I have a lot of news about Nokia to report, but I will keep this blog relatively short, only about the news relating to the Nokia Annual Shareholders' Meeting that was held in Helsinki. We learned a few items that foretell of ever worsening Nokia issues heading into the future.
TOTAL UPDATE 9 MAY
This story has completely evolved. Nokia panicked, and released the full video of the question and answer. Nokia has then tried to spin the story as something else than what Elop actually said. You the reader may want to go read the fully updated story, that has the full transcript, and the developments over the past week.
May 4, 2012: I just learned via the comments to this posting from regular visitor "zlutor" that on 3 May 2012, a class-action lawsuit has been filed against Nokia Corporation and Stephen Elop and other Nokia directors. The lawsuit was filed in New York City and the cause of action is based on violations of the US Securities Exchange Act. A class-action lawsuit is one where many people join who have been harmed. If anyone reading this blog has shares of Nokia bought on the New York Stock Exchange and feels they have been harmed by Nokia's actions and communications, you may be entilted to join that lawsuit and seek damages (see the link for more info). Thank you zlutor for mentioning this development in the comments.
Before I go further, let me say, Thank you Jorma Ollila for changing Nokia from a troubled multi-business conglomerate into a highly focused telecoms company under your tenure and guiding it from a minor vendor to the world's largest handset maker and the biggest company of Finland and the biggest tech company of Europe. That was an amazing run you had in the late 1990s and into the mid 2000s. Unfortunately your successor Olli-Pekka Kallasvuo did not do a good job running the company and now Elop has pretty well destroyed what was left. But Jorma, regardless of perhaps a weak ending as Chairman of Nokia, you did a great job in the early part of your career on the top. All Finns were very proud of the Nokia you brought to the world. Personally, I met you 3 times, twice at the HQ, but you will not remember me. I always felt you were an excemplary CEO when I worked for you, and after I left, that you carried on running Nokia in quintessentially Finnish class and style. Around the world, many people equated Nokia with Ollila.
And welcome Risto Siilasmaa to the position of Chairman of Nokia. You've been on the Nokia Board for a while and know the tech industry well from running F-Secure. Nokia is in very troubled waters, your guidance is desperately needed. I personally think Elop is incompetent to run the company, but that is my opinion. Regardless, Nokia now needs strong management and a clear head to evaluate what is the reality, address the real problems rapidly, and help Nokia survive and revive itself, to be back better and stronger than before. Your job as Chairman will be very important, especially after Ollila's departure where much of the image of Nokia internationally was seen as the same as Jorma Ollila.
Now lets move to the news of the day. I have three truly significant items. I will deal with them only briefly here, because they have been dealt with in the past. But we have developments.
Addendum - we've had some very lively debate about what was said and what was not. I decided to add this clariflying comment here at the start - I was NOT present at the shareholders' meeting. I am here in Hong Kong. I wrote this article based on the reporting of Finnish press (see links) and translating from their exact story and quotations as they have used. Apart from the direct quotes, the rest of this article is my analysis of what has been said, what it means, what it proves. I think some may have been confused, thinking I was present and am now misrepresenting what had happened. I was not present. I report based on what Finnish media told us about the Annual Shareholders' Meeting and clearly, they did not report the full discussion, we have for example in the comments to this blog story, a lot more details about what was said etc.
RESELLER BOYCOTT IS NOW CONFIRMED
First, lets go to CEO Stephen Elop's statements. In response to a question from a shareholder about Nokia market share, Elop's answer was that he hoped "that sales staff in retail outlets would offer Lumia handsets to customers asking for a mobile phone." (source Yle.fi - text in Finnish, translation is mine)
So Nokia CEO Stephen Elop thinks that Nokia market share can be improved if retail sales staff would offer Lumia handset sales. This means, obviously, that Elop knows and admits openly, that currently the handset phone retail sales staff do not offer Lumia to customers. This is explicit admission of the problem reported in the press that retail sales staff are reluctant to sell Lumia, as reported in independent press stories from Finland to France and from China to the USA. I have reported the 'retail sales boycott' on this site, and have been ridiculed for even suggesting it. Elop has previously already in conference calls relating to quarterly results, admitted that Lumia support is 'mixed' where the good news has been on the side of awards and press reviews and problems have been with retail. He has also already admitted that specifically in the UK they have problems with retail. Now we hear Elop admit openly, that it is sales staff at retail outlets who refuse to sell Lumia (and that Elop hopes he can somehow change that).
