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Congratulations Apple you are indeed now biggest smartphone maker: and Top 6 smartphone ranking Q2

We now have heard from Samsung Q2 results. Unfortunately as they often do, they did not give us the smartphone unit sales number in their Q2 results. So we had to wait for some other ways to get it. And today two of the big 4 analyst houses have called the Samsung Q2 number at 19.0 million.

We knew already that Apple had toppled Nokia who was last quarter still the biggest smartphone maker. But we didn't know until now, if Apple also got the crown. They did.

Wow! Congratulations Apple! In four short years you took the global smartphone market, what can be said to be the hottest and most-contested industry right now - and you won! Wow. Number 1. Congratulations!

Congratulations also to Samsung for passing Nokia, very strong growth continues. And sad to see the 15 year reign by Nokia come to an end, but you would have expected Nokia to put up more of a fight, to drop from 1st to 3rd in only one quarter, that is bad news for Nokia.

I have only 2 of the big 4 analyst houses having given their total smartphone industry number for Q2, so I can't give a certain market share count yet, but we can do the rankings for the top 8. They are as follows for Q2 (and ranking in previous quarter ie Q1):

1 - Apple . . . . . . . . . 20.3 M . . . (2)
2 - Samsung . . . . . . 19.0 M . . . (4)
3 - Nokia . . . . . . . . . 16.7 M . . . (1)
4 - RIM . . . . . . . . . .  13.3 M . . . (3)
5 - HTC . . . . . . . . . . 11.0 M . . . (5)
6 - LG . . . . . . . . . . .   5.4 M . . . (7)
7 - SonyEricsson . . .   5.3 M . . . (6)
8 - Motorola . . . . . . .   4.4 M . . . (8)

I will be coming with more analysis and hope to find a number for Android/bada/Windows split for Samsung from somewhere. But here the ranking list

PS - on a personal note.. Who told you first, eh? We broke the story here on this blog that Apple had passed Nokia, already on June 6, seven weeks before the numbers had come out and five weeks before anyone else started to call it for Apple. I would like to hope that the readers of this blog get some value out of my ramblings, haha..

Thinking the Unthinkable: What Value if Nokia Returned to Symbian - and MeeGo / Our movie today: Back to the Future

Lets first be very clear. What I am about to discuss is almost always a boneheaded idea. Some decisions are relatively easy to change or reverse. Platform decisions are very deep, involved, complex and far-reaching. Once a management makes such a monumental decision as Nokia did to switch platforms - to end its homegrown Symbian platform and to replace it with Microsoft (and simultaneously ending the MeeGo migration project) - then what is needed is nerves of steel and management determination. There will be always inertia, there will be nostalgia, there will be hysteria, there will be denial, and there will be tons of reasons why some will feel that the decision is wrong and should be reversed. Once a decision is made to switch platforms, almost always any other decision after that would be pointless, as reversing it or going another way, is almost always even more costly.

I wrote in February that while I disagreed with Elop's decision to select Microsoft, once he made it and communicated it, he had to stick to it - and we pundits had to give Nokia and Elop time to implement this decision and the analysis should be made on the results - as seen towards the end of 2012 at the earliest - and not mid-stream as the costly transition was under way. And I warned that 2011 would be a dramatically costly year for Nokia, the smartphone unit would go into losses by the summer, and all of Nokia would report a loss by the end of the year. But inspite of that, we had to give Elop and Nokia time to implement the strategy and wait to see if it panned out.

I even wrote on some follow-up blogs in February and March, that while I disagreed with the Microsoft choice, there was merit to it, the strategy may be a long-shot but it could certainly pan out for Nokia and if successful, the Nokia-Microsoft partnership could provide a strong contender from late 2012 onto 2013 and beyond. And as an example, when Symbian staff was laid off, I said that while I was sorry for those jobs, that was certainly consistent with Elop's determined actions to shift Nokia rapidly to Microsoft Windows Phone.

I said all that early on, and I meant it.

But two acts and three facts emerged, that have utterly changed my mind on waiting.

First fact - that the resellers are boycotting Nokia phones from March on. This means Nokia will die. There is no time to wait for Microsoft phones next year.

First act - Microsoft bought Skype in May. This instantly killed the viability of the Microsoft Windows Phone strategy.

Second fact - that the resellers started to boycott Microsoft phones from June. If there was any doubt the Nokia-Microsoft alliance could not save Nokia, the carrier reaction to Skype sunk any hope of that strategy.

Second act - Elop's MeeGo madness around N9 excitement. The CEO of a company who faces a hit product, a hugely profitable hit product, and actively tries to sabotage it, is a criminal.

Third fact - then we see the Nokia share price crash so badly, Nokia market value is now below the danger level, as Nokia is worth more if sold for its parts, than as a whole. That means that Nokia is in danger of disappearing quite literally within days or weeks.

I did forecast on February 15, very meticulously documenting what theories and what analogies I used, what historical precedent etc, to calculate how badly Nokia market share would crash this year after the February 11 announcement of the Microsoft partnership. And I did calculate even an early projection of how badly Nokia unit sales, average prices and total revenues would decline this year. It turns out that I was correct on every element of my forecast, the direction and scale of the Nokia crash - but I was far too optimistic on the speed, thinking Nokia's troubles would not get serious until the end of the year. I could not foresee (not even in my private worst case scenario) how badly things are going already now, less than five months after that fateful day.

I have since updated my forecast and now its clear to me, that Nokia ends this year with about 7% market share in smartphones (down to under one QUARTER of the market share it had at the start of this year). It is BY FAR the biggest total market collapse by any company in any industry of meaningful size. From 29% to 7% in 12 months, that is so massively setting the world record, it will probably stand forever as the world record for destroying a company by any voluntary action by the company's top management (so ignoring natural disasters and catastrophic accidents).

It is increasingly now said by many analysts that the Microsoft strategy is likely going to fail, and more voices are starting to suggest that Nokia may not survive as a company.

So. Its time to think the unthinkable. I am not saying its time to do the unthinkable. I am saying, now the prudent thing to do, is to try to calculate, what effect would it have, if Nokia did indeed reverse the Microsoft decision, and return to Symbian and MeeGo. What kind of market share could be recovered. What kind of unit sales of smartphones. Clearly Nokia cannot hope to climb back to the levels it had before the ill-advised and error-ridden Burning Platforms memo, and the ill-timed announcement of the Microsoft strategy on February 11, when Nokia had no Microsoft phones to sell, or even to show.

So this blog is not to say Nokia should go back. But if the Microsoft strategy seems unlikely to ever bring success to Nokia - and will keep Nokia producing big corporate losses for many quarters to come - and lose most of Nokia's market share - then the prudent thing to do now, is to try to calculate the cost/benefits of any alternative.

And there is a very viable alternative. By viable, I am talking of organizational and commercial and manufacturing issues. A shift now to Android is not viable. Switching to Android would cause at least 12 months of further disruption, only pushing Nokia's 'recovery' far beyond the date that the Microsoft cavalry would arrive.

No, there is only one viable alternative that could be activated now and its effects would be seen within days or weeks, and all of Nokia's organizations, factories, sales force, designers, engineers etc could instantly adapt to - and that is the return to ... yes ... Symbian and MeeGo, while abandoning Microsoft.

So lets explore this option. When the Microsoft strategy was announced, Stephen Elop did not warn us that Nokia will be making massive losses already from Q2 (would have made from Q1 if his announcement had been at the start of the quarter, not the middle). Elop has clearly miscalculated, he admits as much in saying the effects have been far more severe than he had expected.

I am not saying Elop admits to having made a mistake. But clearly, it is possible that he has perhaps made miscalculations in his decision to go with Microsoft. The reality is clearly not appearing as Elop was promising us. Even if there was a mistake, that does not mean that it would be the 'right' move now to reverse the mistake. But the prudent thing is to try to evaluate the option.

WHAT WOULD HAPPEN IF NOKIA WENT BACK TO SYMBIAN (and MeeGo)

So lets try to model what would happen. And this would have to be total reversal. Not a wishy-washy half-way house. If Nokia (said by Elop or anyone else) said they are not going to discontinue Symbian, but still kept the alliance with Microsoft, nobody would believe the Symbian story. The only way the industry took Nokia's reversal of decision seriously, would be if Nokia categorically rejected Microsoft, and cancelled all parts of that partnership that Elop announced on February 11. Obviously Elop would also have to resign or be fired, else again, it would not be believed. He is too closely alligned to Microsoft and his actions the past four months are far too suspicious.

But to evaluate this scenario - imagine this news conference say Monday morning. Espoo, Finland, Nokia HQ. Nokia Chairman Jorma Ollila holds a brief press conference, where he announces that Stephen Elop is no longer continuing as CEO of Nokia and is no longer employed by Nokia. Jorma Ollila himself steps back as interm CEO while the Board embark on a search for a new CEO. The partnership with Microsoft will not be pursued, and Nokia will not manufacture any smartphones using the Microsoft operating system, Nokia returns with commitment to Symbian and MeeGo, with the migration path from Symbian to MeeGo resurrected using both the Qt developer tools and the Ovi store. Nokia would pay back to Microsoft any payments received and will also pay any penalties of breaking the partnership contract.

If we had this press conference, that would effectively and immediately end the Microsoft path of Nokia's smartphone strategy and it would restore the Symbian and MeeGo strategy as was Nokia's official position as recently as February 10.

So, what would happen to Nokia sales, if Jorma Ollila had that stunning press conference? Lets try to model that scenario and see what would happen. First of all, obviously, Nokia smartphone sales would not magically jump up to 29% it was before the February 11 announcement. But today Nokia market share is down to 15%. So Nokia lost almost half of Nokia's customers in less than 5 months. There was no 'antennagate' to poison Nokia technology image. There was no failed new phone like the Mercedes A-Series (remember the car too dangerous to drive into a curve because it would tip over and fall in curves). No. Nokia was highly desirable in December - sold more than all Apple iPhones and all Samsung smartphones combined - and today has fallen behind both of those. There was no radical new phone by a rival (the iPhone 5 is actually delayed, expected around September). So why the collapse of the sales? It is known as the Osborne Effect. When a manufacturer announces its current product is going to be superceded, the current model sales collapse. Nokia announced a whole new operating system, so all phones on the older operating system suffered that fate.

But go ask your mom or your uncle or your sister or your cousin what is Symbian and most will not even know what it is. We the technology geeks know all about Android and iOS and Symbian etc. But the average consumer doesn't. The demand for Nokia's phones did not collapse on February 11. It was that any smart salesguy in a phone shop somewhere on the main street of averagetown, knows that Symbian is obsolete. The smart salesguy knows to avoid selling Symbian. Why? Because even if the customer is very loyal Nokia user and wants the Nokia phone, odds are, that in the coming weeks, what was a happily satisfied customer, returns to the store - after hearing from some friend or colleague that Nokia's Symbian is obsolete - and demands a refund.

Then the salesguy has to first do a 'new sale' to change the mind of the customer to not demand an refund, but accept a substitute phone. Then the salesguy has to do ANOTHER new sale, to convince that a given alternate phone is a genuine equivalent to the Nokia that is being returned. The customer will be looking at the prices and most customers will not be willing to accept a replacement with a lower price, or even the same price, so they will haggle for a slightly more expensive phone. More sales work. And if the customer 'wins' and the salesguy gives the slightly more expensive phone to the customer, the salesguy now has recorded a discount - which will be deducted from his sales commission. The salesguy has done three times the amount of work for one sale of one phone to one customer, and his commission is cut at the end. And then, after the customer has left the store, the salesguy has to pack the returned phone for refurbishing (the box is opened, it may miss some parts, there are signs of wear etc). No smart salesperson wants this amount of hassle. It makes perfect sense, that if they know Symbian is dead, they will go to extraordinary amount of trouble - the first time - to sell the alternate phone. So for what Nokia phones the store shows and sells, all sales staff know which Android model they will steer the customer to, rather than sell the Nokia.

