Sherlock Holmes & Hound of the Nokiaville? Why Did Nokia Market Share Crash-Dive? I May Have An Answer..

I was definitely stunned yesterday, when analyzing the Nokia Quarterly Results. The findings were so utterly opposite to what I had expected. I was engaged with several discussions, some who had emotions of 'we told you so, Tomi' and at the other extreme there was Steve Litchfield of All About Symbian, who suggested I was over-reacting.

It was Steve's comments and our back-and-forth on Twitter, that made me re-think the issue. Steve is one of the experts of our industry that I respect immensely, and a very wise, calm voice. I was thinking, that maybe I was now spreading undue panic, maybe I was yelling 'Fire' in a crowded theater and just making matters worse. Why did Steve think this was not such a big deal. Steve argued that when you are the biggest in the market, you tend to grow more slowly - as a mathematical measure of 'growth rate' and the smallest players can have far faster 'growth rates' yet their total sales growth be smaller. Fine, this seemed reasonable but - it came to market share. Previously, in most quarterly results, and most annual results, Nokia market share in all mobile phones, and in smartphones, was very stable. Thus Nokia's growth numbers would be roughly in line with the industry growth number. If Nokia's number was a little bit below the industry overall growth number - like from Q4 2009 to Q1 2010 - then of course Nokia's market share would dip a little - one or two percentage points from one quarter to the next - and if Nokia performed better than the industry - as it did last year from Q1 to Q2 - then correspondingly Nokia's market share would gain one or two percentage points. This is 'normal'.

What happened in the past 6 months was utterly abnormal. Not unusual in the mobile telecoms sense - unusual, abnormal in fact, in ANY global industry serving mass market customers. So we have to understand why this truly is alarming, so first - understand the unpredecented growth rate of smartphones in 2010. Never before has any mass market consumer goods industry worth more than 10 Billion dollars in annual revenues (smartphones were roughly worth 25 Billion in 2009) grow by 75% in just one year. That rate of growth is typical of new industries, tiny ones, of the size of under 1 Billion dollars, but once you sell tens of Billions of dollars, then the industry never grows at 75% or more per year. The PC industry at its peak, the plasma screen TVs, the hottest fight of Playstations vs Wii vs Xbox never got this level of annual growth, nor did Blueray DVD players etc. We do not see this kind of growth in any industries, not even in mobile telecoms, I believe that 2010 was the peak year of highest growth rate in smartphones and now this year 2011 we'll grow at a rate closer to 50% from last year.

Because the growth rate is pretty much unprecedented and phenomenal, it hides 'bad news' inside exceptionally great growth numbers. So take Nokia smartphones. They grew 36% in one year! In any other industry you can imagine, in cars, in plasma screen TVs, in personal computers, in clothing, in soft drinks, whatever - if you grow 36% in one year, it is a fantastic year! Except if the industry grew 75% and you grew the slowest of any of the big competitors - it means you lost ground (compared to your rivals). While you grew numbers, you effectively lost sales that your rivals picked from you!

MARKET SHARE MARKET SHARE MARKET SHARE

I am obsessed about market share. Why is that? I wrote 'the' book for the mobile industry on how to win in the market, for carriers/operators, a book called 3G Marketing (my third) co-authored with Timo Kasper and Sara Melkko. It was not just a bestseller and gone into multiple printings and editions and translated - it was celebrated by the world's biggest publisher of technology and science books, John Wiley & Sons, as the fastest-selling telecoms book of all time - when they brought me to the world's biggest telecoms event (The GSM World Congress) to a special book-signing event for the launch of the second edition. That book is all about market share, how do you build loyalty in mobile telecoms, how do you handle churn, how to you gain customer affection, how you do pricing, etc if you are a mobile operator/carrier.

And why would I know how to write a book like this? Because I've done it. Back in the 1990s, I led the team at Elisa/Finnet/Helsinki Telephone that set the world record for taking market share from the incumbent! I own a world record in telecoms market share battles! I really know what I am talking about. The long-range race is for market share - and the only major constraint you have, is that you have to remain profitable, you should not dip into loss-making in market share battle - that is non-sustainable in the long run. But as long as your company is healthy (makes profits) then the battle is for market share. This is my history, this is my legacy to the industry, this is core to much of my consulting, and this is what I keep focusing on, at this blog. Not about the market valuation of share prices (I do not allow any discussion of market share prices here on this blog, this is not a blog about Wall Street speculation) but I obsess about market share.

Market share wins. Sony's Betamax VCR was technically better, in every generation than the VHS video recorders, yet Betamax lost and VHS won (I remember, I owned VCRs on both standards haha). The Apple Macintosh was the clever smart 'superior' PC but the IBM-compatible/Windows-compatible PCs took over 90% of the market and the Mac sells at about 4% of all personal computers annually. The Concorde was technically the superior aircraft but the lumbering Boeing 747 is what won the market share of jet aircraft in the 1980s selling over 1,000 planes while the Concorde managed to sell 14 units. Market share market share market share. In the mobile telecoms world, GSM took over from CDMA, not because it was somehow technically a better solution (in some ways it is, in other ways it is not) but because GSM got the market share, globally (about 90% of all mobile phones in use are now on GSM or compatible networks).

NOKIA LOSS QUANTIFIED

Nokia did GROW smartphone unit sales. The 4Q Results tell us that Nokia grew smartphone sales 7% from Q3, and 36% from the same period one year ago. That alone seems to be good news. If the industry sales were 'flat' for the year, then any growth (or loss) of sales would directly relate to market share. If you grew 5% sales (in unit sales, not dollar value), and the world total sales number was flat, then your market share grew 5%. If the market shrunk 5%, and you simultaneously grew unit sales by 5%, that means your market share actually picked up 10%. You see what I mean. It is all about market share.

In June of 2010, after Q2, 2010, Nokia's smartphone market share stood at 39%. In Q3 it fell dramatically to 33%. Now in Q4 it fell further to 28%. Yes. In only six months, Nokia's market share in smartphones fell from 39% to 28% - Nokia lost more than one quarter of its total market, in just six months!

This does not happen anywhere! When Toyota the carmaker had its global recall problems with its breaks, it did not lose one quarter of its total market in a year, far less than in six months. A car-maker will have a great year if they pick up one tenth of their market and may have a horrid year (like Toyota did) if they lose one tenth of their market in one year. When Sprint-Nextel the US telecoms carrier/operator made its famous marketing blunder of 'firiring the Sprint 1,000 customers who complained too much' - Sprint experienced an instant exodus of customers, but it did not lose a quarter of its customers in a year, it lost about a tenth. When Motorola experienced the iPhone effect and suddenly the Razr went from the hottest phone on the planet to the undesirable, Motorola lost one quarter of its customers - in one year, not in six months.