I have reported repeatedly on the worsening global reseller boycott against Nokia, which started on the Elop Effect in February of 2011. I have explained in very explicit detail, that if the reseller channel refuses to sell your product, your company dies. And I have shown that Elop as CEO has made the reseller channel problem worse throughout his tenure. I have argued that therefore, as long as Nokia continues on the Lumia strategic path, this road is a 'Certain Road to Death' - something that is very rare in business. With this certain road to death, Nokia has set a world record in destruction in its market share, falling from 29% just over a year ago, to 8% today, and will continue to fall reaching 3% by the end of this year. Nokia will not survive this kind of carnage. Everything Nokia tries, will be costly to get out of this boycott, including price cuts and sales incentives which drain profitability, yet they have been tried already and do not work.
UPDATE 4 May 2012 - a person who left 2 comments on this blog, Asko, says he was present at the Shareholders' Meeting, and reports that Elop had spoken about the lack of country success of Lumia, saying that only in one country, Finland, was the Lumia series selling well, and in only one other country, the USA, was the Lumia series selling reasonably. His evidence of that USA performance, was citing Amazon sales rankings.
I need to point out a few critical facts about this. One, Elop admits that most countries where Lumia has launched, are performing poorly! Secondly, with Nokia headquartered in Finland, almost any phone released by Nokia will sell well there, so it is not a strong sign that Lumia might sell well in any other markets. Thirdly, the Amazon initial sales success claims (Amazon number 1 ranking) has fallen drastically. Less than one month later, Lumia had fallen to ranking number 9, and now this week, the Lumia price has been cut in half at Amazon USA, which only returned Lumia to 5th place ranking. Even if we take the Amazon ranking as accurate, even the flagship Lumia 900 is not a top-selling smartphone. One should add, that most phones are not sold in the USA through Amazon, so even any good news on Amazon correlates poorly with sales success and the real performance of Lumia in the USA is likely to be far worse.
The most alarming aspect of this news, is that while the Lumia series has been launched in over 15 48 countries already including very large vital Nokia markets such as Germany, UK, France, Italy, Russia etc, it is finding good or medium success in only 2 of them! European carriers have been quoted saying Lumia series is not competitive and needs to be completely redesigned. The only two countries that have better performance (Finland and the USA) are countries where Lumia was launched late, it is possible this level of performance is the same early momentary sales success spike witnessed in each of the European markets, which almost immediately fizzled away.
Nonetheless, regardless of which countries sell well or poorly, the explicit confirmation by Elop that there is indeed a retail sales staff reluctance to sell Lumia, is a far bigger problem than the operating system, or the app store, or the features of a given phone, or even its customer reviews, its customer satisfaction or its return rates (all of which are bad with Lumia). The reseller problem will definitely kill Nokia. And Elop is defenseless against it.
SKYPE IS CAUSING LOST SALES
The second big news that came from the Shareholders' Meeting is the issue about Skype. Elop was asked by a shareholder "Nokia seems to be having a problem with the distribution channel due to Skype" asking how will Nokia deal with this problem. Elop answered "If the operator doesn't want us, it doesn't want us. We will appeal to them with other arguments. We have more to offer to them. It is a good point to start the discussion from Skype." (source HS website. Text in Finnish, translation is mine).
UPDATE May 4 - again our reader Asko who says he was personally present at that meeting, adds that Elop had explained, that Nokia, together with Microsoft, is now attempting to convince carriers/operators to accept Skype against their wills, by marketing/pricing/sales gimmicks. This admission says to me, that the carriers are truly hostile towards Nokia about the matter and this negotiation attempt is futile.
Nonetheless, Elop clearly admits that there is a reseller problem relating explicitly to Skype. He furthermore admits, the Skype issue has resulted in some carriers actually refusing to carry Lumia. I was on this blog immediately when news broke that Microsoft had bought Skype, that this would kill all Microsoft ambitions in mobile. That the carriers will simply not allow Microsoft to power Skype, to expand the already dominant Skype to the Windows 8 Desktop, and then to spread like a cancer to smartphones and poison the three wells of carrier/operator voice calls, text messages, and videocalls.