My point. The strong Nokia brand and loyalty did not die on February 11. The sales commitment to Nokia died. The customers still walk in, totally unaware who is Mr Elop and what he said about Microsoft and whether Windows is coming to Nokia phones. They had a nice two year old Nokia and want to replace it with a nice new Nokia, with a nice camera, nice screen, etc. They probably didn't even know the phone they had was a smartphone..

So. If Nokia is able to sell 15% of all smartphones in Q2, while the reseller channel is 'boycotting' Nokia smartphones, and now Nokia reverses the end to Symbian - some of those salespeople will feel happy to sell Nokia again. Some will be wary and be on the safe side, and keep pushing Android etc. But some will rather keep the customer happy and if they wanted Nokia, sure I'll sell you Nokia - as long as Nokia itself is not telling the world that Symbian is dead.

There is certainly no reason to think that Nokia's catastrophic sales collapse would continue. So lets say, that Nokia did the Jorma Ollila announcement at the start of August. We have one month more of Nokia misery obviously, July is already gone, but right from August the sales boycott would end. Note, it would not end 'instantly'. The recovery would be far more gradual. Some salespeople would change their own minds instantly, others would take longer to decide, some would never really trust Nokia again.

So we start at 15% market share, lost more in July but would have August and September to start to climb back. I think it would be fair to think, that in the first two months of the come-back, Nokia would rather 'easily' recapture what was lost in July. The far harder part is to climb back from the 15% towards the 29%..

So Q3 would be 15% market share. Then what of the climb back up? First, the theoretical target cannot be 29% anymore, because Nokia has had a historical and very consistent natural downward trajectory of its Symbian market share, which has been losing about 5 share points of market share per 12 months. So if we aim for Q4, the theoretical ceiling would not be 29%, it would be 24%. But obviously Nokia is not going to jump from 15% back to 24%. How much could Nokia recover per quarter?

I would say, that salespeople are quite 'greedy' or you could say they are 'motivated by money' so they would typically be less likely to be tied to strong philosophical convictions, if facts - and specifically money (sales, commissions) show them the way. So I'd say (early in my career I used to be a consumer salesguy, then later a B2B salesguy and then a sales manager) most of the sales would have totally forgotten the Elop Effect by a year. Between now and then, it would be a gradual return. So I'd say - without any facts to prove my case, that the recovery would last about 12 months, four quarter, and the pattern would be linear.

And to be conservative with the model, lets ignore the first partial quarter. So we do 14 months not 12. But yes, lets aim for Q3 of 2012, that is when the Elop Effect sales boycott would be completely over. What is our target market share for Q3 of 2012? Its 20.5%. And we'd be growing from 15% end of Q3 of 2011 to 20.5% by end of Q3 in 2012. So we'd need to grow 1.375% per quarter. Lets call it 1.4% just to keep the math easy.

Now we can model the recovery to cancel the Elop Effect. Nokia's market share should fit roughly this pattern for Nokia Symbian smartphones:

Q4 2010 - 29%

Q1 2011 - 24%
Q2 2011 - 15%
Q3 2011 - 15%
Q4 2011 - 16.4%

Q1 2012 - 17.8%
Q2 2012 - 19.2%
Q3 2012 - 20.5%

I think this looks very reasonable and my gut says in reality the recovery would be faster, but remember the ceiling, Nokia's natural Symbian market share decline would bring us to just under 20% by end of next year in any case. So this can't really get much better than this.

And for all those who say it is utterly ridiculous to suggest Nokia could grow the old and obsolete and undesirable Symbian OS based Nokia smartphones - that may have been true of older editions of Symbian, but the facts show, that the new S^3 version of Symbian (powering the N8, E7 etc) was VERY desirable by consumers. The Nokia N8 set a Nokia record for the most successful new smartphone launch, sold about 3.75 million units in its first quarter - you don't set records with an undesirable phone. Nokia smartphone sales grew unit sales in Q4 - yes, grew unit sales - and grew average prices (so the growth was not by giving price discounts) and grew PROFITS - so the growth in sales was not by big marketing blitz campaigns. It was genuine customer satisfaction with the N8 and its new touch-screen Symbian S^3 operating system.

Since then Nokia has released a series of new Symbian phones, including the first on an even newer version of Symbian OS, called Anna, which powers the new X7 for example. And Nokia will be rolling out at least 10 new Symbian phones still in the second half of 2011, so the product line keeps getting more fresh and modern.

MEEGO EFFECT

So then MeeGo. MeeGo was intended to be Nokia's new OS to replace Symbian. Stephen Elop has taken every step to delay, disparage and damage MeeGo. But now we finally see the N9 and the tech press absolutely love the N9 and MeeGo. Most analysts say its far better than Android and Windows Phone, some actually say the MeeGo-powered N9 is better than the iPhone.

The first Microsoft powered Nokia smartphones would not be available except in small quantities, in only a few markets, close to the end of this year, if all goes well by current plans. The nice thing about MeeGo is that it is available now. Nokia could sell the N9 in all countries, but Stephen Elop in some fit of madness has said it won't be sold in most of Nokia's markets. The Nokia smartphone factories are running at half-capacity, so there is ample ability to ramp up N9 sales. So it could be launched widely and sold globally easily before Q3 is done.

What is better yet, is that there is a second MeeGo powered phone, the N950, which is a kind of big brother to the N9, an even more expensive superphone, that with a QWERTY slider. And again, Elop has decreed the N950 will not be sold at all, only limited production to give to some developers. But the phone is totally ready and already now shipping. So its only a question of approving the production and sales, and Nokia would have instantly a second MeeGo device it can sell now in Q3.

Then Q4? Well, Nokia has two other smartphones that are completely ready and can run MeeGo. The first is the device that was ready to show last autumn and ready to sell by early Spring, called the N9-00 (this is not the current N9, which had an internal model number of N9-01). Stephen Elop killed the N9-00. But the beauty is, that it is totally ready, fully functional, ready to be mass-produced and sold. Nokia can easily put it into production at one of its idling smartphone factories and sell globally.

And there is a fourth device instantly ready for MeeGo. This is a bit of a curve-ball, but the two-year old N900, that ran Maemo, is also capable of running MeeGo. Give it a bit of a face-lift (more memory, that kind of thing) and voila, Nokia has four MeeGo devices it can sell by Q4, rather than one Microsoft WP7 smartphone. This N900 would be somehwhat older in specs, so it should also be sold as a 'basic' or 'entry level' MeeGo device at a lower price point. But nonetheless, with no new handset design whatsoever, there are four MeeGo devices already to run now or latest by Q4.

Then Nokia should do some changes to planned phones. If there are some cool new phones coming for the Spring of 2012, which could be modified for MeeGo, then that should be done, or else expedite the design of new phones for MeeGo to try to have new MeeGo handsets by around the summer of 2013.

All of the early MeeGo devices are quite premium phones and quite costly. So their sales volumes would not be high. But they would help very much with Nokia's image, and as there is the migration path, the MeeGo devices would rapidly gain from Symbian developers and the Ovi store. And obviously the MeeGo device series 'sexiness' would help revitalize developer interest in developing using the Qt developer tools helping not just MeeGo and Symbian app portfolio, the tools also work for developing apps for Nokia's mid-priced S40 featurephones.

Now, what Nokia would need to do, is start the migration of smartphones from Symbian to MeeGo obviously. And because Symbian is not now under death penalty, that transition would not need to be so urgent, and Symbian could live long at the low-cost end of the Nokia price pyramid. But Elop killed most MeeGo projects. So the current pipeline is not ready to roll out many good MeeGo devices next year. So after the initial excitement, there would be somewhat of a lull in MeeGo early next year until the first newly designed MeeGo devices would appear around the summer or Autumn.

But then, the transition should be strong and especially should start to hit the mid-price Symbian phones, not just the top end of the price scale.

So I think, MeeGo transition would start from about Q3 in 2012 and by about end of 2013, half of Nokia's smartphones should be on MeeGo.

I think its rather clear to see, from the incredibly strong response to MeeGo, that it is a hit platform and will produce many hit phones for Nokia. But lets keep this conservative. I do think Nokia will see an increase in market share once mass market MeeGo devices appear next year. The first edition of MeeGo and the first phone on it have been so incredibly strongly received - that considering these were made under duress, and with the CEO sabotaging the whole MeeGo project, if given reasonable support, the next editions and phones should be even more spectacular.

But. Lets keep this conservative. So. Lets say the only benefit to Nokia market share from MeeGo, is that from Q3 of 2012, the market share erosion of Symbian, is cancelled. That Nokia will start to hold steady on its market share. No growth. Just hold steady. That gives us a reasonable scenario of what would happen to Nokia market share if Jorma Ollila fired Stephen Elop tomorrow..  So now we get this market share pattern:

Q4 2010 - 29%

Q1 2011 - 24%
Q2 2011 - 15%
Q3 2011 - 15% (MeeGo Symbian split about 2/98)
Q4 2011 - 16.4% (MeeGo Symbian split about 5/95)

Q1 2012 - 17.8% (MeeGo Symbian split about 7/93)
Q2 2012 - 19.2% (MeeGo Symbian split about 10/90)
Q3 2012 - 20.5% (MeeGo Symbian split about 15/85)
Q4 2012 - 20.5% (MeeGo Symbian split about 20/80)

Q1 2013 - 20.5% (MeeGo Symbian split about 25/75)
Q2 2013 - 20.5% (MeeGo Symbian split about 30/70)
Q3 2013 - 20.5% (MeeGo Symbian split about 40/60)
Q4 2013 - 20.5% (MeeGo Symbian split about 50/50)

Note again how conservative this is. What is typical of handset sales, is the 'hit' phone. Look at the Galaxy S II from Samsung or the iPhone or Motorola Razr etc. One phone can totally explode and make huge sales in a short time, quite disproportional to its price for example. And the N9 on MeeGo has a lot of potential to be the best-selling new smartphone from Nokia ever. And the N8 sold about 3.75 million in its first quarter. So the N9 could sell something like 4 million. If we say it starts at end of August, and give it one month in the quarter, that would still be 1.3 million N9 units and the MeeGo/Symbian split for Q3 2011 in the above would become 8/92. And then if it sold 4 million in Q4, the split for MeeGo/Symbian would go to 20/80. And this is without any sales of N950 or the other MeeGo devices haha..

WHAT OF PRICE?

So then average sales price? Nokia ASP was 155 Euros/200 US dollars in Q4 (grew 14% from Q3, a Nokia record jump in one quarter). Now the ASP is down to 138 Euros/180 US dollars. The sales price is under enormous pressure as the resellers are in that boycott. So. What would happen? I don't see a climb up to the 200 dollar level where we were six months ago. The phone model lines are older and the resellers have been discounting Nokia and can't suddenly jack up the prices in their catalogs etc. So I think any higher prices would come with new phones, rather than trying to move current model prices higher.

But the price pressure would ease greatly. I think in the short run, this would stop the price pressure on Nokia and the ASP would be flat. Then the effect of the high-price MeeGo phones would kick in.

When Nokia introduced the N8, the ASP jumped 14%. A similar jump should happen when the N9 is launched and that would be seen in the first full quarter (Q4). The early excitement and demand for the N9 is far greater than it was for the N8, and the price of the N9 is higher, so a bigger jump should be seen. But there would be four MeeGo devices, further boosting that jump. Again to keep this conservative, lets say all four devices only achieve a 7% jump in the ASP for Q4. So the ASP would climb to 148 Euros/190 US dollars.

I would then keep the ASP flat through Q3 of 2012, and from Q4 when mass market MeeGo devices would be broadly available, I'd model a gradual climb of 3 Euros/4 US dollars per quarter until Q4 of 2013 the Nokia smartphone ASP would be 163 Euros/210 US dollars when half of Nokia's smartphones would be MeeGo based.

