Why Nokia Board Decision to Fire CEO Stephen Elop Is Now Urgent

I hate to make this blog only about Nokia, but Nokia is the industry's giant and it has seen an unprecedented crash in its market. We may see the end of Nokia during the next few months. This is the big story in tech right now, and as a former Nokia employee, and as a Finn, it pains me to see the company in such as state. Obviously I do have to cover the story.

So I have told you in past blogs what is the meaning of the Nokia profit warning and how relates to the Nokia smartphone sales for the rest of the year. Then I wrote why we now know the biggest error CEO Stephen Elop made, was not the decision to select Microsoft, it was his timing of that decision which now is destroying the company. I then examined the statements and actions of CEO Stephen Elop since the February announcement of Microsoft, and found that he is acting in a delusional way, refusing to face reality.

After a few days, I had the time to do some deeper analysis of Nokia's quarterly results, and found that the numbers tell a far more disasterous story than has been reported yet in the mainstream press. Nokia's own numbers tell us that their Q1 was worse than most analysts ended up reporting. I followed that story with how Stephen Elop's actions are now impacting Nokia concluding that Nokia's smartphone sales have collapsed since the Q1 results, because the Nokia reseller channel has started to boycott Nokia. What is worse, I found that Elop, rather than attempt to restore reseller support, has now poured gasoline onto the fires, and is angering those resellers even more, through what can only be called pure contempt of the Nokia distribution channel. On this I have called Elop unfit to run Nokia. And yesterday, I posted the blog explaining, that where Stephen Elop has gone on record stating that the big picture 'war' is not about hardware or software, it is about ecosystems (on which I agree) but then, that he has destroyed a vast and vibrant ecosystem and abandoned its replacement, the world's most complete, modern, open and powerful ecosystem; and replaced it with the weakest ecosystem possible. This I have called incompetence.

NOKIA IS NOW IN CRITICAL STATE

But why is this urgent now. Why so many blogs about Nokia in a row? Because, as I have hinted a couple of times, there is one over-riding crisis facing Nokia now, its worst disaster ever, and it is an urgent critical crisis. The market share situation I talked about in the above has a time window of about a year. The profit problems have a time window of about a quarter. This critical crisis has a time window of possibly as little as weeks, could be as little as days.

The reason is that Nokia's share price has falled below a dangerous threshold. Nokia analysts now calculate that Nokia Corporation would be worth more, if it was sold and split apart, than as a whole.

If Nokia was a patient in the emergency room, the ECG has just hit 'flatline'. You know, the heart beat that goes 'beep, beep, beep' is suddenly just a flat tone, beeeeeeeeeeeep. The heart has stopped. If Nokia does not get emergency assistance now, it will die.

What do I mean in the real world. This is obviously not a stock market ./ Wall Street blog, but we will have to discuss this now, from the angle of the share price. Nokia's share has falled 46% from its recent peak from just before CEO Stephen Elop made his ill-timed announcement of Microsoft partnership. Yes, Nokia share price has fallen almost to half what it was just a few months ago.

That decline is not the issue. It is the level where it is now. At this level, Nokia is worth more, if split up and sold in pieces to rivals. So, who would want NokiaSiemens Networks (about a third of Nokia's revenue). That would probably be of considerable interest to the Chinese networking rival, Huawei which would instantly become almost twice as big as its nearest rival, Ericsson. And through the NSN purchase, Huawei would gain very valuable carrier/operator contracts and installed bases of networks that will need upgrades and expansions.

Then who would pay for Nokia 'dumbphones'? (about a third of Nokia's revenues) It could be very interesting to ZTE of China for example, who just with Nokia's dumbphones unit would leapfrog LG and Samsung (and some analysts said Q1 Apple also was bigger than ZTE) and make ZTE the biggest handset maker in the world. More than that, it would give ZTE the world's biggest handset component purchasing juggernaut, and the world's biggest distributor channel with its carrier relationships.

Who would pay for Nokia's Navteq unit? That could probably be sold at a premium for some major US West Coast tech giants who have recently gotten the 'Location-based' bug and would probably pay a nice premium for the mapping and mobile advertising unit of Nokia. Navteq is far smaller than the other parts mentioned here but still alone would be one of the biggest Location-Based Service businesses on the planet.