This level of Nokia market share loss is pretty much unprecedented. I have been a close follower of global business for over thirty years, I honestly do not remember any such instance in any industry where any major global brand lost a quarter of its total customer base in a period of only six months. Even airlines with air crashes or devastating strikes do not suffer this badly. Cars with 'unintended acceleration' (ie 'killer cars') like Audi experiences in 1995 did not destroy a quarter of their customer base globally in six months. This might be something like Tylenol maybe (a US medicine that had deadly poison in it) which I recall was in the 1980s - or perhaps some terrorism action - like Israeli oranges that were once injected by the PLO with some poisons in the 1970s, something like that which can destroy a quarter of your market in half a year.

But Nokia's market share in June of 2010 - half a year ago - was 39% of all smartphones. Its now 28%. How big is that loss? Its 11 million smartphone units of 'opportunity cost' as the economists say. This is what Nokia should have had. How big is that? Its more than all HTC smartphones! Or its more than all of Samsung's smartphones. Or its more than all of Motorola and all of SonyEricsson smartphones - combined. That is how much of Nokia's market has vanished in just six months.

What is it in money? 11 million smartphones in one quarter at Nokia ASP for smartphones of 156 Euros is about 1.7 Billion Euros (2.2 Billion dollars). And at 12% profit margin for all phones (probably more for smartphones, but Nokia does not break down that number for us) means at least 265 Million dollars of abandoned profits. For a full year, Nokia has just destroyed almost 9 Billion dollars of total revenues and 1 Billion dollars of total profit! This is not market share that Nokia could have 'attempted to gain'. It is market share that Nokia used to own! These were Nokia customers who had faithfully been loyal for years. They were not lost in 2007 when the iPhone came or 2008 when the App Store launched or 2009 when the N97 was a disasterous phone or 2010 when the N8 was delayed. Nokia lost one quarter of its customers in the past six months.

These customers were lost between June of 2010 and December of 2010, when Nokia had finally released its best touch screen operating system, when the Ovi Store was well established as the world's second best-selling app store for handset makers behind only Apple, and with the N8 finally released. Do you understand now, why I obsess about market share. If someone focused on unit sales - Nokia grew 7% in just one quarter - that is excellent growth in most industries, in the car industry, seven percent growth in one YEAR is excellent growth. Nokia unit sales grew 36% in one year, that is fantastic growth in just about any other industry and the CEO would be getting fat bonuses. It was so disasterous at Nokia that the CEO was fired. You cannot study this industry by focusing (only) on unit sales. You have to look at market share.

Nokia also reported better margins, and better profits from the previous quarter. This in almost any other instance is good news. I am devastated. Its not that I am somehow a communist, hating profits haha. No, I am a Finance MBA, I fully have internalized the corporation's and the CEO's mission to increase shareholder value - yes, I fully support the need to be profitable, and a growth in profitability is good news, in most cases. But if the company is already profitable (as Nokia was in Q3) and the growth in profits comes at the expense of market share - that is a perilous situation. Market share is long term viability. I don't believe in excessive profits, and I don't believe in excessive market share. But a sudden drop in either (market share or profits) is bad news. I signalled it here on this blog when reviewing Nokia numbers earlier in the year, that the profit margin was slipping dangerously low, but that reflected a global economy, where most of Nokia's traditional rivals (Motorola, SonyEricsson, LG etc) were reporting losses. Other major industries like Banking and Automobiles were so badly in the red, that they needed government bail-outs! Nokia was still making profits in its handset unit - but those profits had shrunk to very slim. That was cause of concern but - as long as you are profitable, then you focus on market share... That is my mantra. Once you are not profitable - that is not sustainable, that means you may go bankrupt and be gobbled up like Palm was - so if you can't make profits, then fix that, but Nokia was making profits, it should focus on market share.

So what do we know. Nokia lost market share from 39% to 28% in only six months. That means, Nokia has abandoned one quarter of its total smartphone market in only half a year. I have never witnessed such a wholesale destruction of any company's market share in a similar period of time. The nearest I can find, is Motorola which lost a quarter of its market in all handsets from 2006 to 2007 in a period of one year. Nokia smartphones today is twice as bad, as Motorola Razr led mobile phones was when facing the iPhone in 2007.

THE DAMAGE IS HIDDEN

This is such an important point, and when I debated it with Steve Litchfield on Twitter, it hit me. The disaster is hidden inside Nokia's enormous numbers. Nokia has 'too much of a market share lead' that this damage is 'hidden'. Nokia has such a 'buffer' that even abandoning one quarter of its market, Nokia is still by far the biggest smartphone maker. Its pain is not visible in any way! But market share does not lie. Let me show with a familiar example.

Lets go to my favorite analogy to phones: cars. The world's biggest car-maker in 2010 is (by a slim margin still) Toyota ahead of GM. What would happen if Toyota lost one quarter of its market - I am not destroying 11 market share points because Toyota's total market share is only 12%, so we can't drop them to 1% haha, that is destroying nine out of ten customers. No, the same 'ratio' of loss. If Toyota lost one quarter of its market, and instead of selling 8.4 million cars, they would only sell 6.3 million cars. That is the same proportion of loss as Nokia going from 39 million to 28 million sales. If Toyota fell from 8.4 million to 6.3 million, Toyota would be in the news headlines all over as the ultimate catastrophic collapse of a global market juggernaut - Toyota would fall behind General Motors, AND Renault-Nissan AND even behind Volkswagen Group, landing in 4th place, just ahead of Ford Motor Company. Do you see what I mean? It is a totally exceptional situation in mobile telecoms, that Nokia has such a massive lead in its own industry, that even when it loses one quarter of its market, we 'do not even notice' because before this happened, Nokia was the biggest, and after it happened, Nokia is still the biggest. Nokia still today is bigger than RIM and Apple, the two nearest rivals making smartphones - combined.

WHAT DID NOT CAUSE THIS

Lets now play Sherlock Holmes and try to find out what happened. Please read carefully, we have many possible suspects and we must examine each to see if they have a valid alibi or perhaps a motive and opportunity.. Many have been saying this is clear evidence how badly Nokia's smartphones are undesirable, the Symbian OS is old and the Ovi store is bad etc. The important point to understand is - that the Nokia market share has been stable - very stable, usually a variation of one or two market share points per quarter - for most of the past years. Yes the market share has been in gradual decline, but very gradual, on average less than one percentage point per quarter. And from Q1 to Q2 in 2010 - Nokia smartphone market share grew by two percentage points from 37% to 39%. There was no dramatic fall in any period in past years, until from Q2 of 2010 to Q3 of 2010, when the market share plummetted from 39% to 33%. And then the immediate next quarter from Q3 to Q4, another massive fall from 33% to 28%. The Nokia market share has been very flat - including many periods of slight growth - with gradual decline over time, and then utterly out of the blue, a catastrophic fall.

