So now that the Elop Era has passed at Nokia, we can compare the two failed Nokia CEOs. The golden boy at Nokia was Jorma Ollila. His successor, Olli-Pekka Kallasvuo known as OPK became Nokia CEO in the Spring of 2006. He stayed for four years, but was ousted as Nokia reported increasingly bad results, including its first quarterly corporate loss in more than a decade, and after the Nokia share price had fallen 55% during his four-year tenure.
OPK was replaced by Stephen Elop in the Autumn of 2010. Elop only managed 3 years before he was removed from the post of CEO. As OPK came in during Q2 of 2006, and Elop took over after Q2 of 2010, and Elop was removed after Q2 of 2013, we can compare the two CEOs with reasonably fair 'Apples-to-Apples' comparison of Q2 of 2006 (Jorma Ollila's time) to Q2 of 2010 (OPK) vs Q2 now, of 2013 (Elop). We can also take the last full calendar year, 2005 for Ollila, 2009 for OPK, and 2012 for Elop. Lets compare the two Nokia 'failures' to see how they compare.
NOKIA UNDER KALLASVUO
Olli-Pekka Kallasvuo achieved the following, if comparing his last Q2 in 2010, to the last Q2 still partly under Jorma Ollila, in 2006. OPK was indeed achieving declines on several of Nokia's measured results. Comparing to four years before, remember, the total mobile and telecoms industry has been growing, OPK's last Quarter saw the declines of Nokia profits by 56% from 1.5 Billion Euros per quarter under Ollila to 660 million Euros under Kallasvuo. Nokia's handset unit saw its profits decline less, but still, a significant 34% decline from 979 million Euros per quarter to 647 million. Of Nokia's three critical regions, Europe, China and North America, North America had not grown, but had seen a very alarming 50% decline down to 2.6 million phones sold per quarter.
If we compare last calendar year, so comparing OPK's 2009 full year, to Jorma Ollila's last full year, 2005, we see that under Kallasvuo, Nokia profits fell 74% from 4.6 Billion Euros per year down to 1.2 Billion. Nokia's handset unit profits were down a bit, 8%, down from 3.6 Billion Euros to 3.3 Billion Euros over the four-year period. Regionally almost identical results, North America was the region that fell, and 47% when we use the last calendar year as the metric, down to 13.5 million handsets sold in North America in 2009 vs 25.3 Nokia branded handsets sold in North America four years earlier under Jorma OIllila.
Certainly when we combine the above performance with the share price fall of 55% in value over four years, OPK had been a poor CEO and it was a fair decision to replace him. He was not steering Nokia well enough. But lets be fair. Olli-Pekka Kallasvuo's period was indeed a 'mixed bag' - there was also plenty of good news with the bad. Consider:
If we use the Q2 to Q2 comparison of the four years, then while yes, Nokia corporation profits fell, the overall revenues were about flat (2% growth) from 9.8 Billion to 10.0 Billion Euros per quarter. The critical part was the handset unit, where revenues grew strongly by 16% from 5.9 Billion Euros quarterly to 6.8 Billion Euros. The handset unit volumes were up very strongly by 42% from 78.4 million to 111.1 million handset units sold per quarter, and where Nokia's future was - the smarpthones unit - had the best growth of them all, more than doubling in four years, up 167% from 9.0 million units to 24.0 million units per quarter. And regionally, yes North America was down, but North America is not the future of the handset market. How was Nokia doing in China? Under OPK that North American decline of 50% was more than made up by the 65% growth in China which already by then was bigger than the US market in overall handsets sold (all handsets, not just smartphones. Today China is 50% bigger than the US even in smartphones alone).
And to compare last calendar year, 2009 under OPK to 2005 under Ollila, again, its a mixed bag. Yes, Nokia profits are down but Nokia overall revenues grew 20% in the four years under OPK from 34.2 Billion Euros to 41.0 Billion. Yes, the handset unit profits were down but overall handset unit revenues were up by a very healthy 34% from 20.8 Billion Euros per year to 27.9 Billion Euros. The overall handset division reported unit sales up 24% to 431.8 million sold per year, and the smartphone unit sales - where the future of Nokia was - this unit reported sales up by 74% from 39.0 million to 67.8 million smarpthone units sold per year. European sales were slightly up, 7% but China was up 42% to 72.6 million units per year, while North America was down 47% to 13.5 million units per year.