And then the 'crown jewels' ie Nokia's smartphone unit (where nearly a third of Nokia's revenues come from). That could be interesting to someone like HTC of Taiwan, who would instantly leapfrog Samsung, RIM and Apple and become the world's biggest smartphone maker overnight.

Under normal conditions, Nokia was a reasonably healthy giant corporation and most tech rivals could probably not afford to buy Nokia. Now the price is so low, that the big giants could very easily swallow Nokia and take it simply for its mobile engineering competence and its carrier relationships and sales force. So we've already seen rumors of Samsung, Google and Microsoft considering a Nokia buy-out.

That alone is worrysome. The alarming bit is that 'split up' scenario. Normally, even with today's share price, a relatively small rival like ZTE or HTC could not afford to buy all of Nokia. But if Nokia's parts are worth more if split than when kept in one piece, suddenly a very modest-sized rival could put together the financial package, buy all of Nokia Corporation, rapidly sell off the parts they don't want, and end up getting the part they wanted for what in effect would be a huge discount for that remaining part.

The more the share price falls, the more close we get to this date, that we see Nokia being sold.

I'm not going to speculate here now about who could, or should, or should not, buy Nokia. I am warning the Nokia Board that Stephen Elop is driving Nokia's share price to 'junk' status by his actions, specifically the recent steps that have so angered his distributor channel that Nokia smartphone sales have stalled and other Nokia dumbphone sales are collapsing. As he's angered the distributor channel - the mobile operators/carrirers - that also means that NokiaSiemens Networks sales are hurt very severely.

The Nokia share price has dived under the critical threshold. Now Nokia is a legitimate take-over target and the likely buyer will split up the company we knew as Nokia. This is why the Board of Management, led by Chairman Jorma Ollila have to fire Nokia CEO Stephen Elop now, while there still exists that entity we have known as Nokia. If they do not act soon, Nokia will be cut into pieces and gone.

PS Nokia can be saved. It takes decisive action now, by the Chairman Jorma Ollila, but he has to act now, where there is some moderately competitive company still left to 'save'. Every day they wait, every day they lose more market share and abandon more revenues and drive Nokia deeper into the red. There is no more time. But yes, I will post my view of what needs to be done now to restore Nokia to at least moderate health (ie get it out of the emergency room..). I hope to post that for you tomorrow.

Comments

[Vikram]

Nokia would have been in this position whether Stephen Elop was there or not. ZTE, Huaweii, Micromax etc... were already positioned to take away share with the new cheap chipsets and now Android and prior to Elop, Nokia was already falling off a cliff.

Stephen Elop isn't the problem. The Board needed to do something 5 years ago. The leadership at Nokia failed Nokia by failing on MeeGo and not replacing Symbian earlier. Symbian and by extension Nokia, regardless of its popularity was a dinosaur with its inability to adapt to change and we all know that when the environment changes, how fast the dinosaurs died off.

The Board should fire themselves.

[Vikram]

And to be more clear:

Nokia feature phones - already under pressure from ZTE etc... Elop choosing MSFT has nothing to do with the low end market where the average users in Asia and Europe don't care what OS they are using and whether Symbian is being deprecated or not. The average user doesn't care.

Nokia smartphones - well underway to being destroyed by iPhone and Android phones. MeeGo was a terrible failure in execution that Nokia couldn't recover from and Symbian was outdated and quite terrible when compared to iOS and Android and couldn't be upgraded to that level.

See the recent Bloomberg Article on Nokia and Elop

http://www.businessweek.com/magazine/content/11_24/b4232056703101.htm

Money Quote:

"...On Jan. 3, Chief Development Officer Kai Oistämö walked over to his boss's tiny cubicle to share his concerns about the MeeGo software that was supposed to be Nokia's answer to Apple and Android. The pair decided to quietly interview two dozen influential employees about MeeGo, from executives to rank-and-file engineers...When they finally spoke late on Jan. 4, "It was truly an oh-s--t moment—and really, really painful to realize where we were," says Oistämö. Months later, Oistämö still struggles to hold back tears. "MeeGo had been the collective hope of the company," he says, "and we'd come to the conclusion that the emperor had no clothes. It's not a nice thing..."