Something happened between Q2 of 2010 and Q3 of 2010. THAT is what we need to focus on. First, there was not abnormal external event, like terrorism, suddenly a Finnish Nokia exec writes some horrible cartoon about religious figures related to the Middle East and the world starts to boycott Nokia phones.. No, nothing like that. And its not like Sony batteries on laptop PCs that started to explode. No exploding Nokias in the summer of 2010. And we don't find cases of poison paint from China and children eating Nokia phones and starting to die. Or a poison cloud in an Indian town due to some chemical factory explosion etc. Or a big oilspill off New Orleans by Nokia's oil rig. No radiation damage like health causes like Toyota's brake problems and massive recalls, etc. No, there was nothing like that, we'd have covered it in the news. We have eliminated one possible cause for a catastrophic market share crash.

The reason cannot be 'Symbian is the obsolete OS' because it was equally obsolete in Q1, and more explicitly, the new OS was released at the start of Q4 - if Symbian was the reason, the fall should have happened in long before - and the decline should have mostly stopped by Q4. No, I know its popular to beat on Nokia for having a horribly old and obsolete and cumbersome and 'ugly' OS, Symbian, but we are exploring the cause for the dramatic fall in Nokia market share. It is NOT caused by Symbian. It cannot be, else the fall would have started many quarters before Q3 of 2010. Remember, the Nokia market share GREW from Q1 to Q2 using that horrid Symbian OS.

The reason is not Ovi store, for the same reason. The Ovi store was launched less than two years ago. Its been steadily growing. It became the world's second most-popular handset-maker app store behind only Apple's App Store during 2010. In the beginning of the year, Ovi was achieving activity at the rate of less than half a billion downloads per year (Apple gets 7 B per yer), today Ovi is doing three times better at about 1.5 Billion downloads per year. There was steady almost linear growth of Ovi. If Ovi was the reason, we would have seen a dramatic failure of Ovi around June or July of 2010 and after that, an wholesale rejection of Ovi. That Ovi keeps growing and grew steadily during the summer - guarantees us, that Ovi is not the reason. Sorry, you guys who hate Ovi store - that is not the reason why Nokia lost market share. Ovi is helping Nokia now in the second half, not hurting it.

Something happened in the summer of 2010. Well, Nokia did its second delay of the N8. That was times right then in the summer, that could be it. Very good my dear Dr Watson, yes what of the N8? It was delayed once before and the industry expected it for exactly that Q3 period, when it was suddenly delayed again. That could be it. Big disappointement, big drop in Nokia sales in Q3. That part of the pattern makes sense - but then Q4 makes no sense at all. If delaying N8 causes 6 market share point drop in Q3, then the launch of N8 three months later must achieve at least a partial recoverly in Q4. Not complete recovery, fine, but must achieve a partial recovery! What happened in Q4, after the N8 was launched, Nokia market share crashed a further 5 points! It cannot be the N8. It cannot be the 'delay to N8' because that would mean that in Q4 we must have seen a recovery. Because Nokia market share crashed FURTHER even after the N8 was released, no - the N8 delay is not the cause for this crash, even though the delay announcement is conveniently timed. That cannot be the reason either.

I know there are very VALID reasons to dislike Nokia's current product portfolio, its elderly Symbian OS, the Ovi store etc, and the frequent delays to flagship models but - those are long-term systematic problems, that will only cause long-term gradual decline. None could have caused the sudden drastic fall.

If not Nokia products, what of the competition then? Ah, yes! Now we have good cause to consider. The Apple loyalist have been waiting to yell out - obviously, the timing issue for June 2010 is the iPhone 4! The most celebrated and most anticipated new phone of the year. This is perfect cause and effect. Q2 of 2010 had only a couple of days of iPhone 4 sales in the USA, the iPhone 4 had its first real quarter of sales in Q3, and the iPhone market share explosion mirrors Nokia's crash in Q3. Almost perfect parallel. This must be the reason! Apple market share shot up 4% from 14% in Q2 to 18% in Q3, while Nokia market share fell from 39% to 33%. Yes, Apple grew 4 market share points and Nokia fell six points, but at least the vast majority of the reason for Nokia's crash is Apple. Has to be!

That makes very compelling sense, for one quarter only. Now the theory breaks down in Q4. Apple market share declined from 18% to 16% - and Nokia further declined from 33% to 28%. If the two were linked, if in Q3, the sudden drop by Nokia was caused by Apple's iPhone 4, then now that the iPhone market share has declined a little, then Nokia would have to have recovered roughly as much for Q4! It cannot be the reason. Yes, probably the iPhone 4 did take some Nokia sales but it also probably took some sales from Motorola and RIM and HTC etc in Q3. Because the pattern breaks down in Q4, we know it cannot be the reason. Nokia did not crash only one quarter, it crashed for two quarters straight - and in Q4, also Apple lost market share. The cause cannot be the iPhone 4 either.

It cannot be any of the other rivals either. Blackberry has been gradually losing market share, so it cannot be the cause. HTC and Samsung are not even big enough if all of their sales were the cause - and both were selling plenty of smartphones before Q3, the growth that either HTC or Samsung has had, is nowhere near enough, so it cannot be the Galaxy series of bada for that matter. No, the competition did not cause the Nokia market share crash. The competition probably gained from the change, but did not cause it.

THE EVIL VILLAIN IS STEPHEN ELOP.. I am kidding of course

Haha, we eliminate all other alternatives and what is left must be the reason, so says the book of our master, Sherlock of the Holmes, and so say we. It was not Nokia products or services or their delays or bugs. It was not Nokia competitors. It was not an external event like an act of terrorism or say a natural disaster like a volcano in Iceland grounding European airplanes etc. No, what else happened in the summer. We did not know it at the time, but by late Q2, Nokia's Board was in the process of firing then-current CEO Olli-Pekka Kallasvuo (OPK) and in the headhunting task of finding his replacement very rapidly, which turned out to be Stephen Elop of Microsoft, who was announced on September 10, 2010. The gossip in the financial press about OPK being fired started around July. I blogged quite passionately here on this blog that I felt OPK was not really doing such a bad job, and felt he deserved a chance, but also that I understood that the Board might want to replace him.

So we have seen OPK leading Nokia for about four years, and we know now, that by the summer of 2010, probably by late Spring 2010, Nokia's Board had come to the conclusion that OPK was no longer fit to run the company. A-ha! Now we can start to dig for some possible clues. So first, to be VERY clear, I thought it was funny to label Stephen Elop as the Evil Villain, just simply because of course we want an evil villain in this Sherlock Holmes story - he is not evil and he is not the villain, but in a kind of way, he may be part cause of what we see. Understand, Stephen Elop took control in September (ie end of Q3) - the first market crash happened during Q3 - Mr Elop could not have been the cause. I just liked the headline haha, in our mystery story. Sorry Stephen Elop, I was just kidding.

