Ok, in less than two weeks Nokia will hold its extraordinary shareholder meeting, where the shareholders are to decide if they approve the sale of Nokia's handset business to Microsoft. The meeting is in Helsinki on 19 November 2013. Here are my thoughts about the sale. The quick version - this is a bad WAY to sell something. Nokia's handset unit is not this bad, it was deliberately damaged by the past CEO who got paid a bonus for causing the damage. You don't damage what you want to sell, you make it attractive before you sell it. Secondly, this kind of deal should not be done in secret, Nokia should invite open bids. Thirdly, the two parts are NOT of value to Microsoft, only one part is. Why package the two. Why not sell them separately, get a better price for the package. So now the details:
WHATS AT STAKE
If the handset unit sale goes through, Nokia will shrink so much, it will fall out of the Fortune Global 500. The primary business left would be the networking business (what used to be called NokiaSiemens Networks) that competes with Alcatel-Lucent, Ericsson and Huawei, providing telecoms networking technology to the telecoms operators/carriers around the world. This business is not very profitable, Nokia has posted losses in the unit for most of this decade. Nokia has its navigation/mapping business which is small compared to the rest (and has mostly been unprofitable). Then Nokia would seek new businesses but the sale of the handset unit to Microsoft places long prohibitions so that Nokia cannot make handsets to compete with the unit that Microsoft has bought.
Oh, the price is 5.44 Billion Euros ie about 7.35 Billion US dollars (that amount is divided so, that about 3.8 Billion Euros is for the handset business itself, and another nearly 1.7 Billion Euros for various patents rights for at least ten years). The sale is for all of Nokia's handset business, smartphones and dumbphones.
What do I think?
First. We know now, for a fact, that past CEO Stephen Elop while at Nokia, had in his employment contract a bonus clause, that paid him 25 million dollars if the Nokia handset business was ruined so badly that it was sold to Microsoft. This is a very VERY dramatic conflict of interest. We know secondly that Elop has made numerous destructive decisions that damaged Nokia - Elop himself admitted at the Nokia 2012 Shareholder Meeting for example that his Burning Platforms Memo had damaged Nokia smartphone sales.
We have seen numerous times that the Nokia CEO had acted in ways that damaged Nokia handset business and even overruled his own staff in ways that damaged Nokia handset business. Elop for example refused to let the most highly regarded Nokia handset of all time, the MeeGo based N9, be sold in any of Nokia's biggest markets. The Best-EVER Nokia phone was refused by the CEO to be sold in Nokia's biggest and best markets. That is acting against Nokia's best interest. It was indeed acting to damage Nokia handset business. He refused to let its sister phone - which Nokia manufactured - the N950 also on MeeGo - be sold anywhere. While Nokia was generating a loss, and these highly desirable premium phones were highly profitable, that is clearly acting against Nokia's best interests. When Nokia own senior staff argued in favor of Nokia offering QWERTY based smartphones in its portfolio, because 40% of Nokia's smartphone customers at the time had them and preferred them, Elop again overruled his staff and refused those to be sold. When Nokia's own surveys said that the number 1 thing Nokia existing loyal smarpthone customers asked for in their next smartphone was a better camera, Elop refused to let good cameras be put on the first Lumia phones, they had worse cameras than contemporary Symbian smarpthones! Elop insisted that the Lumia 920 camera, which was not anything of 'Pureview' technology as defined by Nokia's own White Paper, was suddenly called Pureview, helping ruin the reputation of that major leap in camera tech pioneered by Nokia with the 808 which had real Pureview, etc. Only with the Lumia 1020 that was now released when Elop was removed from CEO position, did the Lumia series finally have a camera as good as last year's best Symbian smartphone by Nokia. Elop made actions that seemed to be in Microsoft's favor while damaging Nokia, such as the decision to announce Microsoft's Windows Phone platform in February 2011 when Nokia had no phones to show or sell - this caused an 'Osborne Effect' collapsing Nokia's smartphone business overnight falling by half in five months - a world record collapse. But Microsoft benefitted greatly from this, because Windows was collapsing in the market place at the time and was down to 1% market share by the time Nokia's first Lumia smartphones were launched. And so forth.
I do not need to go on. It is clear that from the behavior, that Elop was pursuing actions that helped him gain his 25 million dollar bonus, rather than helping Nokia succeed in the handset business. This is a fact, all evidence proves that Elop took strongly growing Nokia handset business that was strongly profitable, and wrecked it starting February 2011. The evidence is 100% consistent, Nokia's own quarterly reports pinpoint the moment in time, when ALL Nokia smartphone division numbers reversed. Nokia strong growth in units, turned into decline. Nokia strong growth in revenues, turned into decline. Nokia strong growth in profits, turned into losses. All that happened in February 2011, and has been a disaster since, until now. The cause was Elop and his 25 million dollar bonus and his rampage to demolish the Nokia handset business.