MeeGo killed Nokia and that is the fault of the Board and prior management.

The seeds of Nokia's destruction were sown years ago and are only visible now. Elop is a convenient excuse.

[n900user]

I totally agree fire him immediately before too late.

[So Vatar]

Vikram, it is true that Nokia's downfall began no later than 2007, possibly earlier. It is true that board and management failed to come up with the right responses.
However, when the board - under pressure - decided to hire a new CEO, it was (should have been???) with the intention to turn the company around.

The problem now is that Elop is not able to turn the company around, on contrary he accelerated Nokia's downfall. To the point where Nokia will not be able to survive as an ongoing independent concern.

Elop is the wrong CEO for Nokia in the condition Nokia finds itself now.

Now, is there a manager out there that is able to turn Nokia around? I bet there is, however it must be someone of the caliber of a Steve Jobs.

So, yes, the board is responsible and the board members should be ashamed. However, watching Elop steering the company towards the cliff with accelerating speed does not solve any problem.

Nokia: Yesterday we stood at the edge of the cliff. Today we are one step further ...

[HCE]

I think I largely agree with Vikram here. If Symbian and MeeGo were in as wonderful shape as Tomi seems to think, there would have been no reason to fire OPK, no reason to hire Elop. I'm pretty sure the board hired Elop, fully aware that he would probably dump the homegrown platforms and go with a third party OS. If MeeGo was indeed "the world's most complete, modern, open and powerful ecosystem" then Elop would not have decided to dump it. Symbian was dumped because it was really long in the tooth and MeeGo was dumped because it was nowhere near ready for prime time.

Of course none of this explains why Elop compounded Nokia's problems by announcing the switch to Windows when Windows-based phones were still a year away. This is probably the only screw-up that I would largely blame on Elop - and even here I have my doubts. Perhaps it was Microsoft that insisted on the early announcement. As to relationship with carriers, that is an area where Elop has precious little experience and he may well have screwed up there but I'm not too sure one announcement of dual-SIM phones is enough to come to that conclusion.

Frankly, I think Nokia's problems started a long time ago (long before Elop was hired). If they had stuck with their original OS plans, they'd probably on their way to destruction. With their current switch, if they can pull through this year, they have a fighting chance of turning things around.

- HCE

[Anonymous]

I have to say. I have wondered whether or not Stephen Elop intentionally is de-valuing Nokia to make this scenario possible. Specifically on Microsoft's behalf so they could purchase the part of the company, smart phones division and good hardware people, that they really need.

Not saying it is true or anything but the thought certainly has crossed my mind. I know it has crossed other employees minds also, as we have chatted about it.

[Omar Moya]

I agree with with Vikram's comments, but I think there is additional analysis to add. Elop came as CEO, and quickly moved to WP7 as a solution, dismissing everything that was done before. It was clear that it would affect the value of the company, but the aim ( I assume this is how Elop presented it to the Board ), was to define the strategy, and recover confidence in Nokia doing the right thing and taking the proper steps to maintain its role of leader, or at least keep being one of the main players.

WP7 is a failure on Sales. Microsoft has tried to cover this, and tried to hide the truth by not revealing official numbers. Even Ralph de la Vega (AT&T CEO) confessed that the sales were poorer than expected. And we're talking american market, Microsoft's nest.

Taking this into consideration, let's picture what was going on when Microsoft and Nokia were shaping their deal. Ballmer knew their Operating System (UI copied from Zune, which was a big failure) was about to collapse and become a second failure (after Kin One and Two) so he presented his OS as the solution to Nokia's needs for a new OS. Giving instant, out of the box, ecosystem solution with Office integration, maybe even mentioning that they were planning to acquire Skype. Nokia took it, and gave away Ovi Maps, Ovi Store, and its reputation.

