I have a question for you. How many times do we get to hear Nokia CEO Stephen Elop say "its more challenging than I had expected" and "the sales channel is not supporting our products" and "I can't give you a long term outlook" in reporting these profit warnings and every more disasterous Quarerly results, that his claim of "we are proceeding well along our strategy" starts to sound hollow. At what point does the CEO lose his credibility.
I think Elop lost his credibility yesterday. I will tell you why, and its that tired cliche of the Captain of the Titanic rearranging deck chairs while his ship is headed at the visible ice berg. But lets not go there yet. Lets first review what we now know that we did not know yesterday.
Nokia announced 10,000 layoffs. I am very sorry for my many Nokia colleagues and friends who are now involved or fear that they might be losing their jobs. 3,700 of the jobs will be lost in Finland, and announcing this right before Juhannus, the midsummer celebration and start of Finnish summer holiday season - recognizing, Nokia had not told the labor unions about these coming layoffs, so they now start the negotiations of how to fire 3,700. That means many of the people who do lose jobs, will find out when they come back from vacation. And how many is that? I think Nokia has about 15,000 people employed in Finland now, so it would be about one in four who will lose their jobs. Happy holidays indeed. What a cruel way to deliver the devastating news.
The layoffs will hit globally about 1 in 5 Nokia employees. Think about that. It means that as an average, everyone who works at Nokia will know very closely several people who will be fired. This will be a huge blow to the morale of those left at Nokia. And like someone mentioned at Twitter, this is very cruel at those who had listened to the new CEO last year in February, and took the jump with him, off the "burning" platform and into the icy waters. Now it looks like the CEO got out of the water, got himself a rifle, and starts to shoot into the water, to kill any Nokia employees he can find who hadn't drowned yet.
But the layoffs were totally expected. As Nokia's Q1 results were so horrid and the sales kept falling for five consecutive quarters since Elop's Burning Platforms memo (the costliest management memo of all time) of February 2011 - as the company total sales fall, and the company is already unprofitable, there have to be cuts. The easy cuts had been made already, now it means deep, painful cuts. And it looks like Elop thinks one in five Nokia still-remaining employees must be fired now, just for Nokia to continue on.
The layoffs may help some Nokia investors trust the stock price but I think these cuts are now far too deep, gone on far too long, cutting into the meat of what was left of the strong base of Nokia. There is no fat to trim. Nokia cannot cut itself into a winner. This is the wrong path. But I am not the CFO, I have not seen the internal numbers and it really isn't even the point. Lets get to the Captain and his actions.
END OF MELTEMI
But I want to mention one thing. The layoffs in some offices including closing Ulm in Germany means the end of the Meltemi project and the end of the Linux and open source dream at Nokia. Meltemi was the sister OS platform to MeeGo, as a Linux based smarpthone operating system, but designed for ultra low cost handsets, to help Nokia migrate from S40 and S30 based 'featurephones' to smartphones, in the under 40 Euro/50 US dollar price range. This is a price point where Windows Phone cannot reach. The license of Windows Phone is about half that alone haha.. Windows Phone (and Windows 8) is a huge resource hog (as Microsoft software is also traditionally) meaning the equivalent device, like a smartphone, will need more CPU power, more memory, more storage, more supplemental processors etc, to do the same task as more efficient software (like Android or Symbian or MeeGo).
Meltemi was to be the most efficient smartphone OS to allow very low cost components and minimal specs to make very low cost smartphones - for Africa, for India, for hte Emerging World. It was the project Mary McDowell was known for and until recently Elop seemed enthusiastically supportive of bringing smartphones to the Next Billion. Nokia's market share in smartphones in 2010 was over 80% in Africa, over 70% in China, over 60% in India and over 50% in Latin America. This was a very promising future for Nokia mid and long term viability.
That died yesterday. Linux was invented in Finland by Linus Torvalds, our Bill Gates of Finland so to speak. There is a huge programmer pool of talent around Linux in Finland and the open source philosophy is very strongly embraced by so many in the global tech space from esteemed tech gurus in mobile like Ajit Jaokar and Tony Fish (authors of Open Gardens on that very topic) to yes, the hacker community that is very vibrant for example in Finland. Nokia had a huge amount of good will out of its long-standing support of both open source and Linux. That died with the closings including Ulm (and the departure of Mary McDowell).