But yes, the timing! OPK has been in charge, he is effectively dismissed during Q2, the Chairman and former CEO Jorma Ollila holds the reigns (behind the scenes) while the Board decides on the new CEO, and suddenly Nokia market share plummets massively. The new CEO steps in at the end of Q3 - and the market share suicide dive does not stop in Q4! The new CEO Elop must be in total agreement with what was already happening in Q3. Something happened on the inside of Nokia. This market share crash is actively self-caused by Nokia! (the mystery deepens)

A HOUSE OF CARDS

Lets go back to the historical comparison. This kind of event does not happen 'naturally'. The market share under normal conditions for normal companies does not shift this dramatically in global industries. It is not because of a bad product, not this rapidly. It does not even happen if a rival introduces a fantastic product - remember the original iPhone in 2007 and how much it hurt US rival Motorola - even then the damage was only half as bad as what we see now in Nokia. Cars, PCs, TV sets etc - mobile operator subscriber market shares - etc - do not fluctuate that dramatically in periods as short as six months. It doesn't happen. We need utter collapse of business - a banking scandal or bankruptcy to cause this kind of utter collapse so fast. And nothing like that happened, Nokia is a highly popular phone maker, released many good new phone products during the period - sells them profitably, on one of the widest footprints across hundreds of carriers/operators globally. No. This was a deliberate management action.

So we hunt for the clues. What else changed between Q2 and now. Average sales prices are up. Nokia profits for handsets are up. Nokia profit margins are up. A-ha. At least part of the answer is here - Nokia has been transferring high market share in smartphones vs low profit margin, to higher average sales prices and higher profits, at the cost of market share. That much is clear to any Wall Street analyst. But it does not explain the sudden catastrophic drop. Nokia's profitability did not experience a similar 'dramatic jump' in profits. The gain in profits is only modest, not nearly as big as the fall in market share. But we do have a critical clue.

A major reason why the investors were demanding OPK to step down was because Nokia's profits were dwindinling. Nokia had not followed Ericsson, Motorola, LG and others into making losses, but Nokia used to be a powerful profit factory in mobile phones. Now that was Apple, and Nokia was struggling to keep its head barely above the water. The profits were becoming razor-thin.

Now lets go back to history. From Q1 to Q2, Nokia profit margin and ASP for smartphones declined, but its market share grew! From 37% to 39%. We know after Q2, Nokia's market share has been in free-fall and its average sales price and its handset profit margin has not recovered in similar proportion. What does this tell us. I think I know the answer for the market share crash. I think the evidence is overwhelming and the pattern is perfect. OPK had been buying market share into early 2010, by propping up an un-sustainable level of market share - by heavy discounts and/or marketing support of carriers/operators.

This is what I mean. The 'real' market share for Nokia in Q1 should have been about 35%, but Nokia offered big discounts to the major carriers, said, 'sorry the N8 is delayed, please keep selling Nokia phones' and this boosted Nokia's market share artificially to 37%. But it hurt average sales prices and profit margins. Then the N8 and new Symbian OS is delayed further during Q2, and Nokia comes back to the carriers and say, wait - hold on, please keep your order levels as what they were and we'll double our discounts for you. The real market share should have been about 33%, but Nokia props up the sales with huge discounts, selling most phones effectively at zero-margin - and cause the real market share to grow to 39%. But the profitability of the handset unit is near zero.

The Board finds out about this, and decides to stop the practise and issue an edict, no more buying market share. Nokia's real market share now starts to fall. It should have been 31% in Q3, but falls to 33% (some delaying factors) and with no further massive discount actions - the market share continues to fall to 29% today. It is where Nokia's market share should have been 'naturally' and meanwhile, Nokia's handset unit is returning a reasonably healthy profit margin of 12% and the average sales prices are significantly up in the past half year.

Obviously Nokia Board is not satisfied that OPK used such means, and fires him and hires Stephen Elop to come to run the company. Stephen Elop is told the reality, he is not alarmed knowing that there was false performance in the company, and its real market share in smartphones without the 'bought market share' is somewhere in the 30% range. He is not alarmed and he continues the same rules, lets compete on real prices and real products, lets not buy market share.

There is an interesting twist to the story: T-Mobile. Remember T-Mobile USA announced it would be selling some Nokia phones, and then it suddenly withdrew that. I was very puzzled by that - it does speak to me, that there was an internal deal, Nokia promised the phones at some deep discount, or else, Nokia had bundled some big marketing campaigns sponsored by Nokia to help T-Mobile. After the new CEO came in and ended such practises, T-Mobile is upset and cancels the launch. This makes sense. But remember also, OPK had previously committed to recovering US market for Nokia, so the easiest way for Nokia to do that, would have been to try to buy market share in the USA, by discounting deeply its phones for the US market.

I think this is the reason. I think all evidence fits the theory, and no other viable suspect can fully explain, why Nokia market share grew from Q1 to Q2, then suddenly in Q3 and again Q4, Nokia market share fell like we've never seen in the mobile industry. I think it was a house of cards that Nokia had tried to build - probably well-intentioned, thinking that as the N8 and Symbian S^3 was delayed (again) that they needed to do this. It fits perfectly with the corresponding price changes, profitability changes and the management change. I think what we now are witnessing is a 'correction'. The Nokia market share in smartphones of about 35% in 2010 was an unsustainable illusion, propped up by enormous price cuts. It was not sustainable. The real market share level is closer to 30%, perhaps 29% or less. Still biggest in the world but far less dominant. The Nokia Board saw what was happening, did not appreciate it, and fired the CEO and hired a new guy to take the company onto a more sustainable, healthy path. I am pretty confident this is what has happened, but I am very intersted in your view, what do you think?

UPDATE January 31 - I have added the final fourth piece to this set of Nokia blog stories. Many of my followers and people in the comments asked me what Nokia should do now (or kind of related, what are the real problems that caused the decline in Nokia's customer satisfaction). I wrote the last piece of this Nokia series of articles, Return of the Jedi, what Nokia should do to return to customer satisfaction and growth.

Note to all who leave comments. This was a long blog, sorry about that. Its my weekend, I volunteered my time to do this, and I am guessing no other mobile phone analyst has 'broken' this story yet, and solved the mystery. So please bear with me that its so tedious and long. I am not going to bother taking the time to edit it to shorter length. I have better things to do with my time, we have no ads on this blog, this is a hobby for me. But yes, about the comments. I will anwer the comments that are relevant to this blog - but you must demonstrate in your comment that you read the full blog. If anyone leaves any comments where my response would say 'if you had read the blog' - those will be deleted without mercy, no matter what other good points you make. And while usually we don't talk Wall Street share prices here, I will tolerate the profitability discussion here in this comment thread, please don't make it one focusing on share price comparisons, ok. I don't want to attract the speculators to chat on this blog, but yes, I will allow the discussions about profitability of Nokia and rivals - but also all Apple fans - I acknowledge openly that Apple makes more profits than Nokia, more profits than any tech company. THAT is not allowed to be discussed. I have explained why the iPhone did not cause this sudden drop in market share for Nokia, if you want to argue that, you may. If you want to argue Nokia profitability, you may, if you waste our time talking about the profitability of ANY other company than Nokia, I will delete your comments. Don't go there. This blog is the mystery of where did Nokia's market go, and who killed it. Apple is only relevant for iPhone sales Q2- Q3 and Q4 (and App Store etc) if you want to argue Apple. Fair? My blog my rules.