Once this deal is decided. Why would you announce it one year in advance of your plans of having a WP7 phone in the market? It represented a bold move, and most of the analysts assumed a position of "let's wait and see", while Nokia shares are nose-diving, not only because sysmbian and Meego were killed, but also because in the mean time, WP7 situation is coming to light, and we start to realize that WP7 is a failure.

The February 11th announcement, only helped Microsoft, to give additional few weeks/months of life to WP7, while it's killing Nokia. This (IMO) seems more like Microsoft's agenda, than Nokia's agenda, taking into consideration that Nokia presented it as its main and only OS from 2012 onwards.

What if WP7 was not announced? market share would still be going down, that's for sure. Bold move was required, but the execution is completely flawed. Regardless if WP7 is a failure, or if Nokia could make it survive. I agree Meego might not be the solution with its current state, but it is the closest Nokia has to a competitive OS, where it still had control and could make use of all the tools it has (including its own work force).

Who is with Elop now? analysts are killing Nokia, Employees are migrating, market share is dissapearing and distribution channels seem to start rejecting Nokia products. Nokia seems to be being used as a dying muppet.

[hari]

Tomi - great analysis as usual..

Question for you.. what would be your advice to bring Nokia back to profitability..?? Can you give insights there.. we all know the story of the current situation.. no point in doing post mortem..

pls shed some light there..

[Boris]

Some of you just don't read what Tommmi wrote:

"Then I wrote why we now know the biggest error CEO Stephen Elop made, was not the decision to select Microsoft, it was his timing of that decision which now is destroying the company."

The main problem is timing! Nokia would lost market share anyway, it's clear, but it wouldn't crash dive!

[former N900 user]

It's completely ridiculous to think someone like HTC would be interested in buying Nokias smartphone unit. Nokia has become a tumbling giant with still way over a 100.000 employees worldwide. Why on earth should a tiny highly innovative and competitive company like HTC with roughly only 4000 employees even care? They can just do their thing, grab market share and make more profit out of their own products.

Nokias demise is particularly painful for Finnland, but you can't blame anyone else for it. Not the americans, not Microsoft, not Elop... this is clearly Nokias own fault.

[hc kek]

I have been a great believer of Nokia, running a business writing sw for Symbian. Disappointed many times with Symbian; and the hardware quality and worst of all: the very slow response on the browser when using Nokia phones.

Nokia's management in terms of product innovation in smartphone and quality is really bad. Nokia deserves the predicament it is in. I am now using Android on Samsung Galaxy but I am still not satisfied with it.

I would gladly buy Nokia Windows phone when it is released. I have fantastic memory of the first Nokia Communicator.

If the new Nokia Windows fail, then Nokia deserves to die.

[GJW]

"I will post my view of what needs to be done now to restore Nokia to at least moderate health (ie get it out of the emergency room..)"

Like you stated once, they won't listen to you. So that means Nokia is doomed, a terrible thought actually.

[Antti]

To former N900 user: HTC has 8948 employees, 12943 including consolidated subsidiaries. Not 4000 as you stated.

[agoedde]

Vikram is spot on here: Symbian was no longer sustainable, and Nokia had, as a matter of fact, already annouced its demise. Take this as the edge of a cliff that the big train Nokia was driving towards, and where the tracks were ending. Rather than a quick killing, this demise was to be a slow phase-out and replacement with MeeGo, with Qt as a compatibility layer for transiting the app ecosystem intact. Take this as the bridge and tracks that Nokia engineers had to build out from the cliff. Not having MeeGo in place and ready when it was needed (which was no, this year, not next) wrecked this sound strategy. Nokia was now at the edge of the cliff, or maybe already a bit beyond it, with no bridge in place. The reasons for this failure go way back, and include starting late in developing a replacement for Symbian, poor technical choices on the way, infighting, bad management, and unnecessary delays (Maemo --> MeeGO transition). All of this happened way before Steven Elop came on board. He was onyl there at the edge of the cliff, looking for a ready-made bridge, a parachute, anything to prevent the catastrophic plunge that Nokia is now taking. I don't think there were any ready-made bridges, and parachutes don't work too well for things the size of a train. Did Steven Elop do well? That is very much up for debate. I'm just not sure there were all that many viable options at all in this situation.

