Ok... Now the 'post Nokia' world has been seen as well at Microsoft. There will be no miraculous turn-around for 20% market share once Elop is back at Microsoft and he gets to pick the best 25,000 remaining Nokia people to come with him. The problems that Elop had at Nokia continue now as Microsoft took over the handset business, and of those last 25,000 ex-Nokians half learned they too will be fired. And that 'saviour' project X, Nokia phones on Android, were killed also now at Microsoft. Now we can take a look at was there any insight at this blog about Nokia and the tenure of Elop.
THE TRUE TEST OF AN ANALYST
There have been tens of thousands of interesting news stories about the mobile industry in the past four years. Some are big stories, most are small stories and a few are truly giant stories. But one has been not just the biggest story of the mobile industry, it has been arguably the biggest story in all of business, across any industry. It was the total collapse of Nokia from 2010 to 2014. This collapse was not due to natural disaster (Fukushima nuclear power plant hit by both giant earthquake and giant tsunami) or freak incident (Pan Am shot out of the sky by Libya-backed terrorist that was the key catalyst in difficult times that ended up destroying the Pan Am the airline). It was not a sudden lawsuit or change in legislation or acknolwedgement of lethality such as that which changed the cigarette industry almost overnight. It was not a manufacturig defect (Toyota brakes) or a production problem (BP Oil Spill) or distribution disaster (Exxon Valdez). The Nokia product line did not suddenly become instantly undesirable by a new radical product introduced by a rival (Sony Walkman vs Apple iPod). And Nokia did not suddenly introduce a hated product to replace the beloved one (New Coke).
In 2010 Nokia was the world's 120th largest corporation according to the Fortune Global 500 list that summer. For American readers, understand that the Global list includes US corporations and non-US corporations. If Nokia had been headquartered in the USA, it would have been the 39th largest company in 'The' Fortune 500. Yes, larger than Met Life. Nokia was not just a 'Fortune 500' sized giant, it was truly a Fortune 50 sized megacompany by US metrics. But globally, ranked 120th largest company. And a safely profitable giant too. The reason previous CEO Kallasvuo was fired was not because Nokia was producing losses (the reason usually CEO's get fired) no. It was that the previous years had produced massive profits at Nokia and now the lesser, more 'regular' levels of profit were disappointing to Nokia investors so while Nokia was a growing, profitable company - it fired its CEO because the performance was 'not good enough'.
Today we have the latest Fortune Global 500 listing and Nokia is ranked 394th (includentially alst year I predicted Nokia to fall in this year's rankings to about 374th, so not a bad prediction, eh, while many thought Nokia was on the brink of recovery with new Windows 8 based smartphones etc). But this ranking is misleading now in the summer of 2014 as it is based on 2013 annual revenues (as is every corporation on the list) and that was before the handset unit is sold. After the handset business is removed from Nokia Corporate income, Nokia falls out of the Global Fortune 500. Next year it will not be included in the list. That is certain.
So we've seen a giant fall in mobile. Not just any giant. The world's largest handset manufacturer who was the first company in any industry to ship 1 million products per day. Nokia at its peak was used by 1.4 Billion humans on the planet - more people used Nokia than drink Coca Cola. Nokia was the most used camera, the most used clock/wristwatch/pocket watch, the most used messaging device, the most used internet access device and of course the most used telephone on the planet. Nokia was the only brand that existed in every country on the planet. The Nokia Tune was the most recognized song on the planet and the default time-killer game "Snake' on Nokia phones was the planet's most played videogame, more played than Solitaire on personal computers running Windows. Literally one in five human beings alive on the planet had a Nokia device in their pocket, more than any brand had ever achived in human history. And Nokia had huge customer loyalty in 2010, most markets it was the clear number 1 brand not only in mobile phones but in all of tech. Often such as in India it was the number 1 brand of the country. Period. That all died in the past four years.
BUT THE iPHONE WAS KILLING NOKIA
But you could say - featurephones or 'dumbphones' were going to die anyway, and the future of handsets belonged to smartphones like the iPhone and Samsung Galaxy. And then if you've been reading the myth-peddlers, you'd even maybe say 'Nokia was dying in 2010 because of the iPhone and Galaxy'. Was it.
Nokia invented the smartphone, literally ten years before the iPhone appeared. Nokia had touch screen phones, internet phones, gaming phones and an app store well before the iPhone. Yes, of course Apple did it better. Thats what Apple always does, when it introduced the Mac or the Newton or the iPod or iTunes or iPhone or iPad. Apple always takes something that already exists and totally reinvents it making it better But then - Apple NEVER owns that new market. Apple just takes the cream off the top, makes the most profits, and then moves on, to reinvent something else (maybe the iWatch next).
So lets go to year 2009. Apple was the world's third-largest smartphone maker (Blackberry was second) and Apple sold 25.1 million smartphones. During year 2010 Apple celebrated enormous growth reaching 47.5 million smartphones sold, almost catching up to Blackberry. Yes, Apple nearly doubled its smartphone sales and yes, Apple added 22.4 million new sales of smartphones. Apple had growth of 22.4 million smartphones during calendar year 2010 (from January to December, Apple has a different 'fiscal year'). That is amazing isn't it and of course Wall Street was hysterical about how great Apple was growing. And Apple made tons of profits out of its smartphone business too,
Now look at Nokia. That 'struggling' Nokia which in 2010 still sold its smartphones running on the 'obsolete' Symbian system. Nokia in 2009 sold 67.8 million smartphones. Did Nokia lose sales to Apple in 2010? Did that number go down while Apple's iPhone grew so much? No. Nokia grew. Really? Yes reallly. Nokia's smartphone sales grew to 103.6 million units (the final, corrected number by Nokia financial reports). Nokia's smartphone sales during calendar year 2010 grew 35.8 million units !!! The gap between Apple and Nokia smartphones was not narrowing during 2010. Apple was not catching up to Nokia. Nokia smartphone unit was the global juggernaut totally crushing its competition - and yes - the numbers are indisuputable, the gap between Apple iPhone and Nokia smartphones was GROWING during 2010, not shrinking. Apple was not 'catching up' to Nokia, Nokia was indeed 'pulling away' from Apple (and from Blackberry and from Samsung etc). And Nokia did this profitably, and its smartphone unit produced a Nokia-record profit by Q4 of 2010. Nokia was not losing, The numbers are crysta-clear if you can do basic math. Nokia was clearly winning the war.