Yes, Olli-Pekka Kallasvuo was not a good enough CEO for Nokia. He achieved growth in revenues, but declining profits (but was still profitable). He achieved growth in handset units and revenues, but the handset profits declined (but were still profitable). He did yes see North America sales decline but China grew much more than what was lost in North America and that was the right choice, considering how much bigger, and how much faster China was growing than North America. Finally, the future of Nokia, its smarpthone unit - was reporting the best growth and strong revenues during Kallasvuo. Nokia did not break out the profitability of the smartphone unit until later, but we did find out that during the end of the period, the smartphone unit was delivering strong double-digit profits even in the final months of OPK's tenure. The most critical number, Nokia's smartphone migration rate - migrating customers from dumbphones to smartphones - led the industry and was ahead of the global average. So Nokia was actually picking up market share, when it shifted from dumbphones to smartphones under Kallasvuo. Yes, there were bad results, especially the share price down by 55% but yes, Kallasvuo produced profits and growth in revenues. It was not all bad news.
WHAT ABOUT ELOP?
So lets compare to Elop. Take all those measures. Every one of them. And the results are worse under Elop than under Kallasvuo. Yes, every single measure is worse. Lets again take first the Q2 to Q2 comparison, latest quarter, in 'Apples-to-Apples' comparison of performance.
Under Kallasvuo Nokia reported growth in revenues. Under Elop the quarterly revenues fell 43% from 10.0 Billion Euros in Q2 of 2010 to 5.7 Billion Euros now. Under OPK there was a decline in profits but Nokia corporation was still profitable. After three years of Elop, Nokia was now unprofitable. This is total disaster as CEO, if you abandon profits and start to produce losses.
Under Kallasvuo the overall revenues of the handset unit grew 16%, under Elop, comparing Q2 of 2013 to Q2 of 2010, the handset revenues fell 60% from 6.8 Billion Euros to 2.7 Billion Euros. Under OPK the handset unit profits declined but there were still strong profits. Under Elop those profits were turned into losses. He replaced 647 million Euros of quarterly profits with a quarterly loss of 33 million Euros. OPK saw a 42% increase in quarterly unit sales of handsets. Elop switched that to a decline of 45% in quarterly unit sales of handsets. The smartphone unit under Kallasvuo saw more than doubling of sales to 24.0 million per quarter, under Elop that fell by more than half, down by 69% to 7.4 million units of smartphones sold per quarter. Regionally, the European market saw a fall of 57%, the Chinese market collapsed by 79% and the North American market - where Elop was supposed to save this, and the Microsoft alliance was supposed to help, Nokia fell only 50% under OPK but crash-dived down 81% in less time, under Elop. North American handset sales down from 2.6 million per quarter to 500,000 units per quarter by the time Elop was done.
The exact same pattern holds for comparing the last Calendar Years, OPK's 2009 vs Elop's 2012. If OPK was a 'failure' by any measure, Elop is far worse by every one of those measures. OPK at least saw Nokia revenue growth, annually 20% during his four years, up to 41.0 Billion Euros. Under Elop's three years, that was smashed down by 26% to 30.2 Billion Euros. Nokia's annual profits under OPK's last year were 1.2 Billion Euros. Elop swapped that for losses of 2.3 Billion Euros per year (a negative swing of 3.5 Billion Euros per year!!! This is one of the worst performances just in terms of profits, by any CEO).
OPK saw handset unit revenues up 34%, under Elop they were slashed by 44% down from 27.8 Billion Euros per year to 15.7 Billion Euros. Kallasvuo at least generated profits in the handset unit, of 3.3 Billion Euros annually in 2009. Under Elop that was exchanged in favor of annual losses of .. 1.1 Billion Euros. The handset unit sales grew 24% under OPK, they were down 22% under Elop, from 431.8 million to 335.6 million handsets. The smartphone unit annual sales were up 74% under OPK, they were down 48% annually under Elop, from 67.8 million to 35.1 million. European sales were up by 7% under Kallasvuo, down 37% under Elop. Chinese sales up 42% under Kallasvuo, down 62% under Elop. And North American annual sales were down 47% under Kallasvuo, they collapsed 84% under Elop.
And the share price under Elop, fell over 80% in two and a half years. Elop matched the 55% fall that Kallasvuo saw in a three-year period, Elop matched that in five months. The Nokia share price recovered a little bit only after rumors emerged that Nokia is about to being sold.