We heard of a new profit warning and a worsening of another profit warning. The previous profit warning for Q2 ie this current quarter, was that it should be about the same as the loss-making Q1 (-3%). Now we hear the losses will be worse (ie bigger losses than -3%). That is very bad news when the CEO told us in April that he thought Nokia was proceeding well with his strategy.
And then we heard the new profit warning. That now Nokia tells us that even Q3 will be unprofitable. And Nokia tells us that the handset unit is suffering and the profit margins in the smartphone unit are the worst-performing (this is where that 'proceeding well' part of the Elop strategy is centered, with Windows Phone powered Lumia smarpthones). And we heard - once again, that while Elop loves his Lumia phones, for some reason the retail channel is not selling them. Yeah. Big news big fella! Wasn't this the same thing you told us last year in April, and last year in June, and last August, and September, and this January, and this April? Wouldn' t it be about time you, the CEO did something about this chronic problem that is exactly the same every quarter - that Nokia retail channel is not selling your smartphones? Didn't you learn anything in the past what, 14 months?
We learned that Vertu the luxury mobile phone handset unit had been sold (it had been on the sales block since January at least, so this is not surprising news). What was surprising was the purchase of the - however it was phrased strangely - assets of the Swedish cameraphone imaging tech company. So this was a Nokia subcontractor already? And on a day you fire 10,000 people you say, oh, and I bought myself some new toys too. Isn't this just a little bit seeming like a cruel parent who is punishing his kids on Christmas? On the one hand on this day you fire thounsands and sell one of Nokia's 'crown jewels' and then you don't use any of that money to cure Nokia's troubles (in sales) you rather go buy some tech toys? And this from a vendor who already was a subcontractor? What? This was worthwhile effort of your time Mr Elop, or that of your senior staff, to go find someone to buy, with all the money you now save with the thousands you fire? I think your priorities are wrong, Mr Elop. But again, lets stick to the point. So what else? There were top management changes. Ok. Who and what?
Mary McDowell, Niklas Savander and Jerri DeVard will leave. Mary was in charge of the dumbphones unit of Nokia. Niklas was in charge of Markets. Both were long term veterans of senior Nokia management. Jerri was the Chief Marketing Officer, who joined a year ago to the top position and was former Microsoft colleague of Elop.
What can we read out of this? First, that now with Mary and Niklas, the exodus of top management talent in mobile handset wars has been expelled by Elop. The total Jorma Ollila collected Dream Team of the best mobile handset talent has fled or quit in protest or been fired. What did they know? They helped Nokia grow to take 40% of the global handset industry (profitably). They helped discover all the trends we now hold true and dear, that Nokia did first, like smartphones, cameraphones, gaming on phones, app stores, mobile banking, NFC, cloud computing, social networking, mobile advertisig etc. These were not always done best in execution - ie Nokia was notoriously slow to capitalize on those - but compared to Nokia's traditional full-portfolio handset makers, Motorola, Samsung, LG, SonyEricsson etc - Nokia was miles ahead of them.
And even compared to the pure-smarphone players like Apple, HTC, RIM, Nokia had been fighting very well in all those wars, with that Jorma Ollila assembled Dream Team. That train was run off its rails during the biggest economic crisis the world has seen in our lifetimes - that killed many Nokia rivals like Palm and Motorola - but Nokia never produced one loss-making quarter in its handset business during those hard times. Yes, the previous CEO Olli-Pekka Kallasvuo did make many mistakes and was duly fired for being a poor boss for Nokia, but this second tier of Nokia generals were among the best in the world. If Elop had been willing to keep them, listen to them, use their insights, we might be closer to the 40% in handsets and smarpthones, rather than 20% in handsets and 8% in smartphones were we are today. And definitely Nokia would still be profitable today..
Elop clearly makes amateur management mistakes (colossal ones like the Burning Platform memo but also enduring ones like his enthusiastic support of Skype last June, that angered so many of the global carrier community). If he was thinking of Nokia's best interest and trusted his mangement team, he would have listened, like how many of his team urged him to stay with MeeGo. But he rather clearly prefers to expell any strong voices and minds, and wants a feeble cardre of Yes Men to rubber stamp his dictatorial edicts.