No matter what you read from misguided American tech press at the time, the fact is. The fact is, during calendar 2010, Nokia grew more than Apple, Nokia was more than twice as big as its nearest rivals including Apple, and Nokia set company-records in that smartphone unit which during 2010 became the biggest profit engine of Nokia corporation.
And let me make one point about the iPhone. From 2007 to 2010 the iPhone grew and grabbed market share. It killed domestic rivals such as Palm. But from 2010 - when the Nokia collapse started in 2011 - from 2010 Apple has not seen any market gain by the iPhone. The iPhone market share peaked and has been in continunous decline now for years. Yes. the iPhone is growing UNIT sales (and making wonderful profits) but the industry is growing MORE. Apple has lost market share from a peak of 21% to th 15% it has now. Thats a FACT. When Apple's iPhone had its golden years of massive market share growth from 2007 to 2010 - Nokia grew almost as much. Yes. Nokia grew. So the iPhone in those years did not eat Nokia's cake, the iPhone actually helped Nokia grew more. But from 2011 when the Nokia collapse started, the benefactor was not the iPhone. Apple did not cause Nokia's fall and Apple did not gain from Nokia's fall. Who gained? Samsung. In 2010 Samsng's market share in smartphones was 8% (Nokia's was 35%). Now at the end of 2013 Samsung's market share was 32% while Nokia was down to 3%. And Apple? Went from 16% in 2010 to 15% today. If you claim that Apple killed Nokia or Apple gained from Nokia's fall, you are incompetent at math. Please stop writing tech stories.
Back to Nokia in 2010. If you are Coca Cola or Boeing or General Motors or Nike or HP or Apple, you would DIE to be in that position in you business. To be more than twice as big as your nearest competitor (none of those companies have EVER been that, or I am not sure about Coca Cola, lets say Coca Cola within our lifetime haha) and growing MORE than the competition and generating corporate-record profits. This is the perfect position for a CEO to run a company. You dominate your industry more than ANY global giant in the car industry or PC industry or soft drinks industry etc - and you are growing faster than you competition and you are generating record profits. This is perfection in strategy and business.
Nokia had problems yes. Most of Nokia's problems in 2009 were with the networking unit, Nokia Networks, which caused Nokia to report one quarter - not even one year - one quarter of a loss. That poor financial performance was the key to Nokai then-CEO Kallasvuo being fired. Nokia was underperforming. It was still performing profitably, but not as greatly as it possibly could perform. The problems at Nokia in 2009 were not in the handset division and certainly not in the smartphones unit. That was the company we saw in 2010 dominate the handset industry and change its boss. And that giant hugely profitable company that was DEFEATING Apple - yes, growing FASTER than Apple iPhones - four YEARS after the iPhone had been introduced - that company suddenly collapsed in 2011. In 2011 there was no radical new smartphone like the iPhone or Galaxy years before. There was no failing Nokia phones either, Nokia's newest flagship, the N9 was released in 2011 which was received with universal praise.
Over the past four years there was no bigger story in mobile than the Nokia total collapse. There was no bigger story in tech, and arguably in all of corporate histrory than what now happend at Nokia. And what makes the story so sad, it as that it was all due to one man, the new CEO, and his mismanagement of the company. So whatever tech websites you followed in the past years, did they see this story as it happened? And did they report it at the appropriate relevance and detail? And did they forewarn you of what was about to happen?
Nokia was the world's 120th largest company in 2010. It was as big as fitting inside the Fortune 40. It was a profitable company. It was by far the largest handset maker. It was by an even larger margin the largest smartphone maker. It was the planet's 8th most valuable brand. Yes. Ahead of Rolls Royce and Mercedes Benz etc. The planet's 8th most valuable brand. On every continent except North America, Nokia was the bestselling phone brand, the bestselling smartphone brand and get this - the most used app store too! And in North America, where 6 domestic handset brands were sold using 5 domestic smartphone operating systems, you'd expect the only 'non-American' brand handset maker (Nokia) to also use a non-American OS (Symbian) to be ranked dead last. Yet it wasn't. Nokia, even being the outsider on both counts, was able to fight for a noble 5th ranking in the North American market for smartphones which was flooded by American brands at the time.
As the Nokia handset business was sold to Microsoft, Nokia no longer even qualifies for a Fortune Global 500 ranking. Nokia's highly profitable smartphone business was turned into a loss-making unit by the new CEO and it never once recovered even for one quarter, to report a profit. The losses continue now at Microsoft who just last week announced that half of the remaining ex-Nokia employees will be fired. There was never a story like this in business. Toyota the world's largest car maker suddenly collapsing and selling its car business? HP selling its PC business. Exxon selling its oil business. Never has a global market leader fallen as rapidly and thoroughly as Nokia did in the past four years. This was the story to follow in mobile and tech. Arguably the biggest story in all of business. Did your tech writers tell you the story as it evolved and did they give you good guidance of how the collapse was happening, or were they perhaps peddling propaganda that Nokia was better off with Microsoft and Windows? Or that some miracles were happening that Americans loved the Lumia and the British were fed up with the iPhone and the Chinese bought more Lumia than iPhones?
This is my 'told you so' blog to brag about how smart I've been about this story. This is mostly for me. But also for those who stuck with me and followed the bewildering story as it unfolded. Thank you to all of you who left supporting comments or sent private emails etc. I couldn't hvae done it without you. So often I literally cried when composing my latest blog about the Nokia saga. I loved Nokia and didn't want to see my fave tech brand being slaughtered.
Note. I was criticial of Nokia before Elop. I agreed with the firing of his predecessor Olli-Pekka Kallasvuo as CEO, so yes, Nokia was literally so much in trouble in 2010, that I agreed that its CEO should be replaced. I also wrote frequently about how Nokia was under-performing in the market share battles, and had a horrid recent record with quality and delivery schedules. The N97 flagship was plagued with problems and its successsor, the N8 flagship was delayed by more than 12 months from its first promised delivery date.
