensive failure in design and marketing. This is no better with the Lumia 900 now launching in the USA
The transfer from Nokia's Symbian OS is so poorly executed and the new Lumia handsets are so undesirable, that even when forced to take them, consumers will not trade Symbian for Lumia 1 to 1, Nokia loses one third in that transition. The returns are so bad that retail now refuses to sell Lumia to existing Nokia owners even if they walk into the store asking for Nokia Lumia when many Nokia Lumia smartphone are in stock, not only that, but the stores feature Lumia stands as the biggest display stands of any phones sold in those stores!
The Microsoft Windows Phone based Lumia smartphone strategy might have worked, but Elop messed that up. The handsets are utterly non-competitive and now the evidence is in, that Nokia's loyal customers reject them at a rate of 92%. There were design flaws - both in hardware and in softare, admitted both on Nokia's side and on Microsoft's side - in each of the three Lumia handsets so far ! Physical design and software problems that need to be fixed after sales in the Lumia 800, in the Lumia 710 and again now in Lumia 900. This is a disaster for which there can be no recovery with Lumia. Lumia is now synonymous with failure in any smartphone customer's mind or that of a phone sales person.
Now look at this latest quarter. In Q4 Nokia sold 19.6 million smartphones (of which only 600,000 were Lumia). So there were 19 million non-Lumia customers on the market. If you think 'Christmas sales' yes, but in the handset industry globally there is no drop-off after Christmas, because of Chinese New Year gift-giving season in January-February. The industry typically grows about 3% to 5% going from December/Christmas Quarter to January Quarter. And Nokia is by far the strongest handset brand of China, so this typically is even better for Nokia. So we have 19 million customers walking into Nokia stores roughly, who would need to be converted. What happened? 12 million sales happened, of which Nokia reports now 2 million were Lumia.So there were 1.4 million 'new converts' after we remove the 600,000 level already achieved last quarter.
COMPREHENSIVE MARKET REJECTION OF LUMIA - 80% refuse to accept Lumia now
Nokia lost 5 loyal Nokia smartphone customers for every 1 it managed to convert from Symbian to Lumia. So yes, Nokia had 19.6 million smartphone customers last quarter, 600,000 of them bought Lumia. Now Nokia has 12 million smarthone customers in Q1 and 2 million bought Lumia. For the added 1.4 million 'gain' to Microsoft and Windows Phone compared to 3 months ago, Lumia added 1.4 million more Nokia smartphone owners. That came at the cost of 7 million lost sales. Adding that potential together, Nokia had 8.4 million existing loyal Nokia smartphone owners walk into a store, and only 1.4 million walked out happy with a Lumia smartphone. 7 million were so disgusted with the Lumia handsets they bought smartphones from other brands like Samsung's Android which is reporting massive record sales. (the remaining 10 million obviously bought Symbian or MeeGo based Nokia smartphones)
When you gain 1.4 million new Lumia users out of 8.4 million attempts, it means out of every 6 attempts - to convert loyal existing Nokia customers to Microsoft based Windows Phone smartphones, five failed. Yes, for every 1 successful sale, the sales guys lost 5. This is not rocket science. This is exactly what has been already reported globally that the sales channel now so hates Lumia that they refuse to sell it even when asked for by name by existing Nokia customers! If Lumia loses 4 out of every 5 sales attempts to loyal Nokia owners, this is absolute certain road to death to Nokia and the Microsoft based strategy.
LUMIA 900 ? AT&T STORES REFUSE TO SELL IT IN NEW YORK NOW !!!!!
I have been reporting on the global sales problems that have plagued all Microsoft handsets all last year. We heard that in-store sales staff were refusing to stock or reluctant to sell Microsoft Windows Phone based handsets. This problem has also been now with Lumia Nokia handsets as I showed for example in the above link. But right now, parallel to the profit warning, comes the latest news comes today 11 April from Cnet testing of New York AT&T stores that the sales reps refuse to offer Lumia 900 to customers, and are selling iPhones instead. The problem is real, it is global, it continues. If the resale channel refuses to sell your product, you die. Its that simple. Nokia had no resale problem before Elop messed it all up. Now the resale channel is in a worldwide anti-Lumia campaign. This is the path from which there is no recovery! The Microsoft Windows Phone stategy is comprehensively failed and utterly doomed.
LUMIA HAS BIGGEST RETURN RATE OF ANY NOKIA SMARTPHONES EVER
This is before we take into account the severe disappointments the customers have with their new Lumia handsets - each of the first three Lumia smartphones have had manufacturing and design errors from battery problems to SMS messaging being able to wipe out the total memory, to now the US launch of Lumia 900 having the wrong software forcing all buyers to do a total operating system re-install - which of course wipes out everything they had.