I reported on this blog that carrier boycotts were found against Microsoft. I reported on this blog that all Microsoft smartphone sales started to fall. The market share of Microsoft in mobile fell by half in six months. I reported that carriers are increasingly hostile towards Microsoft due to Skype. We have even seen TeliaSonera of Sweden (one of world's largest telcoms groups) go public in their hostility to Skype already. And we heard Microsoft's ex boss of Windows Phone admit late last year, that during 2011 the already strained carrier relations of Microsoft got far worse, because Microsoft itself angered the carrier community. Some have tried to argue that Skype already exists, or its app is available or Skype is good for consumers. These are moot points. The carriers do not hate the individual app or the consumer using Skype. They hate Skype the business for already devastating their landline cousins' business (in almost every country one of the biggest mobile operators is also the previous PTT and thus a big fixed landline operator too) and most senior staff at mobile operators today came from the fixed landline business a decade or two ago.
The carriers/operators hate Skype with a passion, as I have explained, for many reasons, but in particular they hate the unfair competition, where Skype business is deliberately unprofitable, but its investors keep pumping money into the loss-making operation, thus bleeding the carrier business with subsidised, unfair competition. THAT is why they hate Microsoft now. Because Microsoft subsidises the free calls of Skype, while Skype continues to generate a loss, but Microsoft can easily afford it, as Microsoft calculates, this will help them win on the desktop and the internet side of their business.
Now we have Elop explicitly admitting that Skype is hurting Nokia Lumia sales. He admits there is a reseller problem due to Skype. He admits that some carriers/operators have taken the extreme step of refusing to sell Lumia, only because of Skype. I have argued this point since June. People came here to ridicule me. Now Elop admits this is true. Now it stands as fact. Indisputable.
Note that some of the carriers who refused early Lumia sales did it while those early Lumia phones did not have Skype on them! This is against Microsoft, this is not against the app or phone. Now think about Windows 8. If carriers were willing to reject the whole Lumia line because of Microsoft just owning Skype, how much more will carriers hate the Windows 8 based Nokia smartphones, which will have Skype pre-installed. And when Windows 8 itself will have full Skype functionality. The future prognosis for Lumia and Nokia Microsoft smartphones is dismal. It will be far worse than today. If Nokia ends this year with 3% market share, and then Nokia rolls out Windows 8 based smartphones next year - the Nokia market share will continue to crash. It might end at 1% by mid-year 2013. Motorola died before it hit 1%. Palm died before it hit 1%. Siemens died before it hit 1%.
Elop admits that Skype is causing carriers to reject Nokia Lumia now. It will only get worse with Windows 8. This is a Certain Road to Death.
And the last bit of disasterous news we had today, came from just before the Shareholders' Meeting, where Ollila gave his farewell interviews, and said Nokia has tablets under development and will be launching them. We have heard previously from Elop that these will be on Windows Phone.
This is sheer madness. In mobile phones, Nokia does not go head-to-head against Apple in most of Nokia's product segments, geographic markets or price points. Even so, Apple takes almost all of the profits in the handset industry. In tablets, Apple dominates the market and Nokia would go directly head-to-head with Apple. The correct strategy for Nokia is to focus on its core business, put the effort to fix what is wrong, find the profits out of handsets that it is capable of generating, using Nokia's natural strengths, such as its diversity in a portfolio, its wide distribution channel, its efficient sourcing and factories, etc. If Nokia cannot be profitable in those areas today, why would it be in tablets?
In the tablet PC market - one that is far smaller than the smartphone market, itself far smaller than the global dumbphone market - there are almost no synergies for Nokia in components, in distribution, in retail, in branding, in pricing, etc. But Nokia would have the enormous backlash and hatered of the Windows OS, and the Windows Phone rejection. Nokia would enter one of the most difficult markets, where major IT/tech players like HP, RIM and Motorola have already suffered severely.