So what of Jerri DeVard? This is the most bizarre. She came with him. She was an American to help change the 'too Finnish' Nokia. She was ex Microsoft and an Elop colleague. How could Elop hire her and give her the CMO job, if she was not qualified? Why was she fired/let go. I mean, the Lumia launch has been massive and global and visible, arguably oversaturated, not failed. Every story about Lumia launch countries was superbly impressed by how vividly the Lumia marketing was visible! Elop has said time and again that it is the sales retail channel that is refusing to sell Nokia smartphones. The problem in Lumia disappointing launch now is not a lack of marketing - gosh, they gave away free Xbox 360 videogaming consoles with Lumia purchases in the UK for example - they booked New York's Times Square for one of the most flashly launches with live music. What did she 'do wrong' if the problem is - repeatedly said by Elop - the problem is retail sales. That is not her job! That is the job of the head of sales, not the head of marketing. Did you walk into a handset store, Mr Elop, during the Spring as Lumia was launching? I did, from here in Hong Kong to the UK on the other side of the planet. Lumia was blasted everywhere. Giant floor-to-ceiling sized markeing materials. Lumia MARKETING was everywhere. The sales dudes and dudettes weren't selling Lumia, but the marketing was there!
So we now see what Elop does. He identifies, even in public, a clear problem. Then he takes decisive action. The brave CEO boldly fires someone! Elop knows where the problem was so he.. fires someone else. Michael Schumacher, you have caused a crash in this Monaco Grand Prix. We will punish.. Lewis Hamilton for it, he was in the pits changing his tyres and nowhere near the accident. This is 'sanity'. This is a 'fair' boss? He recruits you to join him in the new company, and then a year later fires you? For what? For the failures of the sales department that is not in your control! What a cruel boss.
HOW TO ANGER YOUR CUSTOMERS EVEN MORE
Then what of the new guys coming in? I really don't know anything about Timo Toikkanen, Tuula Rytila or Susan Sheehan. I do know Juha Putkiranta, he was around back way in the day, so he is long term Nokia and been in increasing positions over time, its about 'his time' now for this level of a senior position. But Chris Weber for global head of sales. This is a totally boneheaded move. This is taking the red flag and waving it at the raging bull. This is sheer madness. Chris came from Microsoft with Elop. Chris was named US sales boss. Microsoft had already had a difficult relationship with the carrier community worldwide before last year. Those relationships were severely made worse when Microsoft bought Skype last May. Then Microsoft (and Nokia) were attempting to bully the carriers with the Lumia launches and then threats with the Skype integration. Still now in May, Elop admits to the Nokia shareholders meeting that Microsoft is trying to bully itself onto the carrier platforms with Skype threatening that Skype will come in any case.
What is the result? Nokia's CEO Stephen Elop himself admitted to the Nokia shareholders meeting now last month that all Microsoft Windows Phone smartphones are experiencing reluctance by carriers to sell them. Some have refused to sell any Windows phones altogether. Not my words, Elop's. The carriers hate Skype. They hate Microsoft now, because Microsoft gives Skype deep pockets and 1 Billion PC desktops on Windows 8, to threaten the very survival of the carrier business. 60% of the revenues and 50% of the profits of the carrier community come from voice calls - whose single biggest threat globally is that very same Skype. Then 30% of revenues and 45% of profits to the carriers comes from SMS text messaging - which is ALSO threatened by Skype. International calls are the most lucrative part of voice calls - that is what Skype is focused on. And then videocalls? The future of '3G' services - even now this week we heard Apple finally gives the next iPhone 3G videocalling ability on its Facetime. And yes, videocalls? Hugely cannibalized by.. Skype. And yes, it was Elop who specifically explained to the Nokia shareholders, yes carriers fear the revenue loss posed by Skype.
Skype is poison to the carrier business. We may love Skype as consumers. The carriers hate it. They hated Skype before last year, when it was 'only' 900 million users globally as a little threatening rival. Now that Microsoft owns Skype, Skype is far far more dangerous to the very survival of the carriers. And when Microsoft adds 1 Billion desktops to Skype, it just makes things so much more threatening. This is the ultimate poison pill. A cyanide capsule. So yes, right after Microsoft bought Skype, the Windows based smartphones were put on a sales boycott globally, as reported in various newsmedia and Ballmer himself has admitted Windows Phone sales have been below expectation (and he demoted some Windows Phone senior management).
