Continuing Nokia Disaster in Just One Picture, today Picture 6: Revenues. What CEO is Allowed to Voluntarily Wipe Out Half of Total Revenues? Elop Thats Who

So we continue in the series exploring the biggest management failure of all time. Yes, that is Nokia under Stephen Elop's tenure as CEO. As Elop has made so many massive mistakes, I have cut his failures into short blogs that deal always with only one topic, and illustrate it with only one diagram. We've already done Nokia smartphone unit sales collapse due to the Elop Effect, the competitive picture of Nokia vs Apple and Samsung, Nokia market failure in context of other historical handset industry collapses, the failure of the promised migration from Symbian to Windows Phone and the disasterous Lumia sales pattern using the Windows Phone system. Today we add picture 6: The Revenue collapse in Nokia's main business, the handsets & smartphones unit, which accounted for more than two thirds of Nokia total revenues and all profits when Elop took over. 

The picture today is simple. Revenues. The blue part is smartphones, the green part is dumbphones.




This picture may be freely shared

So yes, Elop inherited a handset-manufacturing giant, which in dumbphones was 50% bigger than its nearest rival and in smarpthones more than TWICE as big as its nearest rival. The revenues in the handset unit were growing very strongly (as the period from 2009 to 2010 was still the tail-end of the worst economic recession in our lifetimes). Nokia's handset unit saw 5% total revenue growth, powered by the smartphone unit which saw 17% revenue growth but tempered by the decline of revenues in the dumbphone unit of 5%. Every industry analyst in 2010 was already of the consensus view that smartphones were the future of the industry and the dumbphones business was living on borrowed time, to be replaced eventually 100% by smartphones.

Then Stephen Elop had his moment of Microsoftian madness, and issued his silly memo and caused the Elop Effect, the costliest management mistake of all time. Since then, he compounded his strategic fiasco with further silliness such as refusing to sell his popular MeeGo based smartphones in Nokia's major markets that were desperately begging for them, and further by launching a still-born bug-ridden Lumia series on a highly undesirable and incomplete Windows Phone operating system - to Nokia record return rates and by latest measurements 2012, loyalty so lousy six out of ten Lumia owners want to buy any other smartphone than another Windows based smartphone. What has been the result? Nokia revenues fell 49% in the next two years - this, while the global industry for handsets doubled in revenues. In a period of hypergrowth, Nokia managed to wipe out half of its business. No wonder Nokia has been firing tens of thousands of employees and selling factories etc.

And lets be clear about 'core business'. When Elop took over as CEO, he was tasked by the Nokia Board to sell the NSN business unit, the NokiaSiemens Networking unit of telecoms infrastructure (a unit that was perennially delivering losses or very slim profits in a good quarter). Elop proceeded to try to sell the NSN unit, but couldn't find a suitable bidder and then ended the task of trying to sell the NSN unit as a whole. Since then he's been selling it piece-meal, part by part. So while yes, the NSN unit delivered 'surprising' profits recently, this is not a core part of Nokia's business, and Nokia is clearly continuing on its quest to get rid of all parts of NSN by selling them off. And the mapping unit, Navteq, is trivial in size compared to the core business, the handset unit.

Mind you, there is no business failure of legitimate Fortune 500 size company business (by legitimate, I am excluding the actual crimes where management issued fraudulent statements and went to prison for the fraud and crimes, like Enron and Worldcom). So think of the biggest most famous corporate disasters in recent memory. The Exxon Valdez oil tanker disaster, the Toyota Brakes recalls, the New Coke launch, the Mercedes A-Series, the BP Oil Spill. No market leader has wiped out 49% of its core business revenues in a two-year period. CEOs are fired for far less than this. (Why is Elop allowed to remain in control of Nokia? Why is the Nokia Board asleep at the wheel. When will Nokia owners - shareholders - take the Board to task and fire the Board as well? This IS a World Record in management failure.)

Oh, while its not the topic of today's picture, let me just mention - Nokia's handset unit was very healthy and delivering high profits and profitability when Elop took over - in fact, the first full quarter Elop was in charge at the end of 2010, Nokia set a record for profits in the handset unit and its smartphones. So the company was very healthy and - improving from that - when Elop destroyed it all.

Immediately after the Elop Effect, the Nokia smartphone unit became unprofitable. It has been unprofitable since. The last Quarter for which we have the data today (thats still Q3 of 2012, as we await the Q4 results) Nokia's smartphones were so hideously undesirable, they were being sold making a 49% loss per smartphone sold !!! 49% loss per phone sold !!!

The dumbphone unit hasn't fared as poorly. It did plunge into losses but less than those at the smartphone unit, and then recovered back to profitability. However the self-induced damage at the smartphone unit and the utterly unsellable Windows Phone based Lumia series (with massive price dumping too) were producing so giant losses, that the total handset unit has been making losses up to now. For Q4 Nokia said they might break even. So no, there is no silver lining to this. The downsizing was not done for some noble profit motive for example, on the contrary. The situation is - if possible - even worse than the picture here. But even, just looking at revenue collapse, this is a world record in destruction of a company's core business in only 22 months.