Because Nokia's chairman, Risto Siilasmaa, when interviewed by Finnish press, initially did not think that Elop's contract was any different from those of his predecessors as Nokia CEO, Olli-Pekka Kallasvuo and Jorma OIllia, but it had this dramatic suicide-pill in it - pay Elop 25 million dollars if he manages to destroy Nokia's handset unit - I think the Nokia Board has not been fully aware of what their CEO is doing or why he is motivated to act so. Whatever secret contracts that Elop or Siilasmaa have been making with Microsoft - with the above history - these are suspicious at best.
YOU DON'T DAMAGE THE PART YOU WANT TO SELL, YOU FIX IT FIRST
With that, I think it is utterly wrong, for Nokia to proceed now with this current deal with Microsoft. We know for a fact, that ex-Microsoft executive, Stephen Elop, acted to destroy Nokia's handset business - and was paid to do so. Now they try to sell that wrecked business - to Microsoft. This is not the way to sell the best part of your business. Nokia's smartphone unit alone - less than half of the handset business - in 2010 when Elop was hired (and given that contract in 2010) - the Nokia smartphone business alone would have been a Fortune Global 500 sized company and was so strong, it would have generated Fortune 150 sized profits!!! That is before we add nearly as much from Nokia's 'featurephones' unit on top.
Lets take Elop out of this. We know that for whatever reasons, and however it was achieved, the current Nokia smartphone business is a wreck. You don't sell wrecks. You clean up the property before you sell it. If Nokia wanted to sell its smartphone business, the fast and easy way to make it much prettier - is to ANNOUNCE that Nokia will introduce those Android phones that Nokia had started secretly to develop this year. Nokia can sell them next year, I believe at the end of the year, around November, the contractual obligations of the Windows deal should expire. So let Nokia's new CEO introduce Android smartphones next year. 1 - Nokia share price will jump - Nokia shareholders should be happy about that. 2 - Nokia will attract far more interest among buyers. 3 - Microsoft will freak out, it will panic, and Microsoft WILL OFFER A BETTER DEAL for the Lumia unit alone! and 4 - if more offers are entertained, Nokia can get a better deal where it doesn't have to quit all of the handset business.....
WHY SELL ALL OF IT - THIS AGAIN IS NOT IN NOKIA'S INTEREST BUT IT - IS - IN MICROSOFT'S INTEREST
Secondly, does Nokia really want to sell ALL of its handset business (regardless of whether this is Microsoft of not). No, of course not. The reason the whole package includes all smartphones and all dumbphones, is because Microsoft set this deal up, and because it was done in secret, so Nokia did not invite open bids. This is bad business practice. In Finnish: Huonon liiketoimintatavan mukaista. Any normal CEO would act differently.
Microsoft does NOT want to sell dumbphones under the Nokia brand, because those dumbphones do not use Windows. The only reason Microsoft wants the 'featurephones' unit in addition to the Lumia unit, is because Microsoft fears sales contests where a lousy Lumia device is next to a new cool Asha 'featurephone' under the Nokia brand. Microsoft does not want Nokia dumbphones. Why package them together. Someone else WANTS to buy the dumbphones unit!!
While we are on it, why is the Nokia handset brand included in the deal? Why not do as Rolls Royce did, when it sold its car business. It sold the Rolls Royce factories and the Bentley brand to Volkswagen, and sold the Rolls Royce brand to BMW. Why not split the two - ESPECIALLY because Microsoft has no use for the Nokia brand, ten years from now there will be no Microsoft Nokia Lumia phones running Windows. There will maybe be Microsoft Lumia phones or more likely Microsoft Windows phones, but the Nokia brand will be gone on Microsoft-owned phones, soon. Why not separate the two? The Nokia brand was the world's 8th most valuable brand on the PLANET before Elop started to destroy it. It still is highly valuable brand in Africa, India etc. Some handset maker like Huawei, Lenovo, ZTE etc might want the Nokia brand to help capture big slices of the African, Indian etc markets (Africa alone has more people than USA, Canada, The whole European Union, Japan and Australia, combined; India is even bigger by population than Africa..)
If Nokia shareholders really want to sell their handset unit, then this is not the right way to do it. Not through a deal negotiated in secret, when there is PUBLIC notice from rival tech companies, that they would be interested to bid on Nokia assets!! If Nokia shareholders wanted to sell the handset unit, it should be split, so that the smartphone unit is separated from the dumbphone unit. I would bundle the Nokia brand with the dumbphones unit and the Lumia sub-brand with the smartphone unit.