For those who are interested in the real numbers of the mobile phone handsets industry, including smartphones, I have released a month ago my TomiAhonen Phone Book 2010, the latest numbers and stats about the phones industry, installed bases, market shares, features, brands, customer segments, average prices etc. 98 tables and charts in 171 page ebook available for immediate download. Only 9.99 Euros and only available from this one source on my website, please take a look including table of contents etc: TomiAhonen Phone Book 2010.

Comments

[William Dudley]

Tomi - great analysis and conclusion. The fact of the matter is, that we see similar price compression -- many times artificially all over this industry, in order to "buy" market share at the expense of margins. That strategy eventually comes back to bite the perp. Many may not recover to compete effectively as Nokia seems to be now doing. It's probably a good thing they "caught" this practice in time, or it could have been much worse.

[Raimo]

Tomi,

Good insights. Pricing of mobile phones is an art. I remember when I worked at Nokia how you can steer a market by playing with prices. To be honest I don't think that pricing policy and market share buying can steer buy you 10 to 15 million smartphones. You need signnificant market pull to push that through the channels.

I really think that the problem of this is a general marketshift and a unchanged Nokia "phone pyramid". Let me explain. In general you see that the "feature phone" category is pulled into the "smartphone" category. Samsung(traditional featurephone sellers) enbracing Bada and Android helped them with this move into this segment. On the other hand Nokia which has a clear phone pyramid with a Symbian hero device in the top, some Symbian devices and S40 phones under it, etc. What Nokia tried to do is sell more Symbian devices (sell more in the top. Sell more smartphones, yuk terrible word). I think they neglected to answer the question how to transport their featurephone users into the smartphone users. That is something else. That is designing something specific for this group. Specific for this segment. This group wants a smart featurephone. This group does not want complicated smartphones with many features and options. So the real problem is that S40 is no smartphone.
I think Samsung did an EXCELLENT job with the Galaxy S. It had the right price, the right sexy look and generic enough to appeal to a big audience.
1 year ago those 10 million Galaxy S phones would have been featurephones.

My two cent

[Simon]

Interesting, but I'm still not overly convinced.

Sample of 1 here (mid 20s male in London that isn't overly technical), but Nokia's image just hasn't adapted to the times. In the 90s it may have had the first customisable covers, the first mass played game in snake, and many other features) but its recent innovation - and particularly the marketing of innovations - has been poor.

Nokia remains a solid all-rounder, but a functional handset that works well on the cheaper contracts/PAYG deals for less technologically comfortable people. Younger generations want something slick and different - BBM, app stores, AR etc. Within the hardware infrastructure, it will be the services that drive value. The Ovi store may be growing, but can it compete against the tight quality structure of Apple and the openness of Android? I can see Nokia going the way of Motorola...

[Michael]

Tomi:
Excellent analysis - as always. However, I'm not sure where you determined that a 28% to 30 % market share is Nokia's "natural" share. We'll have to wait for another six months or so to determine if your conclusion is correct.

In the meantime, I'd like to refer you to one of the best books on corporate strategy I've ever read. Value Migration by Adrian Slywotzky. Although the book is 15 years old, and filled with stories about early PC software successes and failures, it is still very applicable today. Dr. Slywotzky shows a number of well known products that simply fell off the face of the planet when the public moved on.

For several years now, smart phone users have migrated towards full smart phone infrastructure providers. RIM was the first with BBM, BIS and BES, then came Apple with ITunes software and the iTunes Store. Most recently, we have Google and the Android ecosystem rocking the world.

Nokia's hardware is not the issue, Symbian is (probably) not the issue. But producing smart phones with little more support than their feature phones is the issue. They cannot compete with RIM, Apple and Android as long as they cannot provide the full ecosystem.

The question is whether Elop can lead Nokia to build the required infrastructure. Coming from Microsoft, I'm not sure he has the background require, or the insight needed to get this done. We'll have to wait for a year or more to really know the answer to this question.

[HangLoose]

Wow, great post Tomi and thanks for spending your time enlighting us.
It was an eye opener and a lot of the facts you have been listing in the blog post make a lot of sense now that you have connected the dots for us.

I remember the price of each Nokia device sold decreasing under OPK regime (can I say it that way? :) and with what you have said about artificially inflating the market share does make a lot of sense now.

During the Q4 call they tried their best to point out the profitability, and the stock market has acutally "blessed" nokia with a slight share increase.

I just have few questions for you, would be awesome if you would have the time to respond:
1. What do you think Elop will be annoucing on 11th February? He has mentioned in the Q4 call about building/joining different ecosystems. Partnership? Android? WP7? (I hope not)
2. Should Nokia try to regain some of the market share the same way? Would it be sustainable?
3. If know would decide to diversify the portfolio even more with Symbian3 devices in which way would this help them? In my opionion Nokia already has devices in all of the different tiers, missing the teen-texting-machine.

thanks

[Christian Maurice]

Brilliant analysis but I think the Nokia situation is bad losing 7/6 % market share in one year is not a good news at all... And the Stephen Elop already said the Q1 will be bad.

[Nuno Pereira]

Before my comment, let me please answer to @HangLoose's question 1: (if i may so)

Everyone is talking about Nokia joining Android, Winmo, etc.. they could add to it Bada and iOS that it would be the same: Using your competition's weapons won't make you win a war, you'll only prove thei're better than you.

Nokia commited to Symbian and MeeGo and still maintains that posistion (and must). If they "change their mind" again, it WILL BE even worse.

Now..

I am no expert.. infact, i'm just a simple observer (and Nokia enthusiast, ok), but this makes more sense to me if we drop the "tables and charts":

(what i see:)

Iphone is launched, and Nokia's (late) answer is S60V5 AKA Symbian^1:
Nokia comes out with a refurbished S60v3, and tells its fans that it's the best they can do. (delusion)

Ok, it's not that good, but we all knew it would evolve into Symbian^2;^3 and ^4..

Symbian^2 is scrapped (for us. NTTDocomo has it, don't know why). (delusion: We're starting to get tired of all these delusions).

N8 (p)review: We all know what happened there. It could be a lie, it could be true, but the only thing we had that time was that (p)review. (delusion) (Hint: Q3)

Nokia N8 is delayed, symbian^3 is delayed.(delusion) (Hint: Q4)

Also, no MeeGo devices this year.(delusion)(Hint: Q4)

No more Symbian^x. N8 and future S^3 phones will be upgradeable! (positive point, but we all know that N8's [and btw C7, C6-01 and E-7) hardware is considered a "piece of crap", so it will probably lag.