This blog explained clearly long before Elop came to town, that Nokia's future was not with Symbian. Nokia management had built an elaborate migration path for Nokia smarpthones to migrate from Symbian to MeeGo (earlier Maemo) including the costly part where developers could migrate from one platform to the other, via the developer tools called Qt, so they could develop with one set of tools for both the world's most used smartphone platform (Symbian) and Nokia's new platform MeeGo. This is not the cheapest way to do a migration but it ensured that the developers and partners were best served. It would have made a dramatic difference in how much of Nokia's dominating existing base could have been brought over to the new MeeGo system, compared to how Microsoft was doing its migration, famously not allowing any app or developer migration from Windows Mobile to Windows Phone, etc. Also I was one of very few analysts to point out the silliness of Nokia attempting to buy market share under Kallasvuo and the futility of the price wars that he initiated. So please everybody, the reality is, that I HAD been critical of Nokia, very critical on this blog, before Elop showed up.
WELCOMED ELOP TO BEST JOB IN TECH
So do you remember what was the prevailing analysis when Elop started at Nokia in September 2010? Do you remember what most analysts wrote? They said Nokia was in deep trouble and was being killed by the iPhone and Elop faced an uphill battle. (All of that obviously was untrue).
This is what I wrote on Sept 17, 2010 welcoming Elop to Nokia CEO post: "Nokia is pretty well poised to outperform its other big 5 handset maker rivals into the foreseeable future. Nokia will never generate as huge profit margins as Apple, but if Nokia's profits turn now from decline into growth - then Stephen Elop will be seen as the savior, the miracle-maker, the man who defeated the Apple iPhone challenge and saved Nokia." Can you see how bold that was? I was saying that 'troubled' Nokia which has just been in such a big crisis, it fired its CEO - and I agreed with that firing - was in reality already so certain of recovery, they would not only return to growth patterns - their declining profits would recover to growing profits !!!! Who told you this in September 2010 when everyone was peddling the story that Nokia is doomed and dying 'because of the iPhone' haha.. Who told you this, other than me?
In the next two quarters, Q3 of 2010 and Q4 of 2010, yes Nokia did rather easily outperform the other big 5 handset makers (Samsung, LG, SonyEricsson and Motorola, several of which were reporting losses and declining sales in those quarters). Good call. Then what happened to profit decline? Nokia handset unit profits: the profit decline DID end and hit the recent bottom of 643 million Euro (9.5% profit margin) in Q2 of 2010 and climbed nicely up 37% to 884 million Euro in Q4 (and 10.4% profit margin). Hey, that is a VERY good prediction, to correctly pinpoint a CHANGE in a trend, where a long-continuing decline in profits turns into a steady increase in profits (those first two Quarters with Elop in charge. He would later destroy this growth, himself).
So you say thats 'dumbphones' for the most part, what about the future of Nokia, its smartphones that ran that 'obsolete' Symbian back then? That was supposedly 'dying' because of the iPhone. Was it? Yes, the profits had been declining but again - the bottom profits - still profitable smartphone business - were Q2 of 2010 and 254 million Euros and 7% profit margin. What happened? In Q3 and Q4 the profits grew, by Q4 the profits in the smartphone division were up 100% !! Yes profit doubled! And that was not just volume the profit margin went up from only 7.4% in Q2, to 11.6% in Q4. So the smartphone unit by Q4 of 2010 were now driving Nokia's profits, the smartphone unit - all run on Symbian !!! - were now the most profitable unit of all of Nokia. Talk about a perfect prediction! I do know my industry and this was pretty obvious. But did you read it ANYWHERE else about Nokia's new CEO? No. The other analysts would all say how much Nokia was supposedly in trouble because of the iPhone (even as from 2009 to 2010, Nokia's smartphone business grew more than Apple's iPhones in new sales - yes the gap between giant Nokia smartphones and third-place Apple iPhone was GROWING - Nokia was pulling away from Apple - check the numbers. Apple was not catching up to Nokia. But did you read that in your USA based 'analyst' articles? No. They peddled the tired lie that Nokia was somehow dying. All while Nokia produced its biggest profits ever in its handset business by Q4 of 2010.
I was totally correct in my very first blog about Elop and congratulating him on landing in the most lucky job in tech, a company on the edge of a return to big profits and growth. All Elop needed to do was sit and enjoy the ride, take the credit and spin the story to Nokia shareholders how great things were going to be. The stock market loved Elop's early tenure so much, that the Nokia share price went up 16% in the first half-year of Elop's tenure until his moronic Burning Platforms memo.
Did you read anywhere else that Nokia would grow its handset business faster than its big 5 handset rivals (at this time Apple was a tiny speck in the handset landscape)? Did you read anywhere else that Nokia would reverse its profitability decline in its handset business (or its smartphone business) and it would turn into record growth? But on this blog? On the day Elop started. He could have owned the world as the next Steve Jobs bring magical profits to Nokia, the recovering giant. But yes, told-you-so.
So Elop authored the infamous Burning Platfoms memo, the costliest management memo of all time. And I did yes, on Twitter immediately and moments later on this blog, tell the world that I thought that memo was so stupid, it could not be written by Nokia's CEO, because it contained so many errors and would cause a total collapse of Nokia's business. I concluded my blog that no way could Nokia's new CEO believe what was in that memo or else: "Nokia is led by a delusional psycopath who willingly suspends reality"
There was a lot of heat and excitement and debate about that memo. Some felt it needed to be said. Others were appalled. But who else said immediately that this memo contained FACTUAL errors and expressed DELUSION in the new CEO and would cause damage to Nokia?
We learned then that yes, Elop did write that memo. I ammended my blog only to indicate that I had been wrong, yes, Elop did write that memo, but I left my total analysis of the memo of course still on the blog.
So. I was wrong. Yes. BUT... we also learned that the Nokia Board was livid about this memo and so angry they reprimanded Elop about it. The case here is CLOSED. There is no redeeming value to that memo if your bosses reprimand you for it! We also learned that Elop was forced to go reverse statements in it, he made at least 11 public retractions or alterations of faulty claims he made in the memo. And yes, Elop himself admitted his memo did damage Nokia smartphone sales.