The past Microsoft Windows Phone execs have talked of how much the carrier relationships of Microsoft got worse in 2011 and even Elop said now in May of 2012, that yes, it is explicitly because Microsoft owns Skype (not because Lumia phones might have Skype - they don't, and some even can't use Skype like Lumia 610). And we've seen the Windows partnership deteriorate because of this. Dell, LG and Sony have quit making Windows Phone based smartphones - for example Dell specifically said its because the carriers don't want to sell Windows. And HTC said they are shifting away from Windows Phone to Android? Why, because carriers don't support Windows sales. Samsung? Didn't say why, but is shifting from Windows Phone to bada, Android and soon also Tizen.
And Elop again now yesterday said in the conference call to analysts that yes, Nokia has a retail problem, that Windows Phone sales have been disappointing. Bloomberg quotes Elop yesterday saying Nokia Lumia sales have been "slower than we would like." This is the same Nokia Lumia smartphone sales whose stategy was strong and Elop was so confident in just what, in April? The same Lumia that had been having such a strong launch, accoriding to Elop just weeks ago? Tech Crunch which listened in on the call reports it like this "Elop pointed out that Nokia was still having issues with retail salespeople." Those sales people were "reticent to recommend Lumia smartphones to potential buyers." (reticient means unwilling or silent) And Tech Crunch quotes Elop directly as saying: “The challenge in all of this is breaking through the strength Android and Apple have in a retail environment, we aren’t getting the traction we prefer.”
Before the Elop Effect there was no 'strength' that Android or Apple had in retail. You walked into any telecoms retail store on the five continents where Nokia did well (not in North America obviously) and there were stacks of Nokias and the retail staff ran at you to sell you.. a Nokia! Nokia was famous for dominating the retail environment. Not just competitive, dominating it. This was regularly listed as one of Nokia's biggest strengths, when analysts wondered, how could Nokia, with clearly older technology smartphones on Symbian, outsell Apple by 2 to 1, and Samsung by 3 to 1 globally? Yes, that is true. As recently as 18 months ago, Nokia was outselling Apple iPhones - I mean yes, Nokia smartphones, Nokia Symbian based smartphones - were outselling all iPhones by 2 to 1. More than 2 to 1 in fact. And all Samsungs by 3 to 1. Where did this retail environment domination disappear in the past 18 months? The sales dudes and dudettes who had so loved Nokia did not suddenly all retire last year? All throughout China, India, Brazil, Russia, Germany, Mexico, Indonesia, Australia, Egypt, Nigeria, Spain, Italy, France, you name it. The global handset retail environment WAS Nokia. The others begged for tidbits in the retail space. The carrier top management had to give special bonuses to help LG or SonyEricsson or Samsung or HTC or RIM to sell, when the customers asked for Nokia and the sales was all too eager to give it to them.
This is what Elop owned in January of last year. The world's best reseller channel globally. The best carrier relationships (except in North America) and the bestselling dumbphones AND the bestselling smartphones on all five inhabited continents where on that continent you do not have six strong domestic handset rival manufacturers (like they do in the USA).
AGITATE THE WOUND TO MAKE IT HURT EVEN MORE
So the problem was caused by the Elop Effect. What did Elop do since? He could have tried to fix things. He didn't. He made things worse by feuding and taunting the carriers from yes, celebrating Skype, to taking Micrsoftian bullying tactics to Lumia launch orders - so much so that some European carriers were complaining outloud about this last Autumn (almost never happens that these come into the open). And now, Elop finds that his Nokia sales guy quits so what does he do? Did he take the most experienced, most trusted, longest-serving, fully superbly competent and accomplished Nokia senior salesdude to run his global Nokia sales? Someone who is known personally by the major carriers, who goes playing golf with them and takes them to the FIFA tournament and the Formula One races year after year, knows the wife and kids, etc? The grand old man type of person in Nokia sales. Someone whose trust is beyond dispute at Nokia sales?