Symbian^3 is suposed to be "out" Q1/Q2 2010, but it (really) comes in Q4 (N8). (delusion)

This is only part of what "i've seen", and probably, manny enthusiasts out there, so if you know how the "world of mouth" works, you know that me and atleast half of my friends won't buy any Nokia device this year. (Ok, my brother bought the N8, but it was against my will. I sugested the Galaxy S).

Oh, and by the way Tomi, the article was huge, but i don't mind reading couple of extra words... maybe it helps me improove my English ;)

[Nemus]

Excellent points Tomi. Only thing that i disagree, based on Nokia Q1 outlook is that current numbers represent natural market share for Nokia. I expect further loss of market share in Q1 which IMO is likely will mark their natural share, as strategy that Elop will soon outline will start to make impact from Q2.
As i think more of it it seems quite unlikely that Nokia will choose WP7 or Android as new platform for USA, as this big and sudden market share erosion (if your analysis holds) is not caused by competition, it's more of a self inflicted wound.

[Romain]

Hi Tomi,

Great analysis. Your "inside job" theory makes sense given the coincidental profit increase.

However, I am surprised about Nokia's situation in the US: as you mention in your blog, not only T-Mobile cancelled some Nokia phone launch but also AT&T allegedly cancelled some Nokia models recently.

Given the fact that Nokia's weak position in the US has long been identified as one of the major challenges that the company is facing, don't you think they should have pursued their "market share buying" strategy at least in the US, just to get a foothold there ?

I mean, when you hear the rumor that it is Nokia themselves who cancelled the AT&T deal, it does not sound like they're trying really hard to get in the US...

[Nemus]

@Romain
I think that main point of this correction it new fresh start. There would be no point in dumping phones into US market that nobody wants there (bad publicity mostly influenced by tech blogs). I think they are preparing Meego for frontal market assault in US. That however will take some time, latest news is that Nokia Meego will be ready sometime after official Meego 1.2 release which is in April.

[Baudrillard]

I think you underestimate the influence that certain US blogs have had on mindshare and Nokia's bottom line. Their actions are equivalent to an anti-Nokia hate machine.All negative all the time.

Apple and Android fanboy USA patriotic bloggers slam phone after phone coming out of Espoo. Everything related to Nokia is written off as doom, gloom and death. S60 was compared to Syphilis on Engadget by Thomas Ricker for instance. Gizmodo flat out refused to review the new flagship Symbian^3 N8 as well.

The problem with this constant pounding is that people start believing that Symbian is not a smartphone OS, that Symbian is not as good as an iPhone or Symbian phone. Every OS has its shortcoming but any Nokia device or any Nokia news is always negative and blow way out of proportion. The bigger problem is that these "influencers" as the marketing people would call them have their vitriol reblogged by hundreds of other blogs across the world from Singapore to London and the idea that anything Nokia is crap and old starts to sink in and then becomes dogma.

[Baudrillard]

Part2: Nokia should take some blame for this because the very conservative nature of the company (or Finnish society?) means that they don't make a big roar when these people crap on them. They pretend that it will blow over but it doesn't. They should have gotten angry long ago! The marketing and communication has been absolutely abysmal. Nokia fanboys have been doing more "fighting back" in comment sections of blogs and in forums than the company! The constant bashing started seeping through to the heads of some of the die-hard fan sites too. One big hit in my mind came when one of the big Symbian fan sites "Symbian Guru" closed down and made a huge public circus about it. Once again the anti-Nokia hate machine went into full force celebrating their demise.

Nokia was asleep at the wheel the entire time. Stephen Elop has made some very bold moves thus far that I like. His more explicit insistence on Qt as the only path for Symbian/MeeGo developers was brilliant. Why couldn't Nokia communicate this more clearly before?! His appointment of a sharp new marketing head who is ex-Verizon is another brilliant move. Lets see how hard she can fight back in her home country.

[Bob Shaw]

Tomi: Great Analysis. Both profit margins and market share are important. A certain profit margin is needed for a company to be able to generate a healthy return on investment. However, once that threshold is reached, the focus should be on market share without which it is not possible for a company to grow and thrive in long term.
You have given great examples to show why market share is important. I would like to add couple of more to it. One of the big reasons for success of Microsoft in PCs and Office Suite as well as Intel in processor for PCs is their focus on market share. Apple was the pioneer in PC and one can say that a good chunk of profits that Microsoft has derived over the years from PC OS would have belonged otherwise to Apple. Apple almost had a near death experience in 1997-98 before they brought Steve Jobs again who rescued and rejuvenated the company. Microsoft and Intel to the best of my knowledge have not had such near death experiences.
As far as the US smart phone market is concerned, unfortunately at present, the success or failure of smart phone is more decided by the carrier through its support and subsidy than by the consumer. I think Nokia should build a decent smart phone (comparable to current high end smart phones in user experience) that can be profitably priced below $100 and then target the US market. This way the carrier support and subsidy is not required and thus will not decide the fate of the smart phone. I know it sounds little crazy talking about a $100 smart phone when they are currently priced many times over. However there are many such examples in history where a determined competitor have achieved such things using creativity and out of the box thinking. A classic example is Ford’s model T. Nokia in its history have accomplished many great thinks as you have listed in your earlier blogs. So it is not unreasonable to think that Nokia can take on this challenge of a $100 smart phone.

[kevin]

Earlier, I wrote the following in two separate comments on your other entry: http://communities-dominate.blogs.com/brands/2011/01/iphone-sells-162m-in-q4-apple-barely-misses-out-title-for-2nd-biggest-smartphone-maker-2010

"... Nokia achieved a higher ASP of 156 euros (vs 136 in 3Q). RIM, Apple, and HTC showed increasing ASP, alongside increasing sales. Did Nokia lose sales because its phones got more expensive?"

"On the non-smartphone side, it looks like Nokia made a decision to drive up and maintain its ASP at 42-43 euros from the 38-39 level in the first half of 2010 (having dropped over 11% from 44 in 1Q09). And in so doing, its non-smartphone unit sales have now stalled - with decreases yoy of 9-10% each in the last 2 quarters. I think Samsung as well as ZTE and Huawei have been taking those sales."

So obviously, I think you are correct. I know you're only looking at smartphones, but Nokia seems to have done the same thing on the non-smartphone side. And the recovery in operating margin to 12% from 9.5% supports your explanation.

What doesn't fit is that Nokia's 1Q outlook forecasts the lower 7-10% margins for D&S. With revenue forecasted to be at 2010's 2nd/3rd quarter levels, if Nokia then holds ASPs at the 4Q level (or above), then unit sales (of all phones) will likely decrease yoy (just like they did for Q4) with possibly just 10% growth in smartphones. That would mean more market share loss.