And what of profits? We did see that Nokia had 12% profitability back in Q4 of 2010 but Nokia's guidance was 9% for Q1 before the Elop Effect hit and profitability fell to 6%. Now profitability is negative because of the boycott and Nokia's desperate moves attempting to force some phones into the channel. Stephen Elop guided that Q3 will be zero profit ie no loss. I am highly suspicious of that guidance but since we used it in the Microsoft version of the model, lets use the zero profitability level also for this case for Q3. Whatever it would be under the current Microsoft scenario, it can't be worse when the boycott is lifted and when the MeeGo phones are widely marketed.

Then profitability should recover gradually to that guidance level of 9% (not the 12%) in rough parallel with the recovery of the market share recovery so up to Q3. After that, we should start to see MeeGo positive effects, and again, I am very conservatively saying, that when half of Nokia's smarpthones are MeeGo in Q4, at that time Nokia will have recovered profitability to the level it was in Q4 when the N8 was a hit phone. Now we can populate the model:

SMARTPHONE SALES, REVENUES & PROFITS MODEL IF NOKIA RETURNS TO SYMBIAN & MEEGO

Quarter . . . mkt shr . . . units . . . ASP . . . Revs . . . profitblty . . profits

Q4 2010 . . . 29.0% . . . 28M . . . $200 . . . $5.7B . . . 12.5% . . . $713

Q1 2011 . . . 24.0% . . . 24M . . . $185 . . . $4.4B . . . 6.2% . . . . $227
Q2 2011 . . . 15.0% . . . 17M . . . $179 . . . $3.0B . . - 6.2% . . . - $186
Q3 2011 . . . 15.0% . . . 18M . . . $179 . . . $3.3B . . . 0.0% . . . . $    0
Q4 2011 . . . 16.4% . . . 24M . . . $192 . . . $4.7B . . . 2.2% . . . . $104

Q1 2012 . . . 17.8% . . . 27M . . . $192 . . . $5.1B . . . 4.5% . . . . $231
Q2 2012 . . . 19.2% . . . 30M . . . $192 . . . $5.7B . . . 7.8% . . . . $447
Q3 2012 . . . 20.5% . . . 35M . . . $192 . . . $6.7B . . . 9.0% . . . . $603
Q4 2012 . . . 20.5% . . . 40M . . . $196 . . . $7.8B . . . 9.7% . . . . $761

Q1 2013 . . . 20.5% . . . 40M . . . $200 . . . $8.0B . . . 10.4% . . . $832
Q2 2013 . . . 20.5% . . . 44M . . . $204 . . . $9.0B . . . 11.1% . . . $999
Q3 2013 . . . 20.5% . . . 47M . . . $208 . . . $9.8B . . . 11.8% . . $1,157
Q4 2013 . . . 20.5% . . . 54M . . . $212 . . . $11.5B . . 12.5% . . $1,439

So that is rather interesting... When we compare to the same model I built two days ago for the current strategy under the very best, ultra-optimistic scenario, using the existing Microsoft strategy, the model looks like this:

NOKIA MICROSOFT SCENARIO - ULTRA-POSITIVE OPTIMISTIC CASE

Quarter . . mkt sh . . units & split . . . . . . ASP . . . . . revenues . . proftblty . . profits

Q4 2010 . . 29% . . 28M Symbian . . . . . . $200 . . . . . $5.7B . . . 12.5% . . . $713M profit

Q1 2011 . . 24% . . 24M Symbian . . . . . . $185 . . . . . $4.5B . . .   6.2% . . . $278M profit
Q2 2011 . . 15% . . 17M Symbian . . . . . . $179 . . . . . $3.0B . . . - 6.2% . . - $185M loss
Q3 2011 . . 11% . . 13M Symbian . . . . . . $174 . . . . . $2.3B . . .   0.0% . . . $    0M profit
Q4 2011 . .   7% . . 10M Symb/1M WP7 . $169/$190 . $1.9B . . .   0.6% . . . $  11M profit

Q1 2012 . .   7% . . 7M Symb/4M WP7 . . $164/$180 . $1.9B . . .   2.3% . . . $  43M profit
Q2 2012 . .   7% . . 4M Symb/7M WP7 . . $159/$170 . $1.8B . . .   3.9% . . . $  71M profit
Q3 2012 . .   6% . . 1M Symb/10M WP7 . $154/$160 . $1.7B . . .   5.6% . . . $  98M profit
Q4 2012 . .   6% . . 12M WP7 . . . . . . . . . $150 . . . . . $1.8B . . .  6.2% . . . $115M profit

Q1 2013 . .   7% . . 14M WP7 . . . . . . . . . $137 . . . . . $1.9 B . . .  6.2% . . . $119M profit
Q2 2013 . .   7% . . 16M WP7 . . . . . . . . . $125 . . . . . $2.0 B . . .  6.2% . . . $123M profit
Q3 2013 . .   8% . . 18M WP7 . . . . . . . . . $113 . . . . . $2.0 B . . .  6.2% . . . $125M profit
Q4 2013 . .   8% . . 20M WP7 . . . . . . . . . $100 . . . . . $2.0 B . . .  6.2% . . . $126M profit

There is no point where the Microsoft strategy comes close to outperforming the option of returning to Symbian and MeeGo. It may be a bit difficult to compare those two tables, so lets summarize it to the three years. Here is the above set of tables but on annualized data:

OPTION TO RETURN TO SYMBIAN AND MEEGO

Year . . . mkt shr . . . units . . . ASP . . . Revs . . . profitblty . . profits

2011 . . . 17.4% . . . . 84M . . . $185 . . . $15.4B . . . 1.0% . . . . $  195
2012 . . . 19.6% . . . 131M . . . $194 . . . $19.5B . . . 6.2% . . . . $2,042
2013 . . . 20.5% . . . 186M . . . $207 . . . $38.3B . . . 8.9% . . . . $4,427

OPTION TO STAY WITH MICROSOFT STRATEGY

Year . . . mkt shr . . . units . . . ASP . . . Revs . . . profitblty . . profits

2011 . . . 13.6% . . . . 65M . . . $179 . . . $11.6B . . . 0.9% . . . . $  104
2012 . . . . 6.8% . . . . 45M . . . $161 . . . $  7.3B . . . 4.5% . . . . $  328
2013 . . . . 7.5% . . . . 68M . . . $117 . . . $  7.9B . . . 6.2% . . . . $  493

(if you missed my blog where the Microsoft analysis was done, please go read it. I am using such facts and assumptions as Microsoft's head of Windows Phone and his projection of WP7 phone ASP's - and even there am most generous and optimistic etc.)

There you go! So, would you rather have the strategy that under the most rosy optimistic scenario possible gives you 7.5% market share three years from now, selling 68 million smartphones that year with an average sales price of 117 dollars, earning you 7.9 Billion dollars of revenues and a bit under 500 million dollars of profits.

Or would you rather have the very conservative scenario of the other strategy that gives you a bit better market share of 20.5% and slightly better unit sales of .. 186 million, with an modestly better ASP of .. 207 dollars and generating just a bit more revenues - no, actually five times better revenues of 38 Billion dollars and produce almost TEN TIMES more profits? Yeah. I think its about time we consider VERY SERIOUSLY the prospect of reversing the strategy.

It is perfectly possible that Stephen Elop made his decision under the best of motives with the best available information and through thorough analysis and best advice. But now we have seen new facts emerge which were not known in February. And we have certainly heard that Mr Elop has been surprised by how the market has taken to his strategy, the reseller boycott etc. So the world has certainly changed since his decision and it may be that there were mistakes made in the decision or incomplete analysis etc. But those models tell a very compelling story. Every year, in fact every quarter, the Symbian and MeeGo strategy now looks better than the Microsoft strategy, and the further we go, the far better the Symbian/MeeGo option is than the Microsoft one.

This decision now is actually pretty clearly what Americans call a 'no-brainer'. You don't need to do any thinking about which way to go, its obvious. Now, the Nokia Board has to act. Every day we wait, costs Nokia another 10 million dollars of wasted profits, as I already calculated before, the cost of the most expensive and destructive CEO of history.

The Two Existential Threats to Nokia: Why Nokia on Endangered Species List and will not survive 12 months

First note, the reason I keep obsessing about the Nokia situation, is that we are honestly witnessing now the destruction of a giant global brand, and worse, the destruction is done voluntarily, by its management. This is history being made. We are witnessing a train wreck and this most colossal management failure in economic history will be studied in MBA classes for the rest of this century, as Stephen Elop's name will be synonymous with wanton destruction of a giant global brand. And what I want, is that those MBA students will still know what Nokia means, that they don't need to be told in their textbooks, that 'Nokia was a company that was once the biggest mobile phone maker.' The management mistakes by Stephen Elop are so severe, they now are threatening the very survival of Nokia. I am not kidding. I am not the only tech blogger who has warned that Nokia may not survive till the end of the year. But I can also tell you why.

We must keep focus. There are two giant problems facing Nokia that are far more important than any others. Yes, there are many issues around Nokia, from its disasterous quarterly results, going from big profits to a huge loss; from the downgrade in the credit rating by Moody's just yesterday; to an increasing voice of analysts saying the current Microsoft strategy is not sustainable, such as Ovum said this week. Nokia has been trying to sell off its loss-making networks unit, NokiaSiemens Networks and those discussions ended in failure - the buyers know Nokia is so badly in trouble, they are better off waiting and buy NSN at a far better price tomorrow. And we hear of all sorts of new problems almost every day. And Nokia's CEO Stephen Elop has a particular type of foot-in-mouth disease in that he seems to be able to push the Nokia share price down with almost any statement he makes these days.

That should not distract us from two giant problems that Nokia now faces. So huge, that either one individually is an existential problem to Nokia. Yes. Either one of those two problems can kill Nokia all by itself. And by killing, Nokia is already a company on the endangered species list - it may disappear this year. And both are problems that have acquired a trajectory of their own - so unless actively stopped, they WILL kill Nokia. So we need to be clear and not lose focus. What are the two giant problems that threaten the very survival of Nokia?

EXISTENTIAL PROBLEM NUMBER 1 - SMARTPHONE SALES BOYCOTT

 

Stephen Elop caused what is called the Osborne Effect when he announced the end of Symbian and Nokia's shift to Microsoft smartphones on February 11, when he did not have any Microsoft phones to sell instead of the Symbian phones. His words on February 11 caused the collapse of Nokia Symbian smartphone sales. Not that Nokia Symbian phones were good or bad. Not that Nokia customers liked or hated them. Not that Nokia resellers decided to stop selling Nokia. No, it was Stephen Elop, when he uttered those words, that Nokia would switch to Microsoft - combined with the fact he had no Microsoft phones to sell. This is not my imagination. Many esteemed tech writers have independently come to the conclusion that Stephen Elop made one of the costliest management mistakes ever with that announcement. And most of them agree with me, that Stephen Elop's statement on February 11, with no Microsoft phones to sell - did indeed cause an Osborne Effect. On Twitter I even heard a joke saying the scale of Elop's error is so big, the term 'Osborne Effect' becomes obsolete now, and is now known as the 'Elop Effect'.

That is not why Nokia is in trouble. Yes, its a big mistake. It is not the problem today. The problem is, that the Osborne Effect caused the collapse of Nokia smartphone sales - a drop in sales so severe, it is a world record in destruction of a brand's market share - in less than 5 months Nokia's market share plummetted from 29% to 15% (and in the next five months will crash-dive to 7%). And against this catastrophic decline of Nokia smartphone sales, there are no new Microsoft Windows Phone 7 based smartphones to sell. The first such phone won't arrive until just before Christmas and only in limited country availability. That is only a cosmetic market action. The first meaningful 'relief' to Nokia's smartphone sales from Microsoft based smartphones, will not come until Q1 of 2012 at the earliest, most analysts peg it at Q2 or later next year. Please note, even if those phones came to try to rescue Nokia, it is utterly impossible to somehow get Nokia and Microsoft anywhere near the fantasy of 20% market share in the years to come. No, the BEST CASE scenario has Nokia and Microsoft stabilizing during 2012 and growing slightly in 2013 to .. 8% market share at the very best, producing very modest profits, at the very best case.