No. Elop appoints his stooge, the Microsoft dude, Chris Weber as his top sales gun. What a moron (Elop, not Weber). Why on earth would you do this? If you Elop are so insecure you need your fellow Microsoft Muppets around you, then don't appoint this total novice never-sold-a-handset-in-his-life until last year guy as your top sales guy, to go sell to companies BIGGER THAN NOKIA like Vodafone, China Mobile, Telefonica, America Movil etc... He is the very personificiation of Microsoft. Everything the carriers hate.
And his normal tactics were of course learned at Microsoft to then bully, threaten, intimidate and lie to the carrier community. This has only made things worse. No. If you Elop have ruined carrier relationships, you don't send in your clone. Then you send in the 'anti Elop' the exact opposite, you know, Good Cop / Bad Cop. You send in the nice guy. The one who has been with Nokia sales so long his blood has turned from red to Nokia blue. That guy! You don't send in another Microsoft Muppet to anger the retail channel!!!
LETS LEARN FROM KALLASVUO
Ok.. Now what do we learn. Elop told of how he now plans to solve the riddle that is the carrier sales boycott against his phones. Elop has decided Nokia will offer us... cheaper phones! Ha. That means more damage to profits. As Nokia is already generating a loss - it means bigger losses. Didn't Elop just give us the third profit warning in 12 months? And his smartphone unit is now five straight quarters of making losses. Losses that are now increasing? And Elop's answer is .. yeah, I will get better sales by cutting prices. BTW the Lumia 610 - cheapest so far - is so weak, it can't do Angry Birds or Skype. What is your cheaper Lumia 510 not be able to do? Voice calls and messages? So we carry it in our pocket so we have what, a nice square pocket watch with alarm, perhaps?
LETS FOLLOW THE MOTOROLA STRATEGY
So did you like the movie called 'Fall of Motorola' but felt it was a bit too slow? You'd like to see the same movie remade but just to run faster? I've got that for you. This is what ZD Net reported of Elop's strategy now in sales. ZD Net writes without a hint of irony on the obvious contradiction in Elop's mission:
While the aim is to get more Lumia devices into the hands of consumers, Nokia will in fact narrow its direct sales and marketing efforts to select markets, palming off less significant ones to distributors to be managed through a central hub.
Wow. That is Elop's strategy. We will get more Lumias into the hands of our customers, by reducing sales and diminishing our presense. This is the very last desperate act of a global handset maker who is about to die. This is how Siemens... died. This is how Motorola... died. This is how Palm... died. You find you can no longer afford your global sales, you cut the sales force and then wonder a few months later, why did your sales fall even further...
Maybe I got it wrong? Surely Elop cannot be this much a moron? Or did I. Here is ZD Net reporting more with direct quote from Elop: “We’re deliberately going through a cycle of concentrating on some markets at the expense of others.”
So Nokia is going to increase sales by reducing sales. Aha. That sounds ..illogical. If you thought this company can be saved, and now among his 10,000 people Elop is firing willy-nilly all around the planet, is the last Nokia competitive advantage, its sales superiority - a sales force so strong, they were beating Apple while Nokia smarpthones ran Symbian for heaven's sake. And beating the iPhone like a rented mule, Nokia outsold the iPhone by 2 to 1 for gosh sake when Elop took over. No. This company is dead now. This is the last act of a despeate man.
WHAT ABOUT MAPPING
Ha, what was that? So Nokia's CEO - really, the CEO, says he will now use Nokia navigation and mapping to rescue the company? Isn't this the same Nokia that bought - and owns Navteq, a purchase of 8 Billion dollars five years ago that never turned a profit in Nokia's ownership? And now in this environment of falling handset sales, a change in operating systems, mass layoffs and retrenching from global sales, somehow Nokia can turn the perennial turkey, Location-based services (the worst-performing mobile service category of all time) suddenly into a 'winner' ? Wow, give me some of that crack cocaine you are smoking Mr Elop. So just as we hear Apple adding its mapping stuff to the iOS with TomTom, you can somehow now suddenly turn the loss-maker into a profit engine? Wow, cool? Happy that you were able to tell us this magic dust and how it works, Mr Delusional.
SO WHAT DID WE LEARN?