What's more interesting is why did OPK do this (at least, for smartphones)? Three considerations.

1. RIM let its ASP go down from $369 to $299 between Feb 2009 and May 2010 in a losing effort to maintain/grow market share; share dropped from 20.9% to 17.8% (using IDC quarterly numbers). In that same period, Nokia went from 190 to 142 euro. I don't know which is cause and effect. Similar to Nokia's ASP recovery, RIM has since brought its ASP back up to $317. So did OPK start the price war in the QWERTY messaging smartphone segment, and RIM responded OR was it the other way around as RIM expanded internationally into Nokia-dominated territory?

2. Android provided a way for many low-cost handset makers to make pretty good QWERTY and touchscreen handsets. With the success of Droid in late 2009, many Android-based handset makers entered Nokia's markets by mid 2010. Did OPK drive down prices to defend Europe/MEA, where ASPs dropped significantly from 3-4Q09 to 2-3Q10 but still were lower/flat in unit sales? Did he do it to fight vigorously for Asia-Pacific/China? If so, it worked in AP/GC, though the subsequent 4Q increase in ASP has driven down AP/GC smartphone sales by about 30%.

3. Apple probably played a much smaller role. Did OPK drop ASPs to respond to Apple's good showing with iPhone 3GS in 1Q10 in Gr China (5x yoy), and 4Q09 on multiple carriers in Europe (esp UK and France, over 2x yoy), and then to gain more carrier marketing support to fend off further encroachment by the coming iPhone 4 in Europe/Gr China?

In all, very interesting. Thanks for thinking through it; as it sheds further light on strategy.

[kevin]

@Baudrillard: Maybe you're correct about US vitriol. But I see many articles from Europe with the same disappointment. Many times, as well, the European stock markets have started the selling of Nokia shares before US markets even open.

It's best not to blame the observers or outsiders, regardless of their motives. Nokia needs to be honest within itself - stop denying - and then get on with fixing whatever is wrong.

[kevin]

The cancelled contracts with T-Mobile and AT&T could signal big Nokia changes coming soon. T-Mobile and AT&T would have been very unhappy with unknowingly receiving "end of the line" phones to sell, and that would have poisoned the relationship even further.

[SoVatar]

First, I am intrigued by your idea that Nokia bought market share by discounting their hand sets, could be one of the reasons for their poor performance.

Secondly, your comparison of Nokia's market share performance to the automotive industry (or any other mature industry) is flawed. You write it yourself, Nokia has increased its smart phones sales quarter over quarter. Looking isolated at the company, this is not a bad performance. The performance only becomes bad when you look at the competitors driving in the fast lane at a much higher speed. Still losing market share in a hyper growth segment is not as bad as in a mature (more stagnant) industry.

Thirdly, one of the commenters above mentioned the negative influence of the U.S. tech blogs, and this is a reality. Their writing is bad and flawed, most of them do not have any technical background and very often do not understand what they are writing about. However, Nokia allows them to spread their nonsense by not being aggressive, and Nokia seemingly does not understand how to use social media to their advantage.

But I agree, Nokia might be doomed soon if they do not change one major thing: Execution!

I do understand their strategy (Meego, Symbian glued together by Qt), but Nokia seems way too slow to execute:

- N900 (Maemo) was introduced in fall 2009, got a few updates. But there is no Maemo / Meego device I can buy now. Why?
- Symbian 3: The N8 seems to be a good phone, but how can Nokia not address the most apparent shortcomings within a year after announcement (brower, portait qwerty,...)
- And let's be honest, a company like Nokia needs to have a real flagship phone out there now and at any time, for the gadget lovers among us (4" Retina clear black display, dual core (better quad), 12MP camera, xenon, BMW idrive integration, about $1,000 or more,...)

So, can it be that a few points of their market share loss stem from executing too slowly and being half a year late compared to the competition? I think so!

[Brian S Hall]

Good God man! That was a lot of words!
But having read them all, I think your "excellent deduction" is probably correct (or at least, mostly correct).

But do not be so easy on OPK. He was not buying market share because of delays, but to save his ass.

[Tomi T Ahonen]

Thanks guys! Wow, 16 comments already

I will return to reply to all of you, keep the comments coming

Tomi Ahonen :-)

[Tomi T Ahonen]

Ok, will do replies in sets

Hi William, Raimo, Simon, Michael, Hang and Christian

William - Good point and yes, I think it may have been well-intentioned 'short term' solution as N8 was running behind, the market share decline trajectory seems to have taken a few unusual bumps Q4 of 2009 and Q2 of 2010, and the rough timing is the delay announcements of N8. Then as the damage of this 'accumulated' over time, it soon was an unbearable cost element - the carriers/operators of course talk to each other so they all expect the same discounts and soon its a total mess.. Might have worked for one quarter but not really much longer..

Raimo - very good points and I much agree, Samsung has done a very good job of it - but also, part that you didn't mention, is that Samsung has its low-cost smartphone platform, bada, which sold 5 million smartphones in the second half and is Samsung's specific product to that 'featurephone' migration target segment. I think most Galaxy class smartphones are a bit too expensive for that purpose. Nokia does have low-cost smartphones but they may be like you say, a bit too complex. I really haven't studied that aspect haha, I am not really a phone guy haha, I do focus on the services of the industry (SMS, MMS, voice calls, mobile ads, music, etc) but am quite interested in all related to mobile including the phones..

Simon - very good points and yes, I see that in various consumer preference surveys time and again, Nokia tends to be seen by the youth as 'their parents phone' ie an older person's phone. That is not cool. SonyEricsson, Samsung, Blackberry and iPhone are seen far more as young peoples phones. Nokia has occasionally had perhaps one phone model or two that have had reasonable success but the whole range is not youthful and this may well be a branding problem. To make sure parents like Nokia, it can't be too 'funky' but then the kids won't like it. It might make sense to split out a clear youth phone brand, where the word 'Nokia' would not be the main item - like GM, it sells Chevrolet or Pontiac (I am not sure, is Pontiac still made, they have recently killed off several brands) anyway, at least Chevy has many youth and sporty cars, very distinct from say Cadillac haha.. Neither brand features 'GM' in the name, while we all know they are GM brands. I am not sure, I think N-Series could theoretically be this, but the N-Series itself is not really that hot or desirable (at least now). They seem to be catering to 'middle of the road' functions and abilities and abandoned just about any clever market lead, like say the optical zoom in the N93 or the Xenon flash in the N82 etc.

