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

[elm70]

This specific blog that is almost 2 years old now, it is still up to date.

An unquestionable prove of the analysis skills of Tomi

Tchuss

e_lm_70

[AndThisWillBeToo]

"There is no more time."
I love that. Over two years later Tomi is STILL saying Nokia will be sold "any day now" and telling it has been grand scheme of Stephen Elop to begin with.
If Elop is so dense he hasn't been able to sell Nokia in those over two years that have passed since Tomi said there is no more time to wait, he most likely won't succeed in it - ever.

[going concern audit opinion]

You actually make it seem so easy with your presentation but I find this topic to be really something which I think I would never understand. It seems too complex and extremely broad for me. I am looking forward for your next post, I will try to get the hang of it!

[Stefan]

AndThisWillBeToo - I think Tomi was 100% correct, Microsoft just needed the price to be a bit lower. In retrospect Stephen Elop devalued Nokia at world-record rates, then made sure to cash out as much as possible and still got 10 million from Nokia doing it!