The tablet project would be a disasterous drain on Nokia marketing and profits. It would be exactly like RIM which was profitable, but diverted its sales and marketing from its core business of smartphones, to launch a tablet, that was very difficult to market against the iPad and failed in its launch, and drained resources, plunging RIM to loss-making. That was for a company that was very profitable before it started on this foolish path. Nokia is already loss-making. This is a huge risk venture with almost no upside potential, but one that carries definitely huge additional costs to Nokia, as a further drain on profitability and enormous downside. It is yes, to Microsoft's advantage to see tablets in the Windows Phone or Windows 8 environment. It would be utterly foolish for Nokia to produce any, as it is nothing near Nokia's natural strengths or its core competences.
We know Elop is fully committed to the Lumia path. We now have seen that Elop himself admits there is a reseller reluctance to sell the Lumia. Apart from all other bad news that comes relating to Lumia (such as the return rates of Lumia are the highest ever recorded by any Nokia smartphones), this reseller boycott as I call it, is the single most damaging news about the current Lumia strategy. It will kill Nokia. It is a life-or-death situation. It is an existential threat to Nokia. Thus, no matter what you or the Nokia CEO or Nokia Board thought of the Lumia strategy in the past, this road is now a death-march. It will kill Nokia.
We know now that Elop admits Skype is a factor so severe, carriers have refused to accept Lumia simply due to Skype. This was not an issue when Elop selected Microsoft in February of 2011. This is a new problem that arrived to sink the Lumia strategy, last June. The current Skype problem is so severe that many carriers refuse to sell Lumia even as current Lumia models do not have Skype. The problem will get far worse with Windows 8. This means, that for all the problems Nokia has now, on the path to Microsoft Windows Phone, the problems for Nokia will get worse when Windows 8 arrives. If you think the loss-making business, collapsing market share, junk-ratings of rating agencies and crashing share prices are a problem now - they will get far worse with Windows 8. That is a fact. Elop admits Skype is such a big deal to carriers, they are already now refusing Lumia because of Skype. This, before Skype is integrated into the OS and the phones.
And we know that Nokia is set to destroy even more of its profitability on a futile adventure to try to sell tablets, even after Motorola, RIM, HP and others have seen it a total loss-making nightmare. This is something Nokia cannot afford in its weak state now. Nokia cannot afford for any of its remaining talented experienced telephone marketing and sales staff, to go learn how to sell personal computers and their markets, rivals, resellers, pricing, segmentation etc. Nokia is not a strong brand in PCs, it would be enormously costly to do the marketing launch for a tablet. The volumes of sales are far smaller than for smartphones and the competitors - Apple and Samsung - are incredibly strong. This is a fool's errand. It will make Nokia even weaker, pushing it even deeper into the red this year. This is utter madness.
I end with three quitters. Why did Colin Giles leave? Colin had 20 years of sales experience at Nokia. He personally delivered 77% market share for Nokia smartphones in the world's largest smartphone market, China. Colin had been promoted to run regional Nokia sales, but when Elop fired the China sales head, Elop sent Colin back to China to try to fix the China sales collapse. So this is the guy, who had so platinum-level credentials and reputation, he had 77% market share in the biggest smartphone market. Note, Apple never had that big a share of the US smartphone market, neither did Blackberry, ever. That is how good he is. And did he succeed? No. China so steadfastly refuses to sell Nokia now, Nokia's market in China has collapsed. And Colin? He departs Nokia 'for personal reasons'. You don't leave Nokia after 20 years if you believe Lumia is about to be a success, and you are the head of sales, and you would earn yachts and private islands and corporate jets - types of annual sales bonuses if the Lumia sales were to be successful. Colin resigned two weeks ago. The news about Lumia future prospects is devastatingly bad, globally, from Nokia's internal perspective as seen by Nokia's top Lumia salesdude.
Is that an anomaly? Microsoft's Marketing Chief for Windows Phone was Gavin Kim, was headhunted from Samsung. He is a 12 year mobile and IT veteran, he's only been 5 months at Microsoft. If he believed that there was any chance in hell that Windows Phone might succeed, he would stay glued to Microsoft, to collect fat bonuses to ride the success now, at the big growth stage of Windows Phone, as Nokia comes onboard and supposedly 'the third ecosystem' would start to grow dramatically. He resigned 'for personal reasons'. This guy jumped away from arguably the hottest ride in mobile, Samsung, to join the Windows Phone team. If there was any chance whatsoever, of Windows Phone succeeding, he would stay at Microsoft to see it through, to prove to the world he, the bright marketing man, made the right choice. Instead he quits. This is independent confirmation that Windows Phone is doomed, when examining from the Microsoft side as witnessed by Microsoft's top Windows Mobile marketing guy.