Did I provide solid guidance to you my readers? No sane Nokia CEO could possibly have authored that memo. I was correct. Nokia's board reprimanded Elop for it, and Elop himself corrected most major mistakes in it, and he admitted it did cause damage to Nokia sales. I will take this 'error' with pride. I was correct on the STRATEGY for Nokia. That this memo should never have left Elop's tiny brain inside his head into any draft on any Nokia computer...
WINDOWS PHONE PARTNERSHIP
Then we have the day Nokia handsets division died, infamous date of February 11, 2011. Elop announced his bombshell decision to shift all Nokia smartphone business to the weakest OS out there, Microsoft's new and already-failing Windows Phone, and unlike any other CEO of any other handset maker who ever introduced a new OS, he pre-announced the death of the current platforms. So he essentially stuck all his eggs into one basket, and unfortunately for Nokia, that was also the weakest of any available basket. This is how I started my commentary on it on February 11, 2011: "this is the beginning of the end for Nokia." Obviously a totally accurate prediction and Nokia's fall would happen in record time as the fastest collapse of any market leader of any global industry in the economic history of mankind. Was I correct. Yes. Was I alone in this dire prediction. No.
I was not the only one to comment on this being a boneheaded move by Nokia. But not many who faulted this choice went that far as to predict it would spell the end of Nokia (as a handset manufacturer). Note that many actually applauded this move (a minority opinion but still many) while the majority found this immediately as a stupid move. The stock market was appalled and Nokia's share price started on a two-year continuous spiral downwards. Nokia's solid double-A credit rating started its rapid journey towards junk status. Please remember, I had previously correctly predicted the rebound of Nokia's smartphone business and how well it would grow Nokia's profits under the first months of Elop's tenure.
In that epic blog I predicted on Nokia handset sales in the USA: "Will this help sell in the USA? No." This prediction was almost alone. Almost everyone felt that because Microsoft was so strong in the USA, this was bound to help the USA success of Nokia. Did it? The last quarter before this was announced, ie Q4 of 2010, Nokia sold 2.6 million handsets in the North American market. The last quarter that Elop was in charge, ie Q2 of 2013, Nokia sold 0.5 million handsets in the North American market. A collapse of 81%. Who else told you this about the new partnership and USA market in February 2011?
What about Nokia profitability? "This will not help Nokia profitability." What happened? Before this announcement, Nokia's smartphone unit generated the biggest profits of Nokia corporation, about 40% of its total profits and 510 million Euros (about 750 million dollars per quarter). On an annualized basis, the Nokia smartphone unit ALONE generated enough profits to be in the Fortune 200 most profitable companies globally. The moment Elop made this silly announcement the profits turned into losses that have NEVER recovered. Nokia reported a loss in the smartphone business every single quarter until the unit was sold to Microsoft (and obviously the losses continue at Microsoft, now forcing HALF of the staff to be fired). Was I giving you excellent advice that this would damage Nokia profitability? Told-ya-so.
What of Samsung? "Samsung. They now become the biggest handset maker." Did you read that ANYWHERE else in February 2011? That the Microsoft partnership would so mess up Nokia's TOTAL handset business, not just smartphones, that Samsung would overtake Nokia? But we know Samsung did and today towers over Nokia. Previously Samsung had struggled as a number 2 or number 3 manufacturer for 10 years against Nokia not making head-way. Now in a year from this announcement Samsung passed Nokia. Literally, one year from this announcement. Did I provide value to you, the reader? How VALUABLE is that prediction? THE first place on the planet that said that Samsung WOULD become the biggest handset maker, when Nokia was more than 50% bigger than Samsung (across all handsets, not just smartphones, at the time).
What of Android vs Nokia with Symbian and Microsoft's Windows Phone market share battle? "The Android market share will be bigger than all Nokia OS's and all Microsoft OS's combined before the end of the year." Remember all those silly predictions that Windows Phone would have 20% or more, some said as high as 28% market share? Yes, others too said Android would pass this partnership, I was not alone in that prediction but again. I called it exaclty correclty. And Android passed the combined Symbian and Windows smartphone market share (across both Windows platforms still supported at this time) within half a year of this Windows announcement by Nokia. Did you read that anywhere else in February 2011?
What impact of partnership to Apple that Elop so boldly targeted in his moronic memo? I wrote about Apple management after this partnership: "They know that for the premium price segment, Apple is unassailable." True to this day. What of NTT DoCoMo? "they will probably start to migrate to Android based phones soon, this will cut Symbian sales even more." Exactly as it happened, in fact the next day NTT DoCoMo announced end of Symbian and shift to Android. And LG? "LG will consider making their own OS." They did consider that and ended up buying the Palm WebOS operating system from HP.
That blog is epic. It foretold almost all major changes to the industry in the next three years. Told you so. Told you so. Told you so. Told you so. Told you so. Told you so. Told you so, and Told you so. And note, in that blog not one significant forecast that DIDN'T happen haha.
So four days after the doomsday announcement, on Feb 15, 2011, I gave my first deep forecast of Nokia and Microsoft partnership market performance. It was not the first such forecast, Horace Dediu at Asymco blog was first and his forecast was remarkably accurate (the second most accurate forecast of Nokia and Windows performance of any forecast in the public domain, published in the Spring of 2011).
My prediction was more detailed, it included not just Nokia smartphone sales, it included market share, average sales price, total revenues and profitability. I predicted on February 15, 2011 that Nokia would by Q4 of 2011 have smartphone sales of 17 million units (decline of 39%). To understand how dramatic this is, that collapse would set a world-record fall for any handset maker in one year.
I continued, I predicted Nokia market share 12% (collapse from 29% one year before) with average sales price down to 116 Euro (26% fall) and smartphone division revenues collapse to less than half at 2.0B Euro (from 4.4B Euro). I also predicted the smartphone unit would be plunged to loss-making. This was by far the most pessimistic forecast for Nokia by anyone with a forecast into the public domain that whole spring. And mine was made 4 days after the announcement. Bear in mind, Nokia has just two weeks earlier reported record growth and record profits in the smartphone unit.