The result is, that the Lumia is hated by consumers. Lumia is being returned at catastrophic levels, such as we hear from Russia right now. When you try to convert existing users to a new type of platform and you lose 84% of those customers in that transition - that is total comprehensive rejection of your strategy. Only a certifyably lunatic CEO would contemplate 'increasing Lumia' marketing and sales, as Elop is now promising in the profit warning. If you like this profit warning and crash for Q1, the next quarter, Q2 will be far FAR worse than this!
PLEASE UNDERSTAND LUMIA SUICIDE - Will fall to 4% by end of this year!
Now we have enough evidence from every market including USA to know that Nokia will continue to lose customers all this year when attempting the Microsoft migration. It is PROVEN that Nokia loses customers as it forces them to go from Symbian (and MeeGo/Maemo) to Windows Phone. I had previously had a projection that at the end of this year Nokia's market share would be about 8%. That would be catastrophic since Nokia had 33% market share for year 2010 and 16% for the year 2011. (I am the most accurate forecaster of the mobile industry - and for the random visitor, just so you know, I am an ex-Nokia executive, the most published author of the mobile industry, my 12 books are referenced in over 120 books by my peers and Forbes just rated me the most influential expert in the mobile industry. Trust me when I say..).
Now, with this data, I am downgrading my forecast of Nokia total smartphone market share to continue to fall and be down to 4% by Q4 of this year !!! That includes all Windows Phone based Lumia smartphones, plus remaining Symbian sales and remaining MeeGo sales. (I will return with more specific analysis of that, and it may be worse, but this is the rough estimate now for Q4. And don't think 2013 will be better - it won't. Don't think the 'other Windows Phone manufacturers will do better - they sold under 0.5% of the worlds' smartphones in Q4 last year, they HATE it that Nokia is messing their little playground, so no, Windows Phone will never be the third ecosystem.)
SAMSUNG PASSES NOKIA IN TOTAL HANDSETS
Most of this blog focuses on the future of the industry, the type of mobile phone handset that ironically, Nokia invented and up to Elop taking charge, Nokia utterly dominated, selling more than its nearest 2 rival smartphone maker production.. combined! (that is the type of situation Coca Cola or Boeing or General Motors or Sony or HP would love to have!). But there is other business at Nokia too. The basic 'featurephones' or 'dumbphones'. And Nokia now tells us its Q1 unit sales of all handsets were 83 million units including smart and dumb phones. Samsung meanwhile sold 78 million total phones in Q4 of last year, and has just reported that their handset unit is having roaring success in Q1, with massive jumps in all categories. Its a safe bet to say Samsung has passed Nokia as the world's largest handset maker now. What a shame. Nokia took over the title from Motorola in 1998 with Jorma Ollila in charge. He is now the Chairman and stepping aside. What a shame it was this Microsoft Muppet who achieved Nokia's downfall, for the insult to come with Ollila still around. Shame, Elop, shame. You are a disgrace. You will go down as the notorious most evil monster CEO that any industry has ever had. The sooner we get rid of you the better. You should be fired, tarred and feathered, sued, and barred from any position of any publically held corporation. Shame!
And Congratulations Samsung! You are about to become the biggest handset maker on the planet! Great job. I'll definitely celebrate that in a separate blog, don't worry. This is not the place or time to do that. And while my Sammy-friends in South Korea think 'balli-balli' yes, in this case, I think we can wait a few more days to do it properly, eh? The time has come! It will be a huge celebration in Seoul. I wish I could be there with you !!
THIS IS FIRE SALE
Elop has destroyed Nokia. As Nokia is bleeding cash now, Elop is resorting to selling all of Nokia's strongest assets like its ad agency and large sets of its patent portfolio and is shutting down the future growth of Nokia such as the Nokia Money project which just in India - the world's second largest handset market behind only China - Nokia had achieved 12% market share in the mobile banking business!!!
Nokia can be saved. Nokia can be returned to PROFITS in one quarter. Most experts agree! I wrote why Elop has to be fired. Please look at this blog, which examines an intelligent Nokia CEO vs a lunatic CEO.
Now we have the profit warning from Nokia. I warned that Q1 will be a disaster. It is now worse. Elop must be fired immediately!
UPDATE 12 APRIL - I have written a proper, no Elop-bashing, 'how to' blog about what needs to be done now, if Nokia is to be saved. And the good news is, it can be saved. The hearbreaking news is, Nokia can be restored to profitability within the next 2 and a half months!!! To profitability and stabilized market share now, back to gradual sales growth towards the end of the year. Yes. It can be done. Breaks my heart...
FOLLOW-UP on April 24, I wrote a follow-up on why now, this path has become a Certain Road to Death for Nokia.