And yes, more pictures coming in the sad Nokia saga. If Elop had only made one mistake, I wouldn't need to do this so often, but Elop has precided over a cavalcade of catastrophies as CEO. So we have to examine them in detail. This cannot be a sign of anything other that total management incompetence - no wonder for example MSNBC listed Elop among its 5 finalists for worst CEO of the year.

Comments

[John Waclawsky]

I agree the windows phone is unsellable. I have been saying that ALL along. microsoft is posion for a number of reasons. First the OS business model won't hold up in the future. Who will ever think anyone will pay an OS license fee for embedded apps or special purpuse computing devices. The phones and tablets are just the tip of the iceburg. Even the app developers don't want microsoft to succeed. They are going through the motions " If a Windows Phone app is made and no one sees it does it really exist?" You can read more at:

http://winsource.com/2013/01/16/available-for-iphone-and-android-how-marketing-is-hurting-windows-phone/

Also the comment section in particular is quite interesting... for example

"There is so much latent hate for Microsoft simmering under the surface here it's obviously playing a role"

This is all just part of the reality that NO ONE WANTS A WINDOWS PHONE OR TABLET

[J. O. Aho]

@John Waclawsky:

Sadly there are those who do pay license fees for using Linux in their products, just see at HTC who pays Microsoft to use Android.

@Tomi T Ahonen:

Do you have any estimation on how much money/assets they still have and how long they can survive on this mad strategy?

[Earendil Star]

Hmmm... "You were right about Windows phone being a sales disaster"...

Yeah, everybody knows NOBODY WANTS A WINDOWS PHONE OR TABLET... John is absolutely right here.

But then why say "Might as well write about Tizen where you will still be wrong"?
*Still* be wrong? If in the first place Tomi was absolutely spot on by your own admission?
Hmmm... I am afraid you are betraying your own real feelings here... you've been unmasked!

Furthermore, it was not Apple or Google to strike Nokia.
The main pain was totally self inflicted by the Board in choosing THT Elop as a CEO.
A Mr Nobody in mobile, suddenly becoming CEO of the n.1 company worldwide in mobile.
A guy known only for his expertise in dismantling companies and activities.
Just read this prophetical article spotted by Incognito:
http://betanews.com/2010/09/10/microsoft-s-stephen-elop-moves-to-nokia-what-a-waste/

But since the main press is only just now starting to recognize the MS WP and tablet fiasco, it is absolutely relevant for Tomi to repeat and better clarify the extent of the damage THT Elop has caused to Nokia. Why? Because nobody else is doing it, complicit the aggressive marketing astro-troll-surfing campaign by MS.

And that the MS approach in the schizophrenic W8 strategy is facing some significant hurdles is finally being recognized: http://money.cnn.com/2013/01/23/technology/laptop-tablet-hybrid-surface/index.html?iid=HP_LN

The problem for MS is that if no traction is gained soon, things will become much worse.
W8 is struggling despite the aggressive discount prices for upgrading (a first by MS), which expire on Jan 31.
WP is going nowhere and the novelty effect and marketing push of WP8 launch will soon be waning. Surface is s(t)inking.
Problem is that we are talking about (P)OS. It's really flawed products.
Worse, MS is attempting to force a crappy (P)OS on consumers, while trying to make it a straitjacket à la iOS:
Apps only available on MS Marketplace. Limited (sometimes on purpose, sometimes for sloppiness) functionality.
The problem is that iOS simply works and Apple is fashionable.
Windows simply hangs and crashes while Microsoft is despised.
Winning on consumers cannot be achieved by bribery and mafioso like tactics as in the corporate space.

This utter failure should not have been imposed on Nokia.
If only THT Elop had done some risk management homework, he knew the WP *only* strategy was WRONG.
Never put all your eggs in one basket.
What's worse, the safe, proven and profitable basket (Symbian, Meego) was jettisoned, while a small new one with gaping holes was chosen as the only replacement. Crazy. Or criminal. You choose.

But another crucial point that is not being discussed too much is the following.
Nokia was strong everywhere but in the States. Despite this, it was n.1 worldwide.
The non US market was Nokia's stronghold, with quasi monopolistic grip in many markets.
Enters THT Elop. Forget the rest of the world, he says. Nokia must focus on the US.
The US? That place where competition is crazy and everything is dictated by carriers?
While forgetting about the rest of the world where the real Nokia money is coming from?
The rest of the world where strong economic growth is (BRICs, Asia, etc.)? Is this a bad joke?
Fast forward two years. Nokia market share cratered and is in the low single digits.