What did Nokia do ten months later, in Q4 of 2011? They sold 19.6 million smartphones (where I said 17M). Market share was 12.4% (when I predicted 12%). The ASP was 140 Euro (when I predicted 116 Euro). The revenues were 2.7 Billion Euro (I predicted 2.0B) and Nokia's never-before-unprofitable smartphone unit reported yes, continuing losses (as I predicted). No other published analyst in Spring 2011 suggested Nokia's market share would fall this fast. Nobody else forecasted such a huge collapse in smartphone sales. And nobody else said before Nokia's first profit warning months after this blog, that Nokia would continue to make losses in its smartphone unit. This was by a WIDE margin the most accurate forecast for Nokia ten months out. And it caught every change in trajectory. Smartphone unit sales growth turned into unit sales decline. Average sales price growth turned into ASP decline. Revenue growth turned into revenue decline. And most importantly, the profit engine of Nokia turned into its loss-engine. All that happened in February 2011 and I was the only blog to make those points at that time. And I was totally correct. Did I give value on this blog about Nokia and its troubled future? Told-ya-so, told-ya-so, told-ya-so, told-ya-so and told-ya-so.
WHEN PROFESSIONALS GET DUPED
So lets be very very clear. This is what the 'big boys' of mobile industry forecasted for Nokia and Windows Phone. First these are the big boys forecasting Nokia smartphone sales in units or market share (I have converted any market share numbers into millions of units to allow comparisons across the forecasts)
Asymco in February 2011: 68 million Nokia smartphones to sell in 2012 (error 93%)
Gartner in April 2011: 67 million Nokia smartphones to sell in 2012 (error 89%)
IDC in April 2011: 148 million Nokia smartphones to sell in 2012 (error 318%)
Morgan Stanely in January 2012: 77 million Nokia smartphones to sell in 2012 (error 118%)
Pyramid in May 2011: 153 million Nokia smartphones to sell in 2012 (error 332%: most inaccurate)
Tomi Ahonen in July 2011: 45 million Nokia smartphones to sell in 2012 (error 27%: most accurate)
Trefis in November 2011: 107 million Nokia smartphones to sell in 2012 (error 202%)
Nokia reality in 2012: 35 million smartphones sold
Yes I was off. I was off only by 27% when Nokia's collapse created a new world record fall (besting Nokia's own world record set in 2011 also under Elop). But the next best forecaster had an error THREE TIMES larger than mine. This is not even close. The worst forecaster Pyramid had a 12 times larger error than my forecast.
And I must again here remind the reader, that I was not a 'perennial pessimist' about Nokia, as I was the ONLY published analyst to forecast the sudden INCREASE in Nokia smartphone business in 2010 when Elop started, and was correct then too on the sudden reversal of all the metrics from decline to growth.
And here are the Windows Phone forecasts made between the time the Nokia Microsoft partnership was announced and before the first Nokia Lumia handset had started to sell:
Gartner in April 2011: Windows Phone to sell 68 million smartphones in 2012 (error 292%)
IDC in March 2011: Windows Phone to sell 67 million smartphones in 2012 (error 283%)
Pyramid in May 2011: Windows Phone to sell 193 million smartphones in 2012 (error 1000%: least accurate)
MIC in June 2011: Windows Phone to sell 115 million smartphones in 2012 (error 571%)
Strategy Analytics in October 2011: Windows Phone to sell 86 million smartphones in 2012 (error 397%)
Tomi Ahonen in July 2011: Windows Phone to sell 36 million smartphones in 2012 (error 111%: most accurate)
Windows Phone actual smartphone sales in 2012: 17 million.
Yes, I was off by more than 100%. Yet I was again BY FAR the most accurate forecaster, the next most accurate forecaster (IDC) had an error 2.5 times larger than mine. The worst again by a large margin this time was Pyramid, off by more than 1000%. There is no excuse for that kind of error and as Pyramid was so dramatically off on both forecasts and so far off the mainstream of the other forecasts, it raises the question was Pyramid paid by Microsoft or Nokia (or both) to produce that outrageous forecast.
But to be very very clear. There was NOBODY who came close to my forecasts about Nokia performance. Did I deliver value to you, my readers, on this blog? And here again, gotta say told-you-so, and told-you-so.
Then there was the totally silly debate about will Skype damage Windows based smartphone sales at Microsoft. Of course it did. There were immediate sales boycotts against Windows based smartphones mere days after the purchase of Skype by Microsoft was announced. And remember, no Windows based smartphones sold at that time even supported Skype. It was not about who had Skype on their phones (Android and iPhone had it) it was about OWNERSHIP of Skype. Carriers/operators hated Skype and the moment Microsoft bought Skype, that hatered transferred to Microsoft.
So on 7 June, 2011, I was the first person on the planet to explain why the Skype purchase killed Microsoft's chances with Windows based smartphones. I wrote its "the ultimate death nail". I explained "the thing carriers/operators hate the most, is Skype. They hate Skype with a vengeance."
This then sparked months of debate on the blog with many calling me crazy, that Skype was not that bad, that it was on other phones, that there were other threats to carriers like Blackberry Messenger, iMessage and Whatsapp. That there were other VOIP services and providers etc etc etc. And meanwhile we had evidence of instant sales boycotts against Microsoft - this was BEFORE any Nokia Lumia handsets had even been sold. But I was vindicated in the end when Stephen Elop himself responded to an investor at the Nokia annual shareholder meeting, who asked was it true that there was a boycott against Windows based smartphones. Elop said yes there was a boycott against Windows, and used the term 'obviously' to underline how well it was known that there was carrier/operator backlash against any smartphone that ran Microsoft's Windows operating systems. He explained further that it was not aimed at phones that had Skype, it was aimed against the fact that Microsoft now owned Skype. And Elop explained carriers feared Skype would kill them by stealing the bulk of operator/carrier revenue. Elop elaborated that many carriers had refused the sale of ANY smartphones that ran Windows because of the Skype ownership thing. So yes. The fact is irrefutable that even before the first Lumia handset shipped, the Windows ecosystem had suffered a fatal blow, as Steve Ballmer went and bought Skype for Microsoft. That may have made sense to Microsoft's desktop and internet strategy. But it killed Microsoft's tiny smartphone presense.