That is part of the problem, but only part. Here is the missing killer part. Nokia has factories ramping up to manufacture a range of new Symbian phones - no less than 10 new models still to come this year! that are seen now as obsolete due to Stephen Elop's misguided 'Osborne Effect' statements.

Now you understand the problem? It doesn't matter one iota, if you or I think that Symbian is bad or good as an operating system. If Nokia's smartphones are obsolete or modern. If Nokia's Ovi store is user-friendly or lousy. If Nokia's developers hate or love Symbian etc. Nokia's hands are tied.

Nokia will be releasing 10 more Symbian phones, and has to sell tons of inventory of current models including premium Nokia Symbian devices like the E7 and X7 etc.

Nokia cannot in any way suddenly flick a switch, and convert those factories to produce Windows Phone based Microsoft smartphones (or Androids or any other). Nokia has to produce those Symbian phones and to desperately try to market and sell them, to an ever more hostile consumer base who believe Symbian is obsolete, and rejected by a sales channel who do not want to waste their time attempting to push obsolete handsets to customers who may return the next day complaining and demanding to return the handsets.

You see Nokia's problem. It doesn't matter if Symbian S^3 or Symbian Anna is 'nearly as good' as some other OS or not. Nokia has no choice. They have to sell those new Nokia Symbian phones now, while their factories are making them and to try to sell as many as they can, at as high a price as Nokia can, to try to generate some modest profits, or at least to reduce the amount of losses generated - until the 'cavalry arrives' in the form of Microsoft WP7 based phones, shipping finally in mass market volumes sometime in the Spring of next year.

This is a problem that is 100% caused and created by Stephen Elop. It is a voluntary problem, it didn't have to happen. It is not like the earthquake and Tsunami that hit Fukushima nuclear plant in Japan. It is not an 'accident' like the grounding of the giant oil tanker Exxon Valdez in Alaska, or more recently, the BT oil spill. Those were accidents where perhaps some management was also at fault. But this Nokia situation is totally different. This was a deliberate act by management that did not have to happen. It is 100% what is called a 'self-inflicted wound' and as to management activity, it was 100% voluntary, Elop did not have to make that statement on that fateful day on February 11.

But he did and now Nokia is in dire straights. Why? Because of Elop's statement, the Osborne Effect is far more severe than anyone (including me) was able to predict. Elop was so clueless he now admits, he did not see the Osborne Effect even coming. But many tech experts in mobile did. People like Horace Dediu calculated how immediate and steep would be the crash in Nokia sales. The Osborne Effect was obvious for anyone competent to tech marketing and sales. But nobody saw how severe Nokia's crash would be.

The amount of misguided statements by Elop - starting from the detrimental Burning Platforms memo - and added by repeated mis-steps such as the launch of Dual SIM phones (angering the resellers, specifically the mobile operators) to praising Microsoft for acquiring Skype and promising (some would say 'threatening') to put Skype on Nokia Microsoft phones as standard - all these things make the reseller boycott more severe, and the collapse of Nokia's smartphone sales ever more steep.

It has had the further unanticipated negative side-effect, that while the 'featurephones' ie non-smartphone (what we often call 'dumbphone') division sales for Nokia were to be immune from any Microsoft effects like the Osborne Effect, Nokia has seen a massive decline in the featurephone division sales as well. Since February 11, the revenues of Nokia featurephones division have fallen by 43% !!!!

Nokia's handset unit generated 8.5 Billion Euros (11B US dollars) of revenues in Q4 with about 1 Billion Euros of profit. So if we ignore Nokia's networking unit NokiaSiemens Networks - a division that Nokia has been trying to sell for half a year now but is finding nobody willing to pay the price for the loss-making unit - the handsets business of Nokia, Smartphones and 'Featurephones' was the size of 44 Billion dollars on an annual level, just six months ago.

Now where are they? The handsets unit reported total revenues down to 5.5 Billion Euros (7.5 Billion US dollars) and a loss of a 247 million Euros (321 million USD). So Nokia's handset business annual sales are now at the size of 30 Billion dollars on an annual level. So under Stephen Elop's so-called 'leadership' and his foot-in-mouth disease, Nokia total size of its core business, the handsets side that clearly Nokia wants to keep - Nokia has already shrunk - 32% ! In five months ! If the malaise was only in one unit of the three big divisions of a corporation, the other two could sustain the company. But right now, Nokia is disappearing before our eyes!

I had projected the loss of market share in my revised best-case scenario that Nokia will end this year with 7% market share in smartphones. And I projected that Nokia revenues in the smartphone unit will be down to 1.5 Billion dollars. If we now assume that somehow the troubles in the featurephones division stop. And Nokia can stabilize its decline in featurephones sales. And keep the featurephones sales the same for Q4 as they are now - even in this ultra-rosy scenario, Nokia's handset business will have shrunk to the size of 4 Billion Euros per quarter (5.2 Billion USD) and Nokia's total handset division size down to 21 Billion in annual sales. Nokia's core business will lose 53% of its size in only ten months! And this - with the unbelievable assumption, that the featurephones unit will not bleed anymore, only the smartphones unit will continue to suffer.

The factories were built to support a company that sells more than a million phones per day. They will sell half that. The subcontractor contracts for parts are all volume-based. As Nokia misses its volume targets - its prices go up! The loss in profitability of Nokia is crushing it already now, as Nokia went from profits to losses. The losses will mount ever bigger simply as Nokia suddenly loses half its size!

And this all happens while the handset industry is facing strong growth! And while the smartphone side of mobile phones is in hypergrowth stage. All other rivals report shortages - shortages - in parts and supplies. Nokia has factories sitting idle. If you think half a billion Euros per quarter is 'a big loss' - wait until you see Q3 and Q4. Nokia is dying.

Now, we've seen this film before. Remember a company called Motorola? Their Razr was the hit phone all around the world two years before the iPhone. Motorola was 'back' and growing market share hitting a peak of 21% and challenging Nokia's number 1 position. Then things went wrong for Motorola. When it started to lose its big sales, everything started to collapse and Motorola's actions only made things worse. it went into deep loss-making, ever worse, as its sales vanished, it retreated from most markets, tried desperately to stop the bleeding and ended up dead. The company was split and many parts sold. That was not an original screenplay. That itself was a replay. There was once a giant handset maker - and early smartphone maker - named Siemens. They were a top 3 manufacturer. They suddenly started to see sales declines, and the sheer mass of the top-heavy organization pushed Siemens's handset unit rapidly into perennial losses, and the unit was finally sold.

As Nokia loses half of its handset sales this year, and its market share in the future of mobile phones - the smartphone division - collapses to one fourth of what it was only ten months earlier - this is an irreversable death journey. There is no comeback. No magical superphones from Microsoft can ride in from the sunset, and save the day. If Nokia handsets are so totally devastated by Christmas, it is the end of Nokia. The collapse is exactly the same as Siemens and Motorola (and Palm) but much much much faster. It is like a Charlie Chaplin film, when the speed is increased..

Because the smartphone side of the handsets business is far smaller than the dumbphones ie 'featurephones' - even if a Windows phone based strategy somehow produced hit phones in 2012, they cannot compensate for the top-heavy organization crushing Nokia. This strategy is suffocating Nokia now. Nokia has cash reserves, it can sustain itself without making profits, but the market share that is voluntarily given away now to rivals, will not be able to be fought back except in very slow and costly ways. Look at Motorola. It had 21% of the global handset market in 2006. It has under 2% now. Do you seriously think that Nokia even with Microsoft's help, can somehow sustain 5 years of loss-making, and after that, emerge with 3% of the global handset market, with a size ranking of about 15th? No. On this path, Nokia dies in a matter of a few quarters from now. There will never be a Microsoft Miracle to save Nokia on this path. Because Nokia is committed to, and cannot switch away from its Symbian path, this is an unstoppable train, that is proceeding on the tracks to the bridge that is broken. We know this results in death. And the sad thing is - the guy who broke that bridge is Stephen Elop.

EXISTENTIAL PROBLEM NUMBER 2 - SHARE PRICE TOO LOW

That was existential problem number 1. And unfortunately there is a second existential threat to Nokia. In the train analogy, now we also find there is a ticking time-bomb on the train. A nuclear bomb. It will go off even before we get to that broken bridge that we can see..

 

Nokia's share price has now fallen below the danger level. Financial analysts hold the danger level for share prices to be that low, by which it becomes more valuable to buy the shares to break up the company and sell its parts, than the value of the company as a whole. Nokia crossed that threshold about two months ago. Any day now, some investor group might emerge who have put together a financing package that simply buys up all outstanding Nokia shares. Then they take control of Nokia, and sell its parts. The networks unit (NokiaSiemens Networks) could be sold to Huawei of China. The smartphone unit could be sold to HTC of Taiwan. The Navteq navigation unit could be sold to some West Coast USA investor interested in location-based services and advertising, lets say for example Yahoo!. The patent portfolio would be one of the most valuable resources, could be sold say to Google. And the dumbphones unit could be sold to say LG who would instantly become 'as big as Samsung'...

If your company was honestly interested in Nokia for only one of its parts - lets say for example, that you were ZTE and wanted only Nokia's sales and distribution network and the Nokia brand, as a kind of 'luxury brand' for your company, a little bit like Tata Motors of India bought Jaguar - then ZTE could put together the financing to buy all of Nokia, and immediately auction off the other parts as per above - and keep the Nokia brand and sales organization at a HUGE discount.

You see what I mean? This is exactly that 'greedy' Gordon Gekko style predatory share buying that Wall Street was famous for in the 1980s and the movie Wall Street chronicled. Nokia is exactly at that stage now. An obvious target for any greedy shark on Wall Street, or any eccentric billionaire who ever wanted his own phone maker etc. Buy Nokia, keep only its brand and a bit of premium design (the best guys, from Finland haha who designed the N9 and MeeGo etc, not from the Stephen Elop admired West Coast designers haha) and then again, sell off the other parts, keep only 10% of Nokia, and get it essentially for free, as if you sell 90% of the rest at their real value - you do get to keep the part you want, more-or-less for free. Haha, a new vanity symbol, whose the daddy now. Who owns his own phone factory..

Before this danger level for any share price, the major threat to a buy-out is by a major rival who is rich. In technology that kind of rivals today for Nokia would be say HP or Apple or Microsoft, that kind of very wealthy company who might be interested in acquiring essentially all of Nokia for whatever reason (or not, like almost certainly Apple would not really care to own any of Nokia haha). So a giant global corporation the size of Nokia with 120,000 emploees would not typically need to fear a take-over by a tiny rival say the size of HTC of Taiwan. But when the share price has fallen below that danger level, suddenly the game has changed.

And after the theory lesson, now the bad news. Nokia's share price is likely to fall far more than where it is now. What kind of news has caused Nokia price to fall from its 12 month peak early in February of this year? Almost any talk of Microsoft with Nokia has spooked the investors to begin with. Almost any mention of Microsoft in conjunction with Nokia has caused the share price to fall. Can we see more of that? The news from the Microsoft side is so dismal with the smartphone OS Windows Phone 7, that Microsoft is not willing to even tell the world in the Q2 results, how many WP7 based phones were sold by Microsoft's handset partners. So the news from Microsoft's mobile handset softaware division is truly horrid and getting worse. Just in the past month or so, we've heard for example Microsoft's head of WP7 tell the world that smartphones on Microsoft's OS have fallen in price to half what they were one year ago, and that they will fall to half of where they are now! That also speaks to rather comprehensive market rejection of Microsoft's offering. And we hear from the biggest manufacturer of Microsoft based phones - HTC, that they now sell more than 90% of all of their phones on Android and because Windows based phones are selling so poorly, HTC is shifting even more of its production away from Microsoft. Thats not good. And yesterday we got LG's results. They celebrated Android smartphone sales, not one mention of any WP7 phones, what was only last year their 'strategic direction' with Microsoft.