Oh, and regarding Symbian and Nokia, and why the combination was unsustainable:
http://gzostinthemachine.wordpress.com/2011/06/08/the-symbian-myth/

[Sergey]

There is some strange logic in this post - first, it is stated that NOK has lost credibility with carriers and distributors. Then, it is suggested that ZTE might want to buy the dumbphone business for carrier links and sales channels. Both surely can't be right, either there is value in the sales channel still or there isn't. And I seriously doubt that ZTE could lower its cost per unit by absorbing NOK manufacturing, quite the reverse is likely to be true.

[don_afrim@twitter]

Agree. Elop must go and they should sue his ass for such a bad job. Tomi, why don't you make yourself available for the CEO job?

I said it many many many many times, Nokia should have bought Palm for it's webOS platform. It would have given Nokia in an instant the platform to compete with iOS and Android. If meego was really such vaporware like many on the inside are saying now then the biggest mistake Nokia did was not buying herself a new and capable platform to work with.

After missing that opportunity, Nokia should have worked in silence on a few Androids and WP7's phones and not announce them until they're ready to ship. They should have still released meego handsets and see how it does in the market, I mean the N900 wasn't that bad after all, it should have been more appealing in design but over all it was well received.

[marco]

Am I missing something? So many people are pointing out that the problems started before Elop... but surely he could have made the same announcement and the same strategy without totally killing all existing sales on the 11th of Feb? Surely just a slightly different choice of words there would still be some Nokia phones on the shelf? (last time i went to the local Orange shop there were only a handful of Nokia out of so many others - 6 months ago it was a different sight!)

Until recently I was waiting for the right moment to buy some Nokia stock at a bargain price - but if Elop has destroyed the channel relationships, destroyed the people working for Nokia, destroyed the Nokia brand, given up the only differentiating factors, and the WP7 ecosystem is so weak, then there is no hope!

At first I thought he could have made a mistake, and he would rectify it but months passed before he gave a lame statement about supporting symbian till 2016. Did it take him that long to recognise his mistake? but then why not make a stronger statement?

Then I thought maybe he is just very smart, but if he is smart then I don't see a way to profit from his actions... buying nokia stock doesn't seem to be a good move because he must be working towards something else other than a higher share price.

[Paul Jardine]

I have to admit, I've started saying that Nokia is dead now for a couple of weeks, initially only half serious, but with growing conviction.
WP7 has not sustained any of the early promise, so, even if it is better than other OS out there, which I doubt, it will be a hard mountain for Nokia to climb.
The way analysts and the market as a whole seems to have turned against them, is morbidly entertaining. I now walk past Nokia stores and count the number of customers in them - zero on most occasions now! Even the sales staff look like they are listening to the funeral march.
Nokia needed to switch operating systems but what it did was leap from the Titanic on the promise of another boat on the horizon. The water's cold and sharks are circling.

[Eric]

Even if there were Nokia phones on the shelf, would people really buy them? It seems that people are turning a very simple situation into a logical quandary. Symbian phones sales were falling off a cliff since last year because it was archaic in the eyes of even the casual consumer. The market hit an inflection point where phones with last-gen UIs (Blackberrys and Nokias) can only sell at cut rates to price-sensitive consumers. I think it's far fetched to suggest any strategy (other than shipping new phones that took a major technological leap!) would have turned this around. Elop really had nothing to lose so his first priority was to cut costs (ie the underperforming software department). Word would have gotten out quickly that Symbian was over with or without the announcement - at least the public and average employee know the roadmap.

[cycnus]

Tomi,

I agree that Mr. Ollila has to fired the monkey he hired before Nokia gone.

And for those of you that were saying that symbian is not good enough. I bet you guys were american that have not use symbian phone.

I'm from asia, and have use symbian since nokia 3650.
and only a handfull of asian would consider wp7 over android for symbian replacement.
if nokia use wp7, it would lost it's user based.
and it is easier to maintain user based (loyal customer) than to take new customer (american market).

and i agree with tomi. I would consider elop timing is a CRIME. and the share holder need to SUE him based on that.