So now it became totally irrelevant how many apps there would be on Windows Phone, or if Windows Phone 7.x would have a migration path to Windows Phone 8. Or if there were tablets on Windows Phone 8, or if there was integration between the desktop and tablets and smartphones. Windows Phone died when Microsoft bought Skype. Who told you first? Who explained it in deep detail, that this was NOT about which smartphone could do Skype, it was about the ownership of Skype. And the ultimate witness to my thesis was of course Elop himself who explained in a long response, that is available even on video and transcript, exactly why carriers/operators hated Skype and many had refused to let any Windows based smartphones to be sold - even as those did not support Skype and rival phones from Android and Apple did... Yes. I was right. 100% right. And I was crucified on this blog time and again (until the Elop statement ended that silly debate).
Did you find ANY other website in 2011 who explained WHY it was that Windows Phone could never grow to double-digit market share? And why every calamity since - from ever shrinking market share to ever increasing losses to departing manufacturers of the 'partnership' to developers abandoing the system - all that was driven by the Skype purchase. Did you read it anywhere else? If you did, was that site quoting me and my blog? So yeah. Told. You. So.
We could go through all the predictions of market share that I gave here on the blog. Sometimes I happened to be right on the money. At other times I was off, but out of all Nokia predictions, quarter out and quarter in, year out and year in, this blog was consistently the one closest to the mark and often the next most accurate was miles off from my forecast. And was it that I migrated towards their views or they migrated towards my view. This is what IDC, one of the big 4 handset analyst houses said about Windows Phone:
IDC in September 2011: Windows Phone will take 20% market share of smartphones by 2015
IDC in June 2012: Windows Phone will take 19.2% market share of smartphones by 2016
IDC in September 2013: Windows Phone will get 10.2% market share of smartphones by 2017
IDC in May 2014: Windows Phone will get 6.4% marke share of smartphones by 2018
Note, IDC has not once explained WHY it had cut its forcast for Windows Phone performance down by TWO THIRDS while pushing the goal out by 3 years !!! At least when I make changes to my forecasts - and I do as new data comes in, such as when we saw the first Lumia handsets, I downgraded my forecast immediately - at least I explain why I make a change. IDC (and most other analyst houses) just expect you to not notice and not ask any question.
Now, I could go on with this blog, through every forecast I gave for Nokia smartphones, for Lumia smarthpones, for Windows Phone smartphones, and then celebrate 'told you so' and this blog would be 10,000 words longer haha.. Lets skip those for now and go to the next vital issue, past just overall Nokia smartphone market share predictions.
EARLY LUMIA FAIL
So then came Lumia. This was all Elop. He selected the design team. He personally over-rode Nokia design expert views on specifics such as not allowing advanced cameras. He picked the time of launch, the version of Windows Phone to use, the countries where to first release the series. He also allocated the biggest-ever budget, according to Elop himself, three times bigger launch budget than ever seen by Nokia before, Nokia which at the time was by far the biggest advertiser in the mobile phone industry (an honor now taken by Samsung). Elop even selected the name. So no, Elop is not a handset designer and no, he did not run the factories that produced the first Lumia models, but this was Elop's baby. He micromanaged the first two Lumia handsets more than any past Nokia CEO had ever bothered to be personally involved with any previous handset. Elop even proudly explained on CNBC how he had not allowed Nokia's normal design teams to develop the first Lumia handsets, he had hand-picked the team to be the California-based office so that the first Lumia phones would be particularly well suited for the USA market.
The Lumia series could have been the savior of Nokia. If they had been real true world-beater smartphones, say like the Nokia N8 was in Q4 of 2010 (the N8 set a Nokia-record for best sales in its launch quarter). Nokia knew how to make great phones (but had also made its share of duds, like the N97). But obviously, as Elop had both 'Ratnered' and 'Osborned' his Symbian based smartphone line in February 2011 (and also Osborned the MeeGo line in June 2011), now all of Nokia's handset division 'eggs' were in the one basket labeled Lumia. It had to succeed.
I gave my first analysis of the potential for Lumia market performance on November 2, 2011, after we had seen the first two Lumia devices, Lumia 800 and Lumia 720. This was before any of the reported manufacturng and software bugs and the infamous 101 faults. But my first view gave this grave prediction that the: "existing customer base will NOT transition 1 to 1 from existing top-line Nokia phones to the Lumia 800." I also warned that the carrier community was not committed to 1-to-1 either, so there were to start with less carriers to support Lumia than there had been with Symbian. This blog told you clearly, that Nokia with Lumia would do worse than then-disasterous Symbian based Nokia smartphone sales. And I ended my blog with this prediction: "Nokia will suffer more market share loss in Q4 and into Q1. The losses generated by the smartphone unit will continue." Nokia's market share was 14% at that time. By Q1 of 2012 Nokia's market share powered by these new Lumia smartphones was down to 8% and yes, the losses did not end. In fact Nokia's smartphone unit losses doubled (as measured by profit margin/loss margin). Told you so, told you so and told you so.
The Lumia series went from bad to worse. Some Nokia and Windows fan-boys came here to celebrate that some carrier had selected one Lumia series to sell, or that the next one in the Lumia series was either great enough as a flagship (it wasn't) or cheap enough at the low end (it wasn't) and the Lumia series kept struggling. So then came the typical Microsoftian spin - but the next version will fix all the problems. Windows Phone 8 will fix it all.
So then again, this was indeed an opportunity for Nokia. An opportunity it could have taken to remedy allt the faults in Lumia 1.0 and give us such things as large screens and massive cameras (as we would get once Elop was no longer Nokia CEO and wiser heads would be in charge). But the Lumia 2.0 running the brand new Windows 8 was also a pre-baked failure. I gave my prognosis of how second generation Lumia would do in its relaunch. When I wrote it, Nokia's market share in smartphones was 4%. The new Windows 8 based Lumia was about to launch. I wrote of where it would take Nokia: "Nokia's total smartphone market share is headed to something around 3% now." What was Nokia's market share in Q4 of 2012? Exactly 3.0%. Many others felt that Windows 8 would resurrect Nokia... I knew. Told you so.