So what else is spooking the investors? The market share decline. No. I didn't mean to say decline. I meant suicide. Whenever whatever Nokia news has come out about market shares about Q1 or Q2 or preliminary views to Q3, the news is always worse. Whether actual sales or consumer surveys of what they have or surveys of what brands they want, Nokia is consistently doing worse. Take China (the world's biggest mobile phone market, with more than twice as many consumers with cellphones than the USA). Last year we heard that 76% of smartphones sold in China were Nokia branded. Then this Spring we heard that had crashed to 22%. That kind of bad news, dripping in, day out, day in; week out week in. Now we await the final numbers for Q2 results. I am certain most Nokia investors have no idea how bad it was. The Q1 results were that Nokia's smartphone market share had fallen from 29% to 24%. It would be fair now to expect market share of perhaps around 20%. When investors find out - first days of August this will be in the news - that Nokia's market share crashed to 15% - there will be many who ask, has any brand ever fallen from 29% to 15% - essentially to half - its market share this rapidly - over two quarters. And this will spook investors even more.

Then there is trust in Nokia as a perennially safe bet. It was always the biggest. Well, it is no more. First time in 15 years since Nokia invented the smartphone, it is no longer the biggest smartphone maker. Apple has already passed it now, numbers came out a week ago. And to add insult to injury, its very likely that when we hear from Samsung on Friday, we find that Sammy also has passed Nokia. What a disgrace! Just six months ago, Nokia smartphones unit was so huge, it was bigger than all Apple iPhones and all Samsung smartphones added together. Now its been passed by both. Expect this story to be in the news around the first of August and beyond. And a kind of certainty about Nokia's domiance will disappear. Will this hit Nokia shares a lot or only a little, who knows. But it will not help.

Then there is revenues. Nokia's smartphones unit generated 4.4 Billion Euros of revenues per quarter just six months ago. That is nearing half today and will be far less by Q3 and even worse by Q4. It is dismal news there.

And profits are even a worse story. I cannot imagine what possessed Stephen Elop to make the outrageous promise that Nokia will be at near-zero profit in Q3. That sounded nice, yes, after Nokia posted half a billion Euros of a loss in Q2. But consider this - NokiaSiemens Networks has nothing to suggest it will suddenly turn profitable (it made a loss in Q2). The Nokia featurephones/dumbphones unit has nothing to suggest it will suddenly turn profitable - it is infact suffering from a reseller boycott and severely diminishing sales. Nokia's response to that was to cut prices across the product line! So does that help turn losses into profits. No. That makes the losses even bigger.

And the beleaguered smartphones unit. Yes, it is already generating a big loss. And Nokia has already cut prices - by about 15% already - which will boost... losses.. to be even bigger losses. I do believe that Nokia cannot turn this turkey into making zero profit by Q3. I do believe it means there will be another profit warning in a matter of weeks from now. Look how spooked the investors were with the first profit warning. If a second warning comes within only months, that communicates a severe lack of sound management judgement. I think it would be worse the second time.

And then the ever more painful paper cuts start to dig in. HTC will pass Nokia for 3rd biggest smartphone maker. RIM will pass Nokia for 4th biggest smartphone maker. LG will take 5th if not in Q3 then definitely by Q4. Then SonyEricsson and ZTE will also pass Nokia in smartphones.

And the ultimate fall from grace, by Q3 Samsung will be passing Nokia for the world's biggest mobile phone manufacturer overall, counting featurephones and smartphones. Nokia took the crown from Motorola in 1998. Now, thirteen years later, Samsung topples Nokia as the biggest handset maker. Just six months ago Nokia towered over Samsung at 53% bigger! And when that news hits CNN and CNBC and Bloomberg, many who have always trusted Nokia will indeed be crushed. They will never trust Nokia again.

This year will be a symphony of despair in investor news about Nokia. Every analyst will fall over themselves explaining how Nokia is actually headed for even worse times - as it will - and why the bad news wont stop - as it won't - and why things can get worse still - as they will. Thats not the kind of coverage that helps stem a decline in share prices.

So Nokia is already below the danger point. And the trend continues down. Last week Nokia hit a 14 YEAR low in its share price. And most Nokia analysts project the share price is headed further down. Moody's just yesterday downgraded Nokia (again) now to just two notches above junk status. And major analyst houses like Ovum are now saying the Microsoft strategy is not sustainable. There is no good news for Nokia on the path it is on. But there is an avalanche of bad news. That will push the share price lower, and that brings the sharks. Any day now we will hear of some Gordon Gekko who decides, lets cut up Nokia and sell its parts. That will be the end of the company as we know it. And that death was caused solely by Stephen Elop, the biggest CEO disaster ever seen in a Fortune 500 sized company.

So when we talk of Nokia problems, there are many problems yes, but keep your eyes on the two existential problems. Nokia's Symbian phones are in reseller boycott which will strangle Nokia before next year's mass market Windows phones have time to arrive. And while the damage to Symbian has been enormous, there still is time to undo the deadly damage, if Nokia switched back to its stated MeeGo based startegy - the one with the migration path - Nokia would return to profits still this year. Stephen Elop's misguided obsession with the doomed Microsoft strategy will kill Nokia, his stubborness is now costing Nokia 10 million dollars per day of abandoned profits - yes, Nokia is bleeding 1 Billion dollars of profits abandoned forever, for every 4 months that the Nokia Board waits before firing Elop. But we will not get that far. As we see, there is now the second existential problem, the share price is now too low, and Nokia will be soon bought by someone just for one part of its assets - my guess, the patent portfolio.

And sadly, this second problem started on February 11 when Elop announced his misguided Microsoft strategy and it is only getting worse every day. This was also a totally self-inflicted wound. This is not like Dick Cheney the former US vice president shooting his friend while hunting, in the face. That was an accident. This is like Cheney saw saw his friend later in the hospital, took out his shotgun, aimed carefully at his friends face, and shot him - deliberately. And then, took aim, and shot his friend again! That Nokia very survival is now at stake, is wholly and totally the cause of Stephen Elop. He is destroying Nokia and he must be stopped now. This farce has gone on long enough. Stephen Elop has to be fired, now, while there still exists a Nokia Corporation to salvage any life into the future.

LG Q2 Results: Smartphone sales 5.4M edges past SonyEricsson for 6th biggest

Quick note on other big names in the Bloodbath Year 2. We have LG results for Q2. South Korea's LG, the world's third largest mobile phone manufacturer is still reporting a loss in its handset unit as it is completing its costly return from its Microsoft-powered misadventure and going now full speed to Android.

And LG is showing its muscle, using its global dumbphone reach and brand (USA's second-bestselling cellphone brand for example) to elbow itself up the charts both in overall smartphone sales and within the Android family. LG Q2 results? Smartphone sales up 15% to 5.4 Million units (from 4.7 Million) and just passing SonyEricsson now for 6th place ranking among biggest smartphone makers. LG preliminary market share is about 5%. LG did the same job passing Motorola last quarter. With Samsung and HTC the big Android makers, LG is now the third biggest manufacturer of Android smartphones already. Not bad when a year ago LG was firmly promising a strategy of Microsoft Windows-powered smartphones.

We now await Motorola Mobility results Thursday and the big number, Samsung results on Friday. Stay tuned...

Myths and Misdemeanors: Lets Examine Some Very Widely Held Myths about Nokia, and the facts behind the story

Lets do some Nokiamyths! New and improved: Now fortified with Facts! I have recently looked at Nokia CEO Stephen Elop performance, and frankly have called him incompetent and fit to be not just fired, but to be sued for mismanagement of Nokia. Please allow me my opinionated views from time to time. As I am Finn and am an ex-Nokia executive, and Nokia has kindly supported me with tons of consulting work over the past decade since I left Nokia, and I have tons of friends still working there, I have a passionate personal connection with the biggest mobile phone maker of the world. And no doubt, that has colored some of my observations about how Stephen Elop has run the company recently. This blog is not about Elop's failings. This blog is about Nokia's survival. I am loyal to the bone. Not to the boneheaded management style of Stephen Elop. I am loyal to Nokia. And I don't want Nokia to die. And even more than that, I believe Nokia stood for many of the better aspects of business, they always championed open systems, of partnering, of ecosystems, of a migration from hardware to software, of becoming an internet-like company.

So there are some myths about Nokia, its smartphones and its ecosystem, that need to be cleared up. This is my blog to expose those myths. And sorry, this is another long blog, but these are complex issues and I want to deal with them thoroughly, not superficially. And where we deal with myths, as you've no doubt seen on Mythbusters, the matters have to be examined in detail.

Understand that Nokia is no stranger to change, it was once a papermill and rubber factory. As a kid if Finland I wore rubber boots made by Nokia and our family car had tyres with the Nokia brand. Toiletpaper was made by Nokia etc. So for Nokia to face its transition from making voice-oriented basic mobile phone handsets, to inventing the smartphone, and then guiding that change from enterprise/business oriented smartphones (like the Blackberry) to consumer-oriented smartphones (like the iPhone), that transition too was invented and pioneered by Nokia. If you are addicted to Angry Birds and download tons of games to your smartphone, the company that dared to put 'frivolous' videogames on 'serious' tools like a telephone - was of course Nokia. And if you think Apple's App Store that bypasses mobile operators/carriers and sells those games directly to your phone is a great idea. Have a guess where Apple got that idea? Nokia pioneered that too with what was then the biggest app store and the most content you could buy to your smartphone completely bypassing the carriers, for a smartphone called the N-Gage.

But Nokia is a massive global organization of 120,000 employees making 58,000 US dollars of revenues (and 2,400 US dollars of profits too) last year. That kind of ship does not change course quickly. Nokia was however, managing the transition from cheap basic phones to smartphones by far more successfully than any of its traditional rivals, Motorola, Samsung, LG, SonyEricsson etc. Each of those four had experienced at least some quarters of loss-making while Nokia's handset unit had never produced a loss in Nokia's history. And better than that, Nokia led all of its rivals in transitioning from 'dumbphones' to smartphones - Nokia was the only handset manufacturer which had for every single year, a better market share in smartphones than it had in its dumbphones unit. So when Nokia was transitioning from the old to the new, Nokia was 'picking up' new customers, not 'abandoning existing' customers like for example Motorola, LG, SonyEricsson etc did regularly (and these three were frequently reporting a loss too).

IMAGINE IF APPLE ENTERED AS A RIVAL TO YOUR COMPANY

The problem for Nokia back then was two-fold. First there was Apple. Before Apple, everybody loved Nokia. Nokia had the best customer loyalty, Nokia had the best user experience, Nokia had the coolest features and everybody wanted a Nokia. Nokia also sold some of the most expensive phones (under its own Nokia brand, the iconic N93 cost over 1,200 US dollars in unsubsidised form ie without 2 year carrier contract) and even launched a luxury brand called Vertu if that was not enough. But when Apple launched its iPhone, suddenly Apple became the darling of the industry and everything Nokia did fell into that shadow. And Nokia honestly speaking did not know how to deal with that change. First it tried to ignore and belittle Apple saying things like the original iPhone was not even a 3G device etc (which was technically true but consumers loved it anyway). Then Nokia embarked on a bizarre path to try to be like Apple, now resorting to designing iPhone look-alike phones like the N8 and N9 with iPhone-like touch-screen operation etc.