So we know that Elop can look at a problem for 14 months in a row, and come to the conclusion his strategy is fine and while retail sales is the problem, he can solve it by firing staff, closing factories, buying suppliers. Then that Elop doesn't like any critical or informed feedback, he wants yes-men (or women). He has no safety net left, all knowledgable top staff have fled, resigned in protest or been fired. Elop thinks his carrier relationship problem can be fixed by appointing the most unacceptable guy to run that. He fires his former confidant and colleague who did the right job in marketing - because of problems in retail sales she had nothing to do with. This means no mid-level or senior manager can trust the psycopath in charge, he is not behaving rationally and any rational subordinate obviously is planning to leave Nokia soon if they haven't already gotten out of there (most of the best minds left soon after Elop was exposed to them).
We see here is the Captain of the Titanic who sees his ship is headed towards an iceberg. He could attempt to correct course, to shift direction. But he refuses to deal with the big problem (retail sales boycott) he rather goes to rearrange the deck chairs like selling Vertu and buying, what was that Swedish company again, Scalado. He sells more handsets by reducing sales. He turns loss-making Navteq suddenly into a profit engine. Sure. Why don't you just solve the sales boycott, Mr Elop, which would only take two things - terminate the Windows Phone Lumia project - and fire yourself (and take that Weber dude with you).
MEANWHILE IN REAL WORLD
I said last year in early June, right after Microsoft had bought Skype that there would be a carrier revolt about that. The boycott appeared within days and was reported widely. Elop admitted to the Nokia Shareholders meeting last month that a year later, after Microsoft had met with the carriers - often with Nokia - they could not break the boycott. LG, Sony and Dell have ended their development of Windows Phone smartphones due to the carrier refusal to sell them. HTC and Samsung are shifting to their alternate platforms. Only Nokia CEO is pigheadedly steadfast in his madness. I don't care that the past year we have seen a sales boycott. This time we do the same thing, and we expect a different result!
So lets see what we see from the people who are not insane in the membrain. Lee Simpson at Jeffreys comments on Lumia sales now: "disapointment." Michael Genovese of MKM Partners says they have inspected stores and found "No one is buying Nokia's Windows Phones". (where is your Windows outselling iPhone widely reported BS story now, haha). Well, there is of course America. Or is there? CNet has done a study of Lumia US invasion, and dug round, and found: "Despite a mountain of hype and support behind it, Nokia's Lumia 900 was no blockbuster." They report that since the launch, "the momentum and buzz has faded."
Mr Elop gave the Lumia launch the biggest budget ever seen at Nokia. Elop said in October of last year that Lumia would get 3 times bigger launch marketing budget than ever seen in Nokia's history for any new phones. That is now gone. So then? By January Elop was back to blaming the sales channel. The Register reported that Elop said "Dumb salesmen are hurting us" in its headline. That was reality. Now lets examine the alternate reality inside Elop's head. How does a delusional CEO deal with those facts:
In February 2012, in an interview to South Africa's Business Day, Elop was saying that "Nokia’s future was secure." (SECURE? Company generating record losses and his sales have failed) And Business Day writes of Elop that "his optimism about Nokia’s future was based on a new strategy he unveiled in February last year." Perhaps worst of all, in the same interview Elop was asked about Samsung as a rival. Elop said he "would not lose sleep" over Samsung!! This was in February 2012. Nokia had been the world's largest handset maker for 14 years. In March 2012, only weeks after this article, Samsung would pass Nokia to become the world's biggest handset maker. Oh, and in those smartphones, when Elop took over 18 months ago, Nokia was 3 times bigger than Samsung. Today Samsung is 4 times bigger than Nokia in smartphones. Good thing you kept your eyes on the ball, Chester. Not losing sleep! Nice that you went shopping for Swedish imaging makers and Norwegian software makers and selling a factory in Romania, rather than focus on your biggest rival and help Nokia compete.
Yesterday the Nokia share price fell 18% in one day, the biggest fall it has ever had. The share price had climbed 11% in the first 5 months when Elop was in charge, when he executed the previous strategy. After his magnificent new strategy unveilled in February 2011, Nokia share price has fallen by 74%. Today we heard that Moody's has joined the two other ratings agencies downgrading Nokia to junk. All three ratings agencies rated Nokia one notch below perfect when Elop took charge. I think we can see the pattern here. The Captain sees the iceberg. He knows he could save his ship. But he would rather go fire 10,000 engineers and buy a Swedish company. He's rather rearrange the deck chairs. Full Steam Ahead!