NOKIA HANDSET BUSINESS SOLD
I said as early as June 9, 2011, that Nokia was so badly in damage that: "Nokia Corporation would be worth more, if it was sold and split apart, than as a whole." I explained that Nokia's share price had fallen below a critical level and thus it would be worth more if sold in parts and split, than to continue as one unit. From that point on, several stories emerged that for example Samsung, Lenovo, Google, Sony and Microsoft had pursued some kind of Nokia partial or complete purchase. Was I premature? In Q2 of 2011 Nokia total Corporate revenues were 9 Billion Euros. Those were down to 6 Billion Euros when Nokia sold hte handset business to Microsoft. Nokia's corporate loss in Q2 of 2011 was 480 million Euros but still in Q2 of 2013 latest data when the Microsoft deal was announced, Nokia still reported a coporate loss of 115 million Euros. Nokia handset business in teh summer of 2011 generated 5.5 Billion Euros of revenues and made a 250 million Euro loss. Two years later when Nokia finally sold that business it was only half the size at 2.7 Billion Euros in revenues but still made a loss of 33 million Euros. The smartphone unit - Nokia's 'crown jewels' and the only part that Microsoft wanted, in summer of 2011 generated 2.6 Billion Euros of revenues at 216 million Euro loss. Two years later when Microsoft closed the deal, the smartphone unit made less than half the business at 1.2 Billion Euros but two third of the level of the losses as two years prior at 164 million Euros.
The material conditions at Nokia Corporation had not 'worsened' from when I said now Nokia is dead and will be split, to when it actually happened. BUT I did make that forecast that within weeks or months Nokia would be sold. And it took more than two years from that point on. So yes, I was wrong. There were many interested attempts to buy all or parts of Nokia but the real negotiations only started in the Spring of 2013 when again, very bizarrely, Nokia only negotiated in secret, and only with Microsoft, when many others such as Lenovo expressed public interest in acquiring parts or all of Nokia.
What did happen from summer of 2011 to late 2012, was that the Nokia share price kept declining. So the 'price' of buying Nokia was shrinking. That partly helped explain why there wasn't a major attempt to take over Nokia. It was getting cheaper. Then we also learned that Microsoft's first offer was so bad, that Nokia walked away. Then Nokia played its trump card, the X Series on Android, to force Microsoft to give a better deal on the purchase of the hanset business.
So for my timing I was wrong but nothing happened in the interim between June 2011 and September 2013, that would have 'fixed' Nokia even as Nokia launched Lumia, and relaunched Lumia and tried every other thing it could from changing its naming to numbering and back to naming, to changing sales and marketing staff to changing the default Nokia ringing tone. But nothing changed Nokia's fate. And I was here repeatedly reporting that the conditions at Nokia continued to be so bad, that split-up or sales or bankruptcy were the ony options for it. I was correct but yes, it took far longer for this to happen than what I initially thought. That being said, when did you read on any other website or tech site or news that Nokia might be on the brink of split-up? Was it valuable info here, even as a warning that was premature, but nonetheless, in the longer run, accurate. As nothing changed at Nokia in the interim to change the conditions that I identified.
I identified Elop as an incomptent CEO. I started to call for him to be fired from 2011. He was finally removed from the post of Nokia CEO in September 2013. But already during 2011 and 2012 there were many others in the financial industry space who identified Elop as a bad CEO and possibly one of the worst currently employed. If I was wrong, and Nokia felt Elop did a heroic job under impossible conditions, Nokia would have wanted to keep Elop but rather, Nokia Board hated Elop and wanted him gone. So after the Microsoft deal was concluded, Elop was tossed in with the handsets back to Microsoft. I would have preferred Elop to have been fired but as Ballmer was negotiating still on the other side, it made no doubt sense for Nokia's negotiators to 'allow' Elop to go with Nokia handsets back to Microsoft, provided that Ballmer would pay part of Elop's contractual bonus (as he did).
When I called for Elop to be fired, he had turned Nokia's most profitable unit into generating its biggest loss ever. Nokia's other profitable unit was also generating a loss. Nokia's credit rating had been reduced. Nokia's smartphone market share had established a world-record fall in any 6 month period.
When Elop finally was removed from office, Nokia's previous profit engine ie smartphones had not been able for even one month report a profit since Elop changed its strategy. Nokia's other previously always-profitable handset unit, featurephones, had been slightly profitable but Nokia's profit engine now was the networking unit which Elop had not meddled with. Nokia had lost its total handset market lead to Samsung and fallen from largest smartphone maker to 9th in the Top 10. Elop's management led him to establish a world record for any smartphone brand to lose market share in any one year, and then after settting that dubious record, he bested himself by breaking that record with an even worse year. By the time they removed Elop from the post of CEO, Nokia's credit rating was junk by all three credit rating agencies. When he started Nokia's rating on all three was one notch from perfect.
X SERIES ON ANDROID
So we couldn't really know the 'final' truth about Elop and Nokia and the MIcrosoft angle, until the X Series played itself out. Maybe this was the ultimate clever move, that as Nokia launched smartphones on Android, somehow MIcrosoft could then benefit and this would power Nokia's return? And that we would not know until later this year when this magnificent strategy would play out? Theoretically it was possible that Elop was a genius and this mad strategy was the secret sauce that Elop brought to Microsoft and now Nokia would be crying as Microsoft Mobile would run from strength to strength? A lot of pundits and many who comment on this blog were insisting that the X Series was the best thing Microsoft could do. I said the opposite.
Two weeks before the Nokia X Series on Android was announced, when it was still only an inside project at Nokia called 'Normandy' I wrote this: "Microsoft make nasty noises and terminate the Normandy immediately." What happened was that the Nokia handset business transition was delayed by one month, and then after that, for some bizarre reason, Microsoft waited another 2.5 months 'thinking' about Nokia X Series on Android, before finally killing it now, last week. But yes, obvously, for all practical purposes 'immediately' ie at least before any newer phones could be released under full MIcrosoft ownership, the Android smartphones by Nokia were killed off almost instantly by Microsoft. Told you so.
MICROSOFT OWNING NOKIA
So Microsoft announced the intention to purchase Nokia total handset business in September of 2013. The deal was approved by the shareholders both of Nokia and of Microsoft. The ownership of Nokia handsets transferered over to Microsoft from the first of May this year. There were still some optimistis who thought that the problem at Nokia handsets was that the company was too much Nokia and not enough Microsoft. That now that Microsoft took ownership of Nokia, the company would be turned around. That obviously isn't happening. But who told you so first that this was a doomed project?