And the devastating effect of the 'Golden Age for Apple' is that someone was going to get hurt in that process. Some forget that less than two decades ago Apple was near bankruptcy. But now Apple makes the biggest profits of any tech company, by a wide margin too. So soon we had the casualties to the iPhone: Palm. Died. Microsoft's Windows Mobile. Killed by Microsoft. Google's Nexus One, the so-called 'superphone'. Died. Microsoft's Kin phones. Killed by Microsoft. Now in trouble and on life-support: RIM the maker of the Blackberry.

The only major smartphone maker of 2006, before the iPhone launched, that seemed oblivious to the rise of the iPhone was.. Nokia. Yes. The conventional wisdom says Nokia is dying because of the iPhone. That is totally mistaken. Nokia was plugging along very happily through the first two years of the iPhone as the others fell by the wayside. Who came along two years ago? Google's Android. It is not the iPhone that is killing Nokia, it is Google's Android. Take the numbers and plot them over time. Nokia was sustaining strong growth alongside the iPhone's strong growth from 2007 to 2009. It was not until the Androids came along, that Nokia started to falter. And as Android picked up speed in 2010 to 2011, that is when Nokia's bigger troubles started.

But back to Apple. Apple made the profits! Nokia had been a profit factory. Many quarters it was almost a given, that Nokia easily made bigger profits than its 5 nearest competitors added all together. The investors liked to think of a few ironclad certainties: Nokia towered over its rivals in handsets. Nokia towered over its rivals in smartphones. And Nokia made the biggest profits in the mobile phone industry. That all started to crumble with the iPhone. Now Apple makes far bigger profits than Nokia in its best days. And Apple sells less than one fourth the number of handsets than Nokia. The timing for Nokia's transition from 'dumbphone' maker to smartphone maker could not have been less fortunate, than to face Apple's sudden interest in mobile phones, from 2007 to now. If there was no Apple, most analysts would look at Nokia's transition and applaud it for being the only major handset maker to make it through the most difficult time in the global economy of our lifetimes, and do that profitably while holding onto most of its market share. Compared to Motorola (which was ruined and had to be split) or SonyEricsson or LG, Nokia is pure gold. Even compared to Samsung, Nokia comes out smelling very good most of the recent quarters, head-to-head.

Nokia utterly failed to win the mindshare battle compared to Apple. The truth is that of the first 12 changes and improvements made to the original iPhone (from 2G to 3G to 3GS to 4) and to Apple's iOS operating system - and I don't mean trivial upgrades, I mean the big changes that Apple itself highlighted in its press releases when celebrating its latest edition - 11 of those existed on Nokia's bestselling smartphone from before the original iPhone. I am not saying Apple isn't the best at user experience - of course it is. But the perception that many people have, that Apple is the innovator in the mobile industry, is simply not true and all major mobile industry experts acknowledge, Nokia is by far more innovative, has been in the past, is now, and is still today leading Apple by a mile. As you may have noticed, a few months ago, Apple settled its patent lawsuits with Nokia and who is paying whom? Apple paid Nokia not just a big lump sum, but now pays royalties for every iPhone sold. Who is copying whom.

That is the facts. Nokia was hopeless in the PR battle against the master of the tech space, Steve Jobs who mesmerizes his audiences. Against that, Nokia rolled out Finnish - at best we can say 'wooden' speakers like past CEO Olli-Pekka Kallasvuo, who would do very engineering-oriented and boring presentations that inspire nobody. Nokia has a tech leadership in mobile phones with current patents and innovations that is a mile long. Even today, look at the latest phones just coming to the market from RIM and in the Android family, and rumored for the next iPhone 5. Take Near Field for example - a critical element for mobile payments and the mobile wallet. Nokia not only sells Near Field enabled smartphones today, Nokia is so far ahead in mobile money and payments, Nokia Money has launched in several countries such as India, the world's second largest mobile phone market (China is the biggest). But Nokia lost the 'mindshare'. Reality doesn't matter, it is the perception of reality which only matters. And the perception was everywhere that Nokia is falling behind Apple. Even in Nokia's home country of Finland, the tech analysts regularly celebrate how advanced Apple is, and how much Nokia is losing it.

THE ONLY FUNDAMENTAL PROBLEM WAS EXECUTION

If the problem of Apple was external and a PR disaster, the other big problem Nokia had, was completely home-grown. Nokia had grown fat and inefficient and notoriously bad at its execution. One delayed phone launch followed with the next delayed even more. Phones shipped with problems, software fixes were delayed and the mess kept getting worse and worse. By the time of the N97, Nokia's flagship phone for 2009, the situation had gotten so bad that Anssi Vanjoki admitted in public that the phone was a fiasco and Nokia had totally messed up its release. Anssi then pledged not to repeat that mistake again. So what we got in 2010 was the delay of literally 12 months of the launch of the next flagship phone, the N8, which was originally scheduled for Christmas 2009 sales but was delayed three times and hit the stores for Q4 of 2010. While the N8 was a highly successful Nokia new phone launch and highly praised and remarkably bug-free for a first edition (having had a year of internal repairs) - it was also mentioned by many, that if it had been launched when originally intended - in late 2009, when its rival would have been the Apple iPhone 3GS - the N8 would have been legitimately called an iPhone killer. Now, in 2010, against the iPhone 4, the N8 was just another iPhone clone, but one with a darn good camera, yes.

So Nokia's real problem was execution. Execution execution execution. And when Stephen Elop was hired from Microsoft, a man who worked in the software industry, and Nokia was seen to be transitioning from a 'box mover' handset hardware maker, to a 'software company' and where most Nokia execution problems related to managing its software, a new 'outsider' from the software industry seemed to be exactly what Nokia needed. Stephen Elop, the man from Microsoft, if anyone, should be able to streamline Nokia and make it efficient in delivering the software parts of the phone business. Nobody could argue that Nokia was by far the most efficient manufacturer of the mobile phone hardware, thats a given. So Elop was seen as the answer to Nokia's 'execution' problems. And as he was 'US trained' and clearly a gifted speaker, Elop as CEO could help fight back some of the 'mindshare' from Apple (and Google) to get Nokia more fairly recognized for its leadership.

WHAT WAS NOT BROKEN

 

Then the conventional wisdom says some of the following: The Symbian operating system was obsolete and failing in the market. Nokia was losing the war of ecosystems. The battle had shifted from selling hardware to winning the apps race, the race of the app stores. And that Nokia had no future on its path, and had to abandon Symbian and select either Android or Windows for its future. That all sounds very reasonable and it seems also that the facts even as we speak, confirm all those beliefs.

Now the truth. Nokia is not a pure smartphone maker like Apple or RIM or HTC. Nokia cannot afford the luxury of making one super-premium smartphone like the iPhone, and only sell that. Nokia has factories in 9 countries (Apple doesn't even own a phone factory, its iPhones are made by subcontractors in sweatshops in China). Nokia has carrier relatinoships with almost every one of the 600 carriers/mobile operators of the world, which means a huge sales organization and even bigger distribution network. When I provided some consultancy for DHL the parcel delivery company (who ships phones from Nokia factories Nokia resellers worldwide) we calculated that Nokia was shipping one million new phones every single day (Saturdays and Sundays included) - and this was years ago. So Nokia does make premium phones that cost 600 dollars like say the E7 now, a flagship smartphone in the class of the iPhone (by price, obviously not in the same class by desirability - nobody is as desirable as Apple) or say the new Samsung Galaxy S II. But Nokia also sells ultra-basic phones that cost 50 dollars that sell in Africa, in India, etc.

Nokia cannot be (fairly) compared to pure smartphone makers on Nokia's smartphone strategy. A pure smartphone maker like Apple, RIM and HTC, will have all of their phones on their smartphone platform(s). Nokia sells far more 'non smartphones' and has a vast loyal global customer base who buy Nokia brand again and again, but who today cannot afford to even consider a smartphone. Nokia cannot stop serving those markets. Nokia would lose four fifths of its business! And here is the most relevant argument - essentially all mobile phone industry experts now agree, that all mobile phone 'dumbphones' will evolve so, that before this decade is done, they will all be classified as 'smartphones'. Much like early DOS based basic personal computers would evolve and today all computers run on something like 'Windows'.

Nokia faces a totally different challenge than Apple, RIM or HTC. Nokia has to design a transition strategy - how to transition ever more of the low-cost 'featurephone' users from dumbphones to smartphones. That means, first of all, that Nokia has to find ways to mass-produce lower cost smartphones. Then it means, that Nokia has to continue to be a brand leader in the low-cost segments, to keep the loyalty of the dumbphone buyers of today, to get them to upgrade to smartphones some time in the future. And Nokia has to manage a continuous process of getting mid-prices phone users to 'upgrade' to Nokia branded smartphones. This is an iterative process, Nokia has to bring ever cheaper smartphones to the market, and then continue to successfully transition more of the ever-lower-value customers to become first-time Nokia smartphone users.

If Nokia is successful in this transition, it will be seen to have won three cycles of the mobile phone industry - the first was analog phones, where Motorola first ruled, but Nokia took the crown in 1998. The second cycle was the digital phones, where Nokia obviously won being so dominant, it was often as big as the next four biggest rivals put together (and making more than half of all profits by all handset makers of the world). Now we see the third cycle, that to smartphones. But, no matter how great a premium smartphone Nokia might be able to produce, as an 'iPhone killer' for example, if Nokia fails in transiting its existing dumbphone user base to smartphones - and this is taken by one of Nokia's main rivals like Samsung, LG or ZTE - then Nokia will be seen to have failed the industry transition, regardless of how good or bad its luxury flagship phone might have been. If Nokia fails to transition its dumbphone users to smartphones, then Nokia will collapse as a dynosaur, its cost structures overwhelmingly destroying what is left.

 

The battle for Nokia is the battle of the mass market. The rival is not Apple. Apple sells 4% of the worlds' phones. Nokia's main rival is Samsung who sells over 20% of the worlds' phones and is closing fast on Nokia to challenge Nokia for number 1 status. To use a tired analogy, Nokia is like Toyota, selling everything from Lexus luxury cars to Toyota Camry taxicabs to Corolla family sedans to MR2 sports cars to HiLux pickup trucks to Land Cruiser serious off-road vehicles. And many many more. Apple is like Porsche, who do rare updates to what is essentially only one model in one form factor for the ultra-luxury segment. They are very desirable, with huge passion of their customers and incredible loyalty. And their profitability is second to none. But Toyota would be destroyed if its management suddenly tried to position the Toyota corporation, its dozens of factories worldwide, its tens of thounsands of dealerships etc - to make one iconic sportscar to rival the Porsche and quit selling all other types of Toyota cars. It would be corporate suicide.

THE RIGHT STRATEGY, 95% COMPLETED

If you are an analyst who looks at the smartphone in your pocket as a kind of pocket computer and internet device and gaming device with tons of apps, and you think the battle of the smartphone is a 'battle of computers' then you can very well see that Apple is clearly a big winner in that battle and Google Android is a clear winner and Microsoft is a likely strong player for the long run, as is likely Hewlett Packard with Palm. And if you see most Symbian based phones of the recent past, and even including the current crop, you will probably see that Symbian is tired and honestly does not have another decade in it. Symbian was designed as a PHONE first, and computer second. Symbian was conceived at a time when screens were tiny and the standard interface was the keypad of the phone, or a stylus. Touch screens were not seen as viable at the time. The modern smartphone operating systems were designed to be touch-screen operated and function far better as computers - and perhaps even ironically, most are far less user-friendly as 'phones'.