Yes, by every single measure, if you thought Kallasvuo was a failure as CEO, Elop was far worse. By not some measures, by every single measure, in less time, Elop achieved greater damage to Nokia than Kallasvuo. No wonder they now say, that compared to Elop, Kallasvuo was a saint..
Of course we now know why this happened. Kallasvuo did not have a contract with a clause that would reward him 25 million dollars for wrecking Nokia corporation totally and causing its handset unit to be sold. Elop did. And thus Elop did what we witnessed. But hey, lets take one more comparison.
ELOP FIRST 6 MONTHS
There is a very interesting comparison. Elop wasn't hired until during Q3, but if we take the last quarter he was not in charge, Q2 of 2010, and compare to the last quarter before his new strategy was announced, meaning Q4 of 2010, we get an interesting 6 month period of the trends that Elop was presiding over, when he started. What did his first half-year look like, in terms of Nokia performance. And compared to the last reported by his immediate predecessor, OPK? This gets interesting:
Comparing Q4 of 2010 to Q2 of 2010, same year, the last full quarter under OPK vs first full quarter under Elop - was Nokia indeed so deeply in trouble, it had to 'jump off a burning platform' or was Nokia actually on the mend, improving and competitive? Lets see what the facts tell us:
Nokia revenues had recovered to strong growth, up 26%, from 10.0 Billion Euros to 12.6 Billion. The declining profits under Kallasvuo had reversed to strongly growing profits - yes, under first months of Elop leadership Nokia overall corporate quarterly profits were up 65% from 660 million to 1.1 Billion Euros. Handset revenues which had grown under Kallasvuo merely 16% over a four year period, under Elop had grown 24% in just six months. Nokia handset profits which had been in decline, were now up a massive 49% from 647 million to 961 million Euros per quarter. Nokia handset sales were up 11% in just six months vs 42% of 48 months under OPK - the handset unit growth rate had doubled. Smartphone unit sales were up nearly twice that in the same period, up a massive 18% to 28.3 million per quarter. The regional sales in Europe were up 28%, in China up 13% and the North American sales collapse - had ended! Nokia sales in North America were flat for the first time, remaining the same 2.6 million under the first quarter under Elop as it was under the last full quarter of Kallasvuo's leadership.
Nokia share price had climbed 11% on all the good news. This is excellent by the new CEO. He should have continued that - except that he had not as strong an incentive to do the hard work, he got a much bigger incentive if he could wreck Nokia. Here are the metrics for comparison (I have colored them so you can easily see, which numbers went up - green, and which went down - red). Quarterly and Annual
QUARTERLY METRICS, LAST QUARTER IN CHARGE, OLLILA VS KALLASVUO VS ELOP AT NOKIA
Item . . . . . . . . . . Ollila Q2 2006 . . . Kallavuo Q2 2010 . . . Elop Q2 2013
Nokia Revenue . . . 9.8 B Euro . . . . . 10.1 B Euro . . . . . . . 5.7 B Euro
Profit/Loss . . . . . . 1.5 B Euro profit . . 0.7 B Euro profit . . . 0.1 B Euro loss
Handset Revenue . 5.9 B Euro . . . . . . 6.8 B Euro . . . . . . 2.7 B Euro
Handset profit . . . . 1.0 N Euro profit . . 0.7 B Euro profit . . 0.03 B Euro loss
Handset units . . . . .78.4 million . . . . . 111.1 million . . . . . 61.1 million
Smartphone units . . . 9.0 million . . . . . . 24.0 million . . . . . 7.4 million
China sales . . . . . . . 12.1 million . . . . . 19.3 milllion . . . . . 4.1 milllion
North America sales . 5.2 million . . . . . . . 2.6 milllion . . . . . 0.5 milllion
Source Nokia quarterly results
Same information comparing full year 2005 to 2009 to 2012, the last calendar year that each of the three CEO's was in charge,
ANNUAL METRICS, LAST YEAR IN CHARGE, OLLILA VS KALLASVUO VS ELOP AT NOKIA
Item . . . . . . . . . . Ollila 2005 . . . . . . Kallavuo 2009 . . . . . Elop 2012
Nokia Revenue . . . 34.2 B Euro . . . . . 41.0 B Euro . . . . . . 30.2 B Euro
Profit/Loss . . . . . . 4.6 B Euro profit . . 1.2 B Euro profit . . . 2.3 B Euro loss
Handset Revenue . 20.8 B Euro . . . . . . 27.9 B Euro . . . . . 15.7 B Euro
Handset profit . . . . 3.6 B Euro profit . . . 3.3 B Euro profit . . 1.1 B Euro loss
Handset units . . . . .347.0 million . . . . . 431.8 million . . . . . 335.6 million
Smartphone units . . 39.0 million . . . . . . 67.8 million . . . . . . 35.1 million
China sales . . . . . . . 51.0 million . . . . . 72.6 milllion . . . . . 47.5 milllion
North America sales . 25.3 million . . . . . 13.5 milllion . . . . . . 2.2 milllion
Source Nokia quarterly results
Yes, by every single measure, Elop in just 3 years, achieved worse results than Kallasvuo under four years. Bear in mind, OPK's period was also the economic world crisis, so all businesses reported bad results, all of Nokia's traditional full-portfolio handset maker rivals (the giants at the time, who made both dumbphones and smartphones, like Motorola, Samsung, LG and SonyEricsson) reported some quarters of losses in their handset units, except not Nokia. Nokia even under the very difficult economic times, under Kallasvuo, reported strong profits in the main business, handsets. Not until Elop did the handset unit implode and start to produce losses.