What of LG? LG was a long term Windows Mobile partner. So much so, that LG signed a 'strategic partnership' with Microsoft. Then it was a launch customer with Windows Phone. LG has been providing WIndows Phone based smartphones for nearly two years now. And what did they do? LG announced they will discontinue their Windows Phone smartphone lineup, and do Android instead. Is Windows Phone destined to be the success Steve Ballmer and Stephen Elop keep promising, or is one of their biggest handset vendors knowing something Ballmer and Elop won't tell us. They invested heavily into the development of Windows Phone smartphones. The development cycle of handsets is 18 months. This is an enormously costly change for LG and one that no handset maker takes lightly. Why does LG announce this end of Windows Phone now? Because they have heard from their clients - the same carriers and retailers that Elop admits are boycotting Nokia Lumia - that Windows Phone is a dead end, and LG has now said in public, this path is a dead end, they will not continue on it. I said Windows Phone is a Certain Road to Death. Nokia's top Lumia salesguy resigned, seeing the sign. Microsoft's top Windows Phone marketing guy resigned, seeing the sign. Now LG the handset maker quit the road, seeing the sign, that Windows Mobile is a certain road to ruin.
Nokia. You are on a Certain Road to Death. Anyone reading this blog, these signs were seen last year. I warned about them. I am the most accurate forecaster of the industry, I forecasted that when Nokia's market share was 29%, it would collapse to 12% by end of last year and Nokia would be plunged from profits to loss-making. That was unprecedented not just in handsets or telecoms, it is literally a world record in management failure. I have since forecasted that this year Nokia will fall from 8% now to 3% by year end. That takes the worst management failure and compounds the damage. And now we hear that Nokia's retail problem is so well known, the CEO admits it in public. The Skype problem is so severe, carriers/operators refuse Nokia as a customer because Nokia's partner Microsoft owns Skype. And Nokia's plans now include wasteful launch of tablets that will not help Nokia recover but drain desperately needed resources. Now the prognosis for the year ahead, 2013 is so bad, Nokia will hit 1% by mid-year 2013. Is this the road you want Nokia to be on? Its not the one I want. At some point, the new Nokia Chairman Risto Siilasmaa has to wake up and take notice. The evidence is overwhelming. This Lumia Microsoft and Tablet strategy will kill Nokia. Elop must be fired and the Microsoft path must be ended. Now.
So - 1. Whatever you thought of the Microsoft strategy for Nokia, now that CEO Elop admits that there is indeed a retail sales boycott against explicitly the Lumia series and its so bad, that in most Nokia countries already Lumia sales are bad, which means Nokia cannot recover. This is a road to certain death. 2. Whatever Nokia manages to do with the early Lumia series, the situation will become significantly worse, when Windows 8 comes, due to the acknowledged boycott against Skype and the hostility of the carriers about Skype. And 3. Whatever profit or loss Nokia can now do, while it only sells dumbphones and smartphones (and networks) will get worse for profitability of Nokia, when Nokia makes a costly launch attempt to sell tablets. The future is doomed. It is getting worse. And it is getting worse still. What am I missing? The sales boss of Lumia knew. The marketing boss of Windows Phone knew. One of the handset makers has already stepped off this dead train. What am I missing?
PS - if you are a first-time visitor here to the Communities Dominate blog, and are honestly interested in how Nokia might be saved, I of course have written that blog too. Its a long blog, because Nokia's problems are deep, and started before Elop came along. But the good news is, that Nokia can be saved. The bad news is, this opportunity is diminishing by the day. But if you want to see, now recognizing there IS a reseller boycott, this is how it can be done, now, even in early May of 2012: Nokia can still be saved.
THIS STORY HAS A COMPLETE UPDATE on May 9. Please read the update, it includes now the full transcript of the Skype controversy.
(I have far more bad news about Nokia, Lumia, Windows Phone etc, coming but I wanted to get these out now after the Shareholders' Meeting)