On September 2, 2013, I wrote about Microsoft's new handset business thus: "Microsoft will play in mobile for a long while, trying desperately to make it happen. It never will. Microsoft will see ever dwindling sales of its handsets, until at some point late in this decade, the perennial loss-making handset unit will quietly be closed. Like Kin the prototype of this crazy strategy."
If there was some 'magic' that was missing with Nokia doing the handsets and Microsoft only providing the software, then that should have been reversed now, with Elop returning to Microsoft and running all of MIcrosoft's hardware. Any 'synergies' across Surface were there. All the 'synergies' across the different desktop and tablet platforms and Windows Phone was now possible. So what happened? The losses continue and Elop is forced to fire half of his staff already. Just over three months after the transfer. Out of the 60,000 handset people who made a huge global profitable business selling 453 million handsets in 2010 (of which 104 million were smartphones) by July of 2014 Elop had fired 48,000 of them. And still he can't squeeze profits ouf of this well that he Elop poisoned.
THE 25 MILLION DOLLAR BONUS
So this is a completely unbelievable saga. The biggest story in tech and definitely in mobile, ever. Arguably the biggest story in business at least of the past four years. How the profitable and strongly growing Nokia giant was destroyed by its new CEO with a mad strategy.
It is so crazy, just looking at all it, makes your head spin and you think this cannot be so crazy. There has to be something Tomi missed. Maybe it was broken before and this couldn't be fixed. Or maybe the rivals did something Tomi has skipped etc. No. Nothing like that. The facts are crystal-clear. Nokia was a growing, profitable tech company in 2010. It welcomed its new CEO Elop by giving him the best quarter Nokia had ever seen in its smartphone business, where that one division alone accounted for 40% of Nokia total profits. The smartphone business alone would have been a Global Fortune 500 sized company by revenues and fit into the Global Fortune 200 by its profits. The iPhone had been around for four years, the Galaxy for almost three. Those didn't kill Nokia. And the Nokia management feuded with Elop attempting to do things that any sane person would do - such as larger screens and better cameras - that Nokia HAD had before on its flagships but Elop forbid on his Lumia series (and did not arrive until after Elop was no longer in charge).
Why did Elop do this? We now know. He had a new clause inserted into his CEO contract that his predecessors did not have. If the handset business was sold to Microsoft, under that condition, Elop would pocket a personal bonus of at least 25 million dollars (it was 31 million dollars in the end). This outrageous bonus contract was revealed only after Elop was removed from post of CEO. But he was paid it. This bonus was far in excess of what Elop could have earned under his other bonus and incentives as 'normal' performance incentives as Nokia CEO.
So Elop could decide. He could try to fix the Nokia 'execution' problems and help turn the perennially unprofitable networking unit around, to do a normal CEO job and earn a couple of million. Or he could totally wreck the handset business in every way he could think of, and as it got destroyed, ensure it as sold to Microsoft - that way Elop earned 25 milllion (or 31 million in reality).
What would you do? And was Nokia's Board aware of this? Nokia changed Chairmen while Elop was there. That CEO contract was negotiated under Jorma Ollila the outgoing Chairman and past CEO of Nokia. The new incoming Chairman was blissfully unaware of this destructive bonus clause, so much so, that Risto Siilasmaa the new Chairman said in the press that Elop had a standard CEO contract, identical to the previous CEO Kallasvuo. Only after he was informed of the bizarre clause, was Sillasmaa made aware that wow, his CEO has been motivated by a clause that rewarded him for wrecking the handset business.
How mad was it. The Financial Times calculated that for every 1 Billion dollars of shareholder value that Elop was able to destroy, he was paid an extra bonus of 1.5 million dollars. Personally. He was paid to destroy Nokia. And the new Chairman of the Board (and presumably also Board members most of whom were also new) didn't know this. The Financial Times compared this heist to the worst of Wall Street criminals like Bernie Madoff.
So yes, Nokia's own management attempted to prevent the carnage but Elop overruled them and just wantonly destroyed the giant. Why did he do it? 25 million reasons why (actually 31 million).
This was something even I could not foresee or guess. But I said repeatedly that Elop's actions were not in Nokia's best interest and he was clearly acting systematically to destroy the smartphone business. Now we know why. Nobody could have guessed that Nokia's Board gave Elop a contract to go destroy the profit engine of Nokia corporation. To destroy the biggest and strongest smartphone business on the planet. But this blog did report all the major steps in that destruction. Did you get value on this blog?
Never once did I suggest opposites of the above story. Never did I say Windows Phone would get 20% market share or Lumia would bring profits to Nokia or Microsoft's ecoystem would be a winner. Never did I suggest Lumia was outselling the iPhone in Britain or China or USA (as some silly stories suggested). So I have also been consistent. When someone published total rubbish analysis about Nokia or Windows Phone, I told you so on this blog. And I reiterated my views.
Where is it going next? Even IDC agrees now, that in the next five years Windows Phone won't get to double digit market shares. I say Windows Phone will never breach 5% in annual market share. Also that the handset business at Microsoft will be perennially unprofitable and will be shut down, some time before the end of this decade. The first sign is that Elop will be removed from running the unit. Expect that within the year. And then the new VP in chage of Microsoft hardware will try and fail and eventually some time after taht the Nokia-Lumia handset part of Microosft will be shut down as a failure. My gut says around year 2017.
But of the Nokia collapse, nobody wrote more about it than I did. Nobody was nearly as thorough in covering all aspects of it than this blog. And nobody was nearly as accurate about the level of destruction as I was. Yes, at times I was too hasty predicting some fall too rapidly (especially Nokia's split-up sale) but not once was I actually wrong. Even on the idiot memo, while Elop did write it, obviously he shouldn't have as his bosses reprimanded him for that destructive memo. And X Series the last straw. If I was off by 2.5 months, so be it. Very few others predicted Microsoft would kill the X Series, most thought that Microsoft would continue with it... Do I know this business? Told. You. So.