And yes, under OIlila Nokia share price grew, it fell under Kallasvuo, but it fell more, and fell faster, under Elop. Under Ollila Nokia's credit evaluation was a perfect AAA. Under Kallasvuo it dropped a little bit, to AA+. Under Elop, it was wipedout - Nokia is literally rated 'Junk' by all three ratings agences. Under Ollila Nokia grew into the Top 10 most valuable brands in the global Interbrand study with such brands as IBM, Coca Cola and McDonalds. It stayed there all through the 2000s decade and till Kallasvuo's tenure ended. Nokia was ranked 7th if I remember correctly, in 2010. After Elop came in, it dropped out of the Top 10 and today is down to 57. Interbrand says this is the fastest fall of any brand in history. Which corresponds with the world record falls Nokia faced in the market share - Nokia's fall in the past 2 and a half years has set a new world record for handset collapse, beating Palm, Motorola, Siemens, Blackberry etc, and after setting the world record for failure in 2011, Elop then went even further, by breaking his own world record in failure. The damage at Nokia is literally the worst in any global Fortune 500 market leader, worse than New Coke was to Coca Cola or the brakes failure to Toyota or the Deepwater Horizon oil spill was to BP. Elop has been not just the worst Nokia CEO, he's been the worst CEO of any Fortune 500 sized company, ever.
So, lets finally compare that Elop Effect. Was Nokia already in trouble, and Elop unable to fix the damage, or was Nokia a relatively healthy handset maker, whose profits were damaged by its under-performing networking unit, in 2010? Lets compare OPK's last quarter in charge, to Elop's first quarter in charge, and Elop's last quarter now:
QUARTERLY METRICS, ELOP START VS ELOP NEW STRATEGY (VS KALLASVUO LAST QUARTER)
Item . . . . . . . . . . Kallavuo Q2 2010 . . . Elop starts Q4 2010 . . Elop new strategy Q2 2013
Nokia Revenue . . . 10.1 B Euro . . . . . . . 12.7 B Euro . . . . . . . 5.7 B Euro
Profit/Loss . . . . . . 0.7 B Euro profit . . . . . 1.1 B Euro profit . . 0.1 B Euro loss
Handset Revenue . 6.8 B Euro . . . . . . . 8.5 B Euro . . . . . . . . 2.7 B Euro
Handset profit . . . . 0.7 B Euro profit . . . 1.0 B Euro profit . . . . 0.03 B Euro loss
Handset units . . . . . 111.1 million . . . . . 123.7 million . . . . . . 61.1 million
Smartphone units . . . 24.0 million . . . . . . 28.3 million . . . . . . . 7.4 million
China sales . . . . . . . 19.3 milllion . . . . . 21.9 million . . . . . . . . 4.1 milllion
North America sales . 2.6 milllion . . . . . . . 2.6 million . . . . . . . . 0.5 milllion
Source Nokia quarterly results
Yes, Nokia was doing pretty well, truly improving on EVERY measure in the first six months that Elop was at Nokia. Every single rising statistic of vital Nokia performance was turned into catastrophic decline, next, by Elop. Why? Because he had 25 million dollars as a bonus to wreck Nokia rather than take a couple of million in performance incentives to continue this growth.
Please feel free to share the story. This is the biggest robbery we've seen in our lifetimes, how Elop robbed victory from Nokia shareholders and gave Nokia's handset unit as a wreck to Microsoft.