Furthermore, I think it would be better if Nokia only sold part of that. Why all? Why not only sell part of it. Sell the dumbphones unit alone. Include a 3 year exclusive right to the Nokia brand in Africa and India and say Middle East in the package. Keep the smartphone unit, launch Android phones on it next year, and watch how the Nokia smartphone unit returns happily into profits. Then - in 2015 - if the Windows Lumia unit of Nokia smartphones sells far less than the Nokia Android smartphone unit - then sell that Lumia unit to Microsoft. They will still pay 5 Billion Euros for it then, because we know, Microsoft is desperate.
PROBLEM IS NOT NOKIA, IT IS WINDOWS
The problem Nokia faced past 3 years with collapsing smarpthone sales is not that Nokia suddenly forgot how to make great phones - many of Nokia's phones have been very highly rated during this period including the N8, E7, X7 and 808 Pureview on Symbian, the N9 and N950 on MeeGo and several of the recent Lumia models. The problem was Windows and Microsoft. Elop HIMSELF said so, that the carriers don't like Microsoft - because Microsoft bought Skype. Its not that operator refuse to sell smartphones that have Skype - they hate Microsoft because it OWNS Skype. So they will not support Microsoft phones to the same level as they support for example Android phones. I did not invent this, Elop admitted it at the 2012 Nokia shareholder meeting. Some carriers even refuse to sell ANY brands of Windows smartphones - said Elop to Nokia shareholders. We have heard from Windows phone partners that they have no demand for Windows so they are shifting more to Android like Samsung, Huawei and HTC have done.
WINDOWS IS POISON
Did you know, that LG went once fully Windows-only in smarpthones. That caused its profitable smartphone unit to turn unprofitable, instantly. And only after LG ended Windows and went to Android, it was able to make profits again? Did you know that the Sony (ie SonyEricsson) handset unit once was making Windows smartphones, but was unprofitable, and it abandoned Windows, went to Android, and is now profitable. The first-ever Windows partner, HTC once made 100% of its handsets in Windows. Today 4 out of 5 HTC smartphones sold runs on Android. Samsung also makes Windows smartphones, but its Windows smarpthones are less than 1 in 10. Android is the way to go for Nokia now. Just announcing Android smartphones will increase Nokia share value instantly, and just announcing Android smartphones will make Microsoft revise its offer - upwards! Microsoft is desperate for Nokia not to end Lumia Windows sales. Microsoft desperately needs this unit to continue to make Windows. If they want it, make them pay for it. Dont' sell them the 10 year patent rights, don't give them the exclusive rights to Nokia handsets and brand! Nokia is not the desperate seller here, Nokia was deliberately damaged by Elop and he is now gone. Nokia is already starting to fix itself. For the past 4 quarters, Nokia smartphone sales collapse has ended, Nokia smartphone sales have stabilized. Any sensible CEO who has no contractual clause to damage Nokia, can easily turn this handset business back to profits - knowing full well, that the first thing you do is STOP DRINKING THE POISON of Windows.
While we are at it, The new CEO should seriously consider rushing those 2 actually manufactured MeeGo devices (N9 and N950) that Nokia was manufacturing - and introducing them with whatever is the latest/last MeeGo OS version. And then rush into the market the other 2 MeeGo devices we know existed (the N9-00 and the original non-crippled MeeGo variant to the Lumia 800). These are no longer cutting edge hottest phones ever and cannot be sold for 500 or 600 Euros, but they are still very compelling mid-range phones that Nokia can make in its factories - that are IDLING - and rush to markets where they were not sold but who wanted them like the UK and Germany. If offered alongside the Lumia Windows devices, the MeeGo smartphones were always rated BETTER. Why not sell them now? They will not restore Nokia to 20% market share, but they will sell in several millions, definitely, and with no royalty due to Microsoft, they are INHERENTLY more profitable to Nokia than the Lumia series. Just introducing the MeeGo devices - and selling in the say 250-300 Euro range - they are quite competitive and reasonable mid-range products, while we await the new flagships on Android to arrive for Christmas. Nokia could put the N9 and N950 back into production now, and start to sell them by the first quarter of 2014. Again, just announcing that the MeeGo based N9 and N950 will 'finally' be released in the UK, Germany etc, will boost Nokia's reputation and share price - especially if the new CEO also says, he will develop Android smartphones. (And no, obviously the CEO should not announce the end of Windows, just that he will bring Android alongside Windows). Remember, its not that Nokia phones are bad, its that there is resistance by the carriers/operators to sell Windows based smartphones. So said Elop, so said LG, so said Huawei, so said Sony, so said HTC, etc etc etc. If Nokia offered anything that is not Windows now, it will instantly sell better. Because Elop is gone, the carrier-community will rush to help Nokia recover, they want Nokia to be Nokia and make phones, they don't want Microsoft to make the Nokia phones in Microsoft Evil Empire bullying style.