What is worse, Nokia lost its independence.
Nokia lost all control over its revenue stream (now totally in the hands of MS).
This stinks. Jorma Ollila knows. Jorma must speak. Be bold and spill the beans.
Or be remembered as the man who grew up but then shamefully killed its own child.

[Earendil Star]

The Comedy of Absurd.

"And lets compare Nokia's 2010 services/content portfolio with Microsoft's/Google's"

Microsoft's/Google's?????

What's this? A new company?

So, should we go Microsoft or should we go Google (or rather... Android)?

Well Microsoft in mobile is null. Nothing. Zero. Nix.
Before Nokia gave it to MS as a present, its own Nokia/Ovi store was huge compared to MS'.
Nokia offered music, apps, maps, you name it. Even MS products for corporate use.
Yeah, those same MS products that THT Elop (at the time a Softie executive) sold to Nokia.

Google, or Android, well, that's another story. This is what really deserves no additional comment.
But bear in mind, the lead Google now has was strongly boosted in the past two years.
Partly because the previous incumbent in mobile, Nokia, was culled by THT Elop and MS.

The irony in all this?

That MS hoped to gain Nokia's market share (30%) in mobile paying 0 (zero) to Nokia for having gained its control.
A bold move, that could have been decisive in the mobile wars. Complicit the total absence of regulatory oversight.
But a move that was poorly executed, also because the trojan horse who had to make it turned out to be a donkey.
In fact, all of this strongly contributed to the surge of... Google and Android!
Yeah, the killing of Symbian and Meego did not help WP, the real burning platform.
It rather helped MS' worse enemy of all, Google and Android, in its reach for market dominance.

What a miserable fElop.

A sad ending for Nokia. A not too bad ending for consumers and competition.

[Earendil Star]

By the way, if you like it, help me spread this new term:

fElop (pron. feelop)

Meaning: a flop squared compounded by catastrophe brought about by a clumsy undercover agent whose actions backfire against his own agency.

A linguistic extension to the Elop effect. :)

[Sander van der Wal]

Regarding your question why the board allows Elop to continue, Elop is executing the strategy the board has decided on. That's the job of the Chief EXECUTIVE Officer.

[Winter]

@Earendil Star
"fElop"

I prefer Elopcalypse. It communicates the utter, cratering disaster better than a mere flop.

Enter it in Google or Bing and you see it is already used a lot.

[Winter]

@Earendil Star
"And that the MS approach in the schizophrenic W8 strategy is facing some significant hurdles is finally being recognized:
http://money.cnn.com/2013/01/23/technology/laptop-tablet-hybrid-surface/index.html?iid=HP_LN"

But the solution to all this wrangling is very simple: Put the computing and storage in the phone/cloud and link up to bigger screens and keyboard only when needed.

Many phones already have an HDMI connector. Bluetooth keyboards and mouses are a dime a dozen. The phone already has Internet connectivity.

This is not SciFi either:
http://www.extremetech.com/computing/119069-how-to-use-the-galaxy-nexus-as-a-desktop-replacement

If MS had been serious about "innovation" (a laughable suggestion), they could have released WP8 Lumia's with just these extensions and done away with the tablets.

But instead, they limited WP8 and WinPhones to prevent competing with their tablets. Likewise, they limited the tablets to prevent cannibalizing desk/laptop sales.

Again, typical MS style, they destroyed their future business to defend their past business.

[cycnus]

@winter

http://lifehacker.com/133747/geek-to-live--how-to-contribute-to-wikipedia
http://en.wikipedia.org/wiki/Wikipedia:Contributing_to_Wikipedia

@Tomi

I also hope you contributing to Wikipedia about the TERM ELOP EFFECT.

[John Waclawsky]

@J. O. Aho, your licensing statement is exactly making my point that the ill will generated by microsoft is enormous and they are just screwing their partners ...and just like the app developers other companies will have their revenge too (...most are doing it quietly at this time)

[foo]

Here's my interpretation of this image:

http://oi47.tinypic.com/25tvvr8.jpg

[foo]

From Seeking Alpha: "Elop The Magnificent Makes Nokia's Dividend Disappear"

"We considered investing in Nokia last year due to its (at the time) high dividend yield, but now, there is no dividend for the foreseeable future. Nokia skipped its dividend for the first time in its 143-year corporate history. We find it amusing that Nokia and its predecessors were able to pay dividends even during Finland's 20th century wars with Russia and its early 1990s recession, but had to stop paying a dividend to conserve cash after 28 months of Stephen Elop's management."

Ouch!!!

[Durak]

Like Maemo before it MeeGo is an elegant and powerful OS that could have had the potential to be the third runner in the increasingly two runner race.

As a developer on Android for the last two years I can say unequivocally that MeeGo is a superior platform that would attract some really great developers if it were given the chance.

MeeGo however was a threat to Microsoft.. so it had to go.

Someday I hope the truth comes out.