It would be fair to judge Nokia and Symbian to have fallen behind 'irretrievably' in the race to win the pocket. But that is NOT what Symbian is, or was meant to be, for Nokia's smartphone strategy. Nokia has to transition its dumbphone customer base to smartphones. To CHEAP smartphones. Then over time, building on its loyalty, migrate those customers to ever more powerful - but still Nokia branded smartphones. If they ever reach the 5% or so of the planet's population who can afford an iPhone, then yes, Apple will be taking a lion's share of those premium customers. But Nokia is in the mass market space. Nokia needs to keep its lead in the less-affluent markets. The smartphone owners who cannot afford more than 300 dollars (a typical Blackberry) or less. The average price of Nokia smartphones sold last Christmas was 200 dollars. Average price. Many of Nokia's lowest cost smartphones now cost under 100 Euros (under 130 dollars).

Symbian is Nokia's low-cost smartphone platform, for the mid-term time frame. Symbian is truly an old OS in many ways, and has many faults and is notoriously bad for developers to make applications for example. But one of Symbian's best features is, that it is of all current OS's (except Samsung's bada) the least demanding of the system resources. Symbian runs happily along with modest power CPUs and with minimal onboard memory. This means, that for like-for-like features and abilities, a Symbian based smartphone can be manufactured at significantly cheaper cost, than any rival Android or Windows or Blackberry or Palm or iPhone. Remember the mission for Nokia. It is not to somehow match Apple. Nokia's mission is to bring smartphones to the masses in this decade and to continue to be the biggest at the end. That means.. low cost smartphones!

The pundits punish Nokia for Symbian not being a match for the iPhone. Its like punishing Toyota for the Land Cruiser not being able to win a drag race against the Porsche 911. Thats a bit unfair. What about the jungles of Brazil. Want to try your Porsche ground clearance there? What of the deserts of Africa? How quickly is the Porsche stuck on a sand dune. Or just take a family. How well will the wife and kids and dog fit into your two-seat sportscar? But the Toyota Land Cruiser happily moves lots of people and their dogs and bags and stuff safely from one point to the next, whatever the condition of the roads - or lack thereof. Its not a fair comparison. Symbian is not 'supposed' to be a match for the iPhone (or Android). Symbian is the OS to power Nokia's cheap mass-market smartphones, for those customers who of course would want to buy a cool ultra-desirable iPhone but will settle for a Nokia.

That doesn't mean that Nokia can sit still. It doesn't mean that Nokia can be complacent. But it does mean, that Symbian should be judged in its intended target market - and in its price bracket, Symbian blows all rivals away. Just like Toyota, go to Nigeria or Indonesia or Brazil or the outback of Australia and start to count how many Toyota vehicles you see (and compare how many Porsches haha).

MIGRATION STRATEGY

So you say but there is America, Europe, all the wealthy countries and a huge affluent client base who are growing tired of Nokia and abandoning the brand in favor of iPhones, Androids etc. Yes. That is true. Even with all the updates to Symbian, it was not able to be fully competitive to the iPhone or Android. One should note, Symbian keeps evolving and improving. While Palm - DIED - while Microsoft's 10 year project Windows Mobile - DIED - while Blackberry is dying - Symbian was still holding on quite well for an old-timer. The Symbian S^3 operating system (on the N8 and E7 for example) is considered a very worthy touch-screen optimised OS. Not as good as the iPhone or Android, but far better than the rest. How good is good. This latest edition of the old dog Symbian managed the very rare trifecta in Q4 - Symbian based Nokia smartphones grew unit sales - AND grew average sales prices - AND grew profitability. Usually for you to grow sales, you have to drop prices - and the average Nokia price drop per quarter is about 7%. Now new Symbian managed a jump of 14%, a Nokia record in fact. And profits? Yes, Nokia profits leapfrogged up 68%! In one quarter!

This is absolutely impossible if your customers think that your product is 'obsolete' or 'undesirable' or 'not competitive'. Absolutely impossible. If you increase sales and it was not done by lowering price, usually then you have to increase your marketing efforts, big advertising campaigns etc - but not in Q4. Nokia grew Symbian sales while also increasing its profitability. Not by big expensive marketing campaigns.

I am not trying to sell you any cooky idea that Symbian S^3 is somehow now an iPhone killer. Of course it isn't. Nokia did grow Symbian sales and average prices and profits in Q4 yes, but the growth in unit sales was not at the pace of the industry growth (but growth in average sales price, and growth in profitability far exceeded the industry, so Nokia was perhaps not prioritizing correctly - this goes again to 'execution' rather than any claim of a 'failing' operating system), so Nokia lost market share even in that good Q4 of 2010. While Nokia was growing less fast as the industry itself - meaning Nokia was gradually losing market share - this too is a bogus crticism. Would you be critical now of Apple's iPad? What if you look at the iPad market share and see it is declining. Is Apple somehow doomed? No. It is making oodles and bundles of profits with the iPad and the iPad is selling many times over more than any of its rivals.

The same was true of Nokia's Symbian based smartphones. Nokia invented the smartphone, 15 years ago. Nokia thus started with 100% market share. Then when others joined, Nokia would lose some of that market share. That is inevitable. First there were few who dared to venture into the smartphone space. If you remember Compaq and Sendo and other pioneers (like Palm). Then we have RIM and HTC and SonyEricsson and others. By 2006, the year before the iPhone, out of the Global 500 biggest corporations of the planet, 7 were manufacturers of smartphones. That is a lot of giant competitors for Nokia. Have a guess how many there were by 2010? After the massive visibility and success of the iPhone, the smartphone market had become so intensely competed, that 23 - yes 23 - of the Global Fortune 500 corporations had become smartphone makers. In terms of giant brand corporations, the smartphone market is perhaps the most competitive industry that ever was. You can't find 23 car manufacturers in the Fortune Global 500 haha, nor 23 airplane makers or 23 home electronics brands etc.

 

2010 was so severely competitive in the smartphones space, that on this blog I called it the year of the Bloodbath, and we tracked here how the mighty fell (like Palm, like Microsoft's Kin) and how new rivals jumped into the game (like Google, like Vodafone) and how even the new rivals fell (like Google's Nexus One or yes, Microsoft's Kin). In such hypercompetition, if you are the global market leader - of course you will see market share erosion. But this is the part that should shake some readers. Today Apple and Samsung (most likely) have passed Nokia as the world's biggest smartphone maker (due to Nokia's mismanagement, mostly). How 'badly' was Nokia doing in 2010. As late s the fourth quarter of 2010, Nokia was not just the world's biggest smarphone maker by a huge margin - Nokia's (Symbian based) smartphones unit was bigger than all Apple iPhones and all Samsung smartphones, added together! That is market dominance! And Nokia was doing this, in the most fiercely competitive era of smartphones, in one of the most competitive years of any industry, all the while producing healthy profits. Its smartphone unit - get this - grew profits by 68% from the previous quarter. That is what we call a slam dunk.

Yes, Apple was growing. Yes, Google's army of Android smartphone makers was creeping up on Nokia's alliance with Symbian based manufacturers and yes, HTC is out there doing very well as is Samsung. But the honest truth is, if you ignore the hype, look at the numbers. Nokia sold 28.3 million smartphones just in Q4 of 2010. Nokia's market share was 29%. Apple sold 16.2 million (16% market share) and Samsung sold 10.5 million (11% market share). Ford would dearly love to be bigger than Toyota and Volkswagen - combined! Thats the truth. That is not a 'losing' platform. That is sheer market dominance. Yes, the trend line has been downwards, but that will ALWAYS be so, for anyone who invents a new industry and starts with 100%. The trick is to stay bigger than the rivals. And Nokia had easily stayed bigger than any of its rivals in smartphnones - for 15 years straight. For 60 straight quarters. That is a not a winning streak. That is a dynasty. And still only six months ago, Nokia (smartphones) was comfortably bigger than Apple and Samsung (smartphones) all added together.

Everyone, including me on this blog regularly, and including Nokia management years before Stephen Elop came along, has said that Symbian is not viable for this decade. It is too old and complex and fragmented, it was not designed for touch screens and the mobile internet and apps. So Nokia did what any smart company owning this market would do. It built a replacement operating system.

Lets be clear about something. If you do things the 'right' way as the technology purists say, for long term viability, how do you develop a platform? You make it an open system, open source and you build it with competitors, for use not only by you, but also by your competitors. This is 'textbook' the right way to achieve a long term success. The alternate is to make it proprietary, closed and only limited to your own brand. That kind of super-closed system allow much faster development and short-term competitive advantages and technology leadership but will always lose to the open systems in the long run. Look at Sony Betamax vs the VHS alliance in video recorders for example. Or close to home, how one Apple Macintosh PC on only Apple brand, was overwhelmingly beaten in market share by the vast army of Microsoft-compatible PC makers running on Windows.

Now. We can see how Apple runs its iPhone operating system iOS. It is closed. It is proprietary and it is not licensed to anyone. That is how RIM runs its Blackberry. What of Nokia? With Symbian - remember this is nearly a decade before anyone had touched an iPhone - at the time, Nokia invited all of its biggest rivals - Motorola, Sony, Panasonic, Siemens, Samsung, Ericsson etc - to come and build it together, and it was called Symbian. And Symbian is of course open source and at its peak there were two dozen brands who licensed Symbian based smartphones. Nokia invented the smartphone. It could have gone the 'Apple route' to smartphones and dominated the tiny market in the early part of the past decade. But if Nokia didn't do this with Symbian, someone else would have (like Microsoft would try later, and Google would succeed now).

So. That was Nokia 1.0. What did they learn in the past decade of building smartphones. Well, they learned that the new OS needs to be touch screen of course and web optimised and support apps etc. But as the operating system development? Did Nokia learn anything. Two powerful lessons. First, Nokia was studying the PC landscape and saw that Microsoft's dominating position in the PC market was being eroded by an unanticipated disruptor - Linux based open-source, crowd-sourced and free - operating systems. So Nokia decided its 'next generation' operating system would be all the best that Symbian had been, but would be Linux based. And so Nokia developed its Linux based smartphone OS called Maemo, and released its first smartphone on it called the N900 in 2009. Maemo was heralded as a bold move, very advanced, very smart, very user-friendly and very promising. But the N900 was a costly smartphone and as Maemo had almost no apps, this was seen as a development phase, to seed the market and start the migration process.

And for those doubting Thomases who might now interject, that a Linux based smartphone operating system is a moronic idea, it can never fly - the Google Android operating system is also Linux based. So there. Taken 45% of the world's smartphone market already in just over two years. So shut up.

A funny thing happened on the way to Maemo. Nokia had been partnering for a long time with Intel in various mobile-related projects. Intel had wanted to come into mobile in a more forceful way, and had been developing its own Linux based smartphone OS, also of course open source and all that. It was called Moblin. So some smart heads got together, and Nokia felt very comfortable sharing the OS development with Intel (remember, it had worked with many direct rivals in Symbian, so this was far 'easier') and thus they merged their projects and MeeGo was born. But this change did cause some delays in the development of Nokia's own Maemo based systems and the related handsets. (Nokia's problem again - is not the software or mobile skills or mobile strategy itself, it is the execution. These kinds of delays are costly). But the benefits of Intel's partnership were seen as far better as Intel brought also many major brands into the new MeeGo family. Nokia knew its OS would be far stronger, if it powered many non-Nokia branded smartphones as well as tablet PCs, netbooks, TV sets, car systems etc.

And then Nokia studied transitions in technology. How was it, that when the Macintosh PC came along and totally transformed the PC indsutry, how could the legacy market leader, Microsoft, take its obsolete DOS operating system, and achieve same level of market dominance in the new Windows era? Why didn't the Macintosh crush Microsoft when that was built on DOS. It was something very special that Bill Gates did with Microsoft in the 1980s. He built a migration path. The secret to keeping your market share going from one obsolete platform to a newer 'next generation' platform - after your market has been disrupted by Apple no less - is to have a migration path.