Michael - very good point! No, 28%-30% is by no means certain to be the right level, they might go ahead and fall far further, to 24% or something, we have to wait until the market share free-fall will end, and stabilize, to the level where QoQ market share change is only within 1%-2%, only then can we expect to have found the real level (possibly, not certainly). But I think its safe to say, it is not higher than where it is now haha, so its not the 39% we saw in Q2, or 33% in Q3 and not significantly above the 28% it is now. So 30% is the very best case haha, and 25% is equally possible and if this 'trickery' with boosting market share with dumping prices has been going on for a couple of years - we don't really know, it could even be as bad as something like 22% haha.. Very good point. We dont' know now, we can only be pretty sure, this 'correction' means there is absolutely no sudden jump back to say 38% over the next two quarters. Not possible haha..

Thanks about the book, gotta go check it out! Thanks! Love getting book recommendations, you know I am totally a bookworm haha..

On the eco-system, I agree with you that is increasingly important, but not yet critical for smartphone purchases. We had some consumer surveys last year, and they had very similar findings that about 1 in 6 or 1 in 7 customers makes a smartphone decision based on apps and the smartphone OS, most customers are buying smartphones simply as good premium mobile phones with good cameras, good screens, etc. Yes, the eco-system is important, but I am very sure it is far over-emphasized today and the real daily customer-purchase decisions are not driven by it (yet). Increasingly important yes, but not yet the main reason. And of Elop, here Nokia really doesn't 'need' a Microsoft guy to launch and push this - Nokia was the first smartphone maker to create an application developer community and has been supporting its developers for about a decade now, back when I was employed by Nokia in 2001, we were already involved in providing tech support for the developers. Its not something new for Nokia, so someone like say Google or Samsung are far newer to the game and far more still at the basics of inviting developers in, creating basic tools for them etc. All of the big developer houses - like say Buongiorno the world's biggest mobile applications developer - have solid Symbian competence inhouse haha. Its just the US based PC industry app developers, who have known Microsoft and Mac on the PC side and recently Linux, who are happy to go do iOS development (its a version of Mac's OS/X) or Android (which is Linux) etc but are wary of having to learn the clumsy Symbian system haha... European and Asian developers are quite familiar with Symbian - but also know its fragmented and that its faster and easier to develop for newer operating systems like Android and iPhone.

What Elop can do, obviously, is help boost Nokia's internal migration into more of an internet and software oriented company (something Nokia started years ago) and to help it understand how fast the internet and software business is.

Hang - thanks. About Elop and the 11th. I don't know obviously. I think that the strategy Nokia had before Elop came in - that Nokia the world's biggest mobile phone maker but most phones being dumbphones - has to migrate that customer base to smartphones - is the best of any dumbphone makers. The task is different from that of Samsung (new OS in bada) where Nokia has to migrate developers and apps from the obsolescent Symbian OS onto MeeGo, supporting both, through Qt and Ovi store. Note, Microsoft decided that kind of migration is too expensive and difficult, and made a clean break from Windows Mobile to Phone 7 - and now seems to be severely hurting by this decision. I am very sure Nokia has the best strategy of the big 5 traditional handset makers - and that it is executing it reasonably well. By no means perfectly, but reasonably well. So to me, it is foolish to expect a Phone 7 or Android announcement, that would be suicidal for Nokia and its whole eco-system. Ovi store would immediately lose credibility, as would Symbian and the precarious MeeGo alliance would disolve. Not to mention the long work and expense to acquire and adapt Qt to be the tool to manage the transition would be wasted.

I do not see Elop announcing a major strategy change as to Symbian, MeeGo, Qt and Ovi. I would hope that he could reverse some recent decisions and/or give some clear management emphasis and focus on customer satisfaction and Nokia traditional strengths. It would be a tremendous moment to reverse some recent decisions that Nokia loyalists have hated. I would think a healthy announcement would be some commitment about when phones would be announced in the future so we don't end up waiting for a year for a new phone model haha with several delays. But it could be a major re-organization, could be some 'put to pasture' announcements of some executives. Could be some major partnerships. That strange naming convention is quite a mess, there could be some better/more clear naming and a new sub-brand like current N-Series and E-Series might be there. A youth brand to me would be a very reasonable move. MeeGo will almost certainly be discussed, Elop's future is tied totally to the success of the MeeGo transition and that will take many years, but he will have to manage it, and very importantly, manage the press coverage.

Then you ask about market share. Thanks! Yeah! I totally think yes! Nokia SHOULD be fighting to recover market share, yes, especially in smartphones. I totally believe that any player in any condition can create a winning strategy to gain some reasonable amounts of market share, over reasonable periods of time. For Nokia, it means careful regional analysis, customer analysis (meaning operators/carriers and retailers, not end users), end-user analysis (meaning both consumers and business/enterprise users), and careful competitor analysis. Then project current and near future product portfolio into that market opportunity, discover opportunities and pursue those very rigorously. So, for example, as Latin America was a loss in the past quarter - why? - (obviously RIM is making strong gains there) - it means fighting back. More QWERTY phones and especially hybrid QWERTY and touch-screen phones for LatAm - use Nokia's strengths to overcome Blackberry's strengths. Support Spanish and Portuguese language apps and services and promote their translations etc to make Ovi more appealing to LatAm. And so forth. Yes, market share can be recovered but not unreasonable amounts. Maybe 1%-2% per quarter, fighing hard. In very many cases it means working very closely with the carriers/operators and there Nokia tends to have a bigger 'army' of sales force than most rivals. So incentivize and authorize those sales people to go and sell haha..

As to the product portfolio. I think opposite. I think its rather poor 'engineering' oriented thinking, to limit the product portfolio. Look at cars, no car maker is offering less choices, they keep creating more choices. BMW sells off-road vehicles, Aston Martin offers a four door car, etc. Recently Nokia announced they were reducing the number of handset models they offer (a cost-savings move! Not a market winning move!) and that certainly did not help gain market share, it helped lose market share. Nokia has the best sourcing, best manufacturing and best distribution of the industry, due to its scale. It should use this to flood the market with 200 Nokia models for every market, so that in any store you get five shelves of Nokia phones and 2 shelves of all remaining phone brands. Why not? This is what Coca Cola does with Diet Coke and Cherry Coke and Coke Zero and whatnot. And while the engineers in Espoo hate the cutesy stuff, they should just look at the hysteria about the 'White iPhone' Come on! Nokia invented color phones. Every single Nokia phone should have at least 12 color options and tons of custom covers as well. This is basic marketing, but Nokia engineers hate anything that smells of marketing haha, they think that if they just make a perfect phone (in black) it will sell. That is not the real world. Some 'women' will buy a phone just because it is pink - haha, I am kidding but I also speak of witnessing this. And I have several times myself gone out of my way to get an alternate color body for my newest phone, just to have 'the right color' phone haha.. (and not to be quite like all others..) Marketing stuff!

Christian - yes, very true. I do think that Stephen Elop is a sharp guy and understands Nokia has suffered from over-promise and under-deliver recently, so he is wise to do the opposite. So its good if he sets the expectations low now, and then hopefully brings a bit of a better surprise in April when Q1 results are revealed.

Thank you all. I will return with more comments.

Tomi Ahonen :-)