Let me emphasize one point here. Nokia OWN staff were in the press, and Elop HIMSELF said he had over-ruled them on the QWERTY type of hybrid phones, like for example the N900 and the E7, phones that have both a full touch-screen and a slider full QWERTY keyboard. 40% of Nokia smartphone users in 2010 had smartphones with some type of QWERTY on it (others were the Blackberry style). Since Elop refused to let such phones be made, but there is a big demand, and Nokia sensible management (the ones without the 25 million dollar bonus to destoy the handset business) were arguing for this, then Nokia should really do that. The N950, even though it would be two years old by now, if we just update the software and add some memory, is a HIGHLY desirable Nokia-branded, Non-Windows smartphone that has QWERTY. There is a HUGE pent-up demand of loyal Nokia users of QWERTY smartphones who would rush to try it. And a HUGE pent-up demand of loyal Nokia users who refused to buy Windows smartphones, who would rush to try it. And also a sizeable market of first-trial Lumia users, who are disgusted by Windows but still like their past Nokia experiences, who would be willing to try it. The N950 alone, will sell - I guarantee it - 2 million units per quarter easily for a few quarters, if priced at 300 Euros. And If Nokia could sell the sister phone, the N9 for about 500 Euros and with high profits back in 2011, then because of Moore's Law, the costs of those components have shrunk, and the price of manufacturing it would have fallen, the N950 today would easily be profitable at 300 Euro prices. And with literally more than 50 million Nokia QWERTY-owning Symbian Nokia smartphone owners out there, who have hoped and prayed for a newer QWERTY style smartphone, just this one model will help restore Nokia's smartphone division to profits.
Oh, one more thing - Jolla! Apple's iPhones are not manufactured by Apple. They - all of it - come from Foxconn and made in China. As Nokia now has the crisis, of producing Lumia Windows smartphones, that are under sales boycott worldwide - operators don't want them - but Nokia loyal smartphone users want Nokia branded smartphones - why not do like Apple? The new CEO should immediately negotiate with Jolla of Finland (the guys who worked on the MeeGo based phones in the past, and departed with Nokia's blessing to go launch their little handset-maker company) and as Jolla is not overburdened (yet) with huge demand for their products, hire Jolla to produce Nokia's 2014 flagship phones - cobrand them as Nokia Jolla !! have Jolla make them. Using their OS which is called Sailfish, which is the latest evolution of what was then Nokia's MeeGo. So obviously also the other older MeeGo phones should use Sailfish OS (the latest version of MeeGo, so to speak) and the beauty is, that in most cases, Sailfish OS is so clever - it runs most Android apps NATIVELY... So instantly, Nokia's full MeeGo phone line is 'Android-compatible' in first Quarter 2014, as Nokia awaits its own full-Android phones to come on line, towards the end of the year. And Jolla - as long as they get co-branding, should be VERY happy to act now as Nokia's 'outsourced' factory - haha, think about that, a giant company with factories in China and India, doing its outsourcing from a company based in Finland haha... But yeah, it really wouldn't matter one iota, what price you set on the Jolla-Nokia phones now, if you bring them to the stores, and they are truly 'Nokia' branded and they truly are 'not Windows' - there will be a BIG market for them. Whether that is 'only' like 4 million per quarter like the last non-Elop flagship was, the N8 by Nokia, or maybe better because the industry has more than doubled in that time - who knows. Nokia doesn't need to make big profits out of this, they just need to show, they are back in the game and have a new flagship - which is 'not Windows' haha... That is an instant success story. And Jolla people will love it, if they are helped to get their sales channels opened, when this partnership would end, they can continue from there selling premium Jolla smartphones, just without the Nokia co-branding.. duh. Easy-peasy.
This deal offered Nokia shareholders was prepared in secret and on terms that are very much against Nokia's best interest. If you do want to sell your handset unit, then FIRST fix the damage that Elop caused. That will take at least 6 months, that Nokia can wait. Then INVITE BIDS !! The silly thing is to take half your company and sell it in secret. We KNOW there are other companies who would love to buy Nokia or parts of it. Thirdly, if the handset unit is sold, it is VERY LIKELY to bring a bigger amount, if sold in two pieces, not one. And lastly, Nokia should consider not selling all of its handset business, rather only sell a part of it.
Thats my take.. Good luck to Nokia shareholders in that meeting. However this turns out, at least the cancer of Elop is gone and Nokia can now recover to something new.