Migration paths are not cheap. It cost Microsoft Billions to create several editions of DOS with Windows, Windows with DOS, Windows with DOS embedded and finally only Windows. But Microsoft did it, and has reaped not one decade of the best profits in the software industry, but three and counting. And with that migration path, Microsoft, when led by Bill Gates, actually defeated Apple in the desktop and laptop PC era - the only company ever to manage to do so.

So what do you think Nokia did? Of course Nokia did the right thing. They built a migration path for their developers, to go from Symbian to the new Nokia Linux based operating system, MeeGo, using a set of application development tools called Qt and with the help of Nokia's Ovi branded store (incidentially, both Qt and Ovi also support Nokia's mid-range non-smartphone 'featurephones' that run on the S40 operating system, so actually the migration path was a kind of three-way-migration: even better).

Does this guarantee that Nokia's 29% market share in Symbian would be transferred to become 29% in a future powered by MeeGo. Of course there are no guarantees. But one thing is certain:

 

NOKIA HAD THE BEST SMARTPHONE STRATEGY

You may love your iPhone. Fine. But Apple is destined to be only a bit-player in the overall smartphone space, because its OS is closed, proprietary and not licensed to third party manufacturers. I am not criticizing Apple. They are magnificent. They will continue to do so well, what they have done with the Mac and iPod and iPad and iPhone. But don't think that 20% market share in smartphones today (and 4% of global handset sales) can mean Apple sells 20% of all mobile phones in 2020. It ain't gonna happen. It will be JUST like the Mac, with premium phones, with highly loyal Apple fanatics, bought at specialized Apple churches, sorry, Apple stores, and sustaining the best profits in the industry. It is the best strategy for Apple clearly. But there is not a market for 15 other brands all doing like Apple.

There will be a couple of mass market brands in smartphone operating systems, who will have 15% or 20% or 25% and likely one superbrand which has 40% or 50% or more. Today the early betting says Google's Android will own the biggest share of the mass market. But you can be very profitable if you own your OS, and have a good large chunk of the market.

CONTRAST THE BIG 5

So. Who are in the running for the mass market when all current 'dumphones' have been upgraded and replaced by smartphones? Motorola? It abdicated its control of its destiny. While it was previous part of the Symbian alliance and made also Windows Mobile phones, Moto left Microsoft in disgust and now set all its eggs in one basket, and has become slave to Google's Android. Android is now free. It may always be free, with Google's 'Do No Evil' philosphy, but who knows. What if Google decides to start to spy on its smartphone users - the Android system has the spyware already built in (as does Apple's iPhone). Motorola has no options. Motorola is not in any way in control of its future.

Then SonyEricsson. Like Moto, SE used to support Symbian and Windows Mobile, but has placed its bets into two baskets. SE provides smartphones on Android and on Microsoft's new Windows Phone OS. but SE finds WP is not selling, so they do most of their production on Android. SonyEricsson has abdicated control of its own destiny but does have two rival OS platforms it can alternate between, if one proves nastier than the other. Obviously there is no compatibilty between the two platforms.

Then comes LG. Like Moto and SE, also LG supported both Symbian and Windows Mobile. LG made a strategic 'all eggs in one basket' move to Microsoft about two years ago, to disasterous effect. It spent all of last year back-peddaling away from that and now prioritizes Android. But LG also says it will produce some Microsoft Windows Phone based smartphones. And LG supports.. MeeGo. What LG has is also like SE and Moto, it has abdicated control of its destiny but where Moto has one and SE has two, LG has three choices of where to go if things don't turn out well with one OS or another. There is no compatibility between the Windows Phone OS and the other two, but Android and MeeGo are both Linux based, so there is some commonality.

And then we have Samsung. Samsung like LG, Moto and SE was also part of Symbian and part of Windows Mobile. Samsung now supports Android - is in fact the biggest supplier of Android phones currently in the Android family but also provides a select dribbling of Windows Phone based smartphones. Samsung has done something different. Samsung has developed its own OS for smartphones, called bada. So out of these four, only Samsung is in control of its own destiny. If ever it finds that the third-party OS developer is not willing to do some software development that Sammy wants, Samsung can always do it by itself, using bada, and have true competitive advantages using its own OS. And obviously, Sammy doesn't need to pay royalties for using bada (nor of Android currently, but Microsoft does require a royalty payment for every licence of Windows Phone). But bada is still a closed, proprietary OS that is not licensed to third parties. So Samsung does not have 'partners' among handset vendors to help grow the bada system. And there is no compatibility between any of the three OSs that Samsung supports.

Contrast that with Nokia. Nokia supports Symbian and MeeGo. In both cases Nokia is a major developer/owner/controller (Nokia actually set Symbian up as a foundation, strictly speaking). So only Nokia is completely in control of its destiny. And Nokia has a full migation path tying both Symbian and MeeGo together, so sales of one will always support sales of the other. Symbian still at the end of 2010 had half a dozen handset manufacturers supporting it - you didn't know that? Global Top 10 smartphone vendors Sharp and Fujitsu among the group. Yes, Symbian is not only Nokia. Symbian is a family thus more viable than any single vendor OS like Blackberry, Palm, bada or iPhone. And MeeGo? Has already four other handset makers signed up - ZTE, LG, Huawei and Panasonic - with another two dozen brands in the PC, laptop, tablet, home electronics, car manufacturing etc industries. So MeeGo is already a very robust and healthy new OS - but still in very early days. And to be clear, Nokia does not need to pay one penny of a licence royalty for using Symbian or MeeGo.

You didn't know that? Clearly. Clearly. Clearly. Of any traditional 'dumbphone' maker - think Motorola - who has to transition to smartphones - in a very costly and time-consuming complete transformation of the company, Nokia has the best smartphone strategy, the only one completely in control of its destiny, and the one most friendly to its developers and customers. This is not the cheapest option - remember Microsoft going from DOS to Windows - but Nokia's strategy was by far the most promising - and Nokia had managed the very costly transition - with its mobile phone handset unit generating a profit like clockwork every single quarter for the past 15 years. Even if total Nokia corporation reported a loss (because the Networks unit was unprofitable) then the handset unit - where this transition was being managed - remained very profitable every quarter in history. And now in Q4, the profits jumped 68%. Of the total profits generated by Nokia in all of 2010, by all four of its main business units - the smartphone division in Q4 alone, generated about one fourth of Nokia's total 2010 profit. That is how you execute a transition in smartphone platforms. And all this while the world economy was struggling with the biggest decline since the Great Depression.

 

Nokia is no Apple. But if you honestly measure what was Nokia's real task, and against that mission, not to try to become Apple, but to migrate its cheap phone users to smarpthones - and to migrate the old Symbian system to a modern OS - what it was achieving. Nokia was performing admirably. And crushing its real rivals, with a far better strategy for smartphones, with far better success than the other biggest phone makers with global mass market footprints.

BUT ITS A BATTLE OF ECOSYSTEMS

 

But Tomi you are totally missing the point, the smartphone battle is not won or lost on who shifts the most boxes, it is who controls the biggest ecosystem. And Apple is running away with this race, beating Nokia like a rented mule.

I know that sounds very reasonable and 'smart'. And yes, I agree with the sentiment of the growing importance of the ecosystems but ... I go with the facts. I think those who preach the ecosystem mantra are on the wrong side of chasm, as in Geffrey Moore's Crossing the Chasm. If you think ecosystems today rule in deciding smartphone sales, you are by definition an early adopter - some might call us geeks - and we do indeed value our apps and know our versions and updates. But the evidence says otherwise. The world has not caught up with you and me, my dear. Surveys this year repeat the story, time and again, the latest I saw from the USA last week, that the smartphone OS, the app store, the number of apps etc - do not decide who buys your smartphone. Apps and ecosystems come down, way down, typically ranked as the 5th most important criterion. In 2011 what is the most desired feature of a new phone buyer of smartphones - in the USA - it is as it has been for years, SMS text messaging.

I am not saying ecosystems do not matter. But we cannot be delusional. The average user is not like you and me, on this blog, with two smartphones in our pockets. The average user is far less sophisticated, and the camera resolution, the SMS, the screen size - these come to most buyers today far ahead of apps or ecosystems or the operating system. I just want to be clear. This is not Tomi telling you this. This is consistent studies from all major markets, from Europe, from America, time and again. Apps are not in the top 3 most important things that buyers want when they come to buy a new smartphone.

But hey, I am NOT disagreeing with you. I just want us to deal with facts. Apps are increasingly more important. The app store is increasingly important. The ecosystem is important today, it will become the most important element for smartphone success long before this decade is done, I totally agree with you! Its only the timing, lets deal with facts here on this blog, not fantasies, ok? But yes, lets go to the ecosystems.

NOKIA OWNS WORLD'S BEST MOBILE ECOSYSTEM

Tomi now you lost most readers. Did I? I deal with the facts. I know the Apple loyalists like to quote download numbers and number of apps. Lets start with the ecosystem, honestly, completely. The single most important part of the ecosystem is its 'inhabitants' ie its population. Far more important than how many apps, is the total size of the ecosystem. Who rules? Nokia has an installed base of active Symbian users of over 230 million (plus countless dozens of millions more of non-Nokia Symbian users). That is not the 'cumulative sales' of Nokia Symbian. That is the active installed base today. The world's second biggest smartphone installed base is the iPhone. Apple has shipped a cumulative 129.2 million iPhones since it first launched in June of 2007. And those are not all in use! Barclays said last year that only 73% of iPhones were in use anymore (it will keep coming down as the total fleet of cumulative shipped iPhones keeps growing older). 73% of 129.2 million is 94.5 million.

By the most relevant measure of any ecosystem, Nokia's Symbian based smartphone ecosystem is more than twice as big as the nearest rival. Makes you think?

But the app downloads. Oh? You want more. Before we can talk about app downloads, we have to look at the second most important element of any ecosystem in software - the developers of it. Nokia's Symbian developer community is massive. 400,000 strong. It is by far the biggest developer community of any mobile platform. By far.

But the downloads. No. Before we can get to downloads of apps, we have to go to the number of stores. Or more precisely, the number of national resellers. How many partner resellers does your ecosystem have? Its not that Apple sells independently through its own stores and online. Nokia has gone the extra mile to convert OTHERS to sell Nokia Ovi store product. Yes. Nokia has an army of partners to sell it. A reseller channel. A whole layer that Apple doesn't have. And how many of these partners does Nokia already have? 130 carriers have already started to offer 'carrier billing' so not only do they sell Nokia Ovi - they even let their own customers buy at a click, with the purchase showing up on the phone bill! This is what every developer says is the preferred way for their customers to pay. Any other way to pay, credit cards, Paypal, whatever, causes greater drop-off and unsatisfied customers. Nokia's ecosystem has 130 carriers who support it so strongly, they have integrated Nokia Ovi to their billing system.

That takes years of effort. That is a Herculean task. No other smarpthone OS platform comes anywhere near this. This is what Microsoft was drooling after, when it wanted Nokia's ecosystem 'crown jewels' added to Windows Phone (and typical Microsoft, no royalties paid to Nokia for this, but Nokia would have to pay royalties to Micrsoft for using Windows Phone, that is the typical Microsoft definition of fairness).

Nokia has BY FAR the most advanced, most complete, most wide-reaching and most robust ecosystem ever created in mobile.

 

But the app downloads? Yes yes. Next, we go to number of apps. Here Apple leads. Apple has now I have lost count, over 400,000 maybe 500,000 apps. Fine. Nokia has only about 50,000 apps. But Nokia is far bigger than Blackberry or Palm or Microsoft etc. But yes, Apple leads here. And Android has gone past Nokia too now in 2011, and is starting to close on Android, soon Android will have more apps than Apple.

Then we go to the downloads. Yes, Apple's iPhone App Store does have the most downloads. But you know who was number two as recently as early February of this year? Nokia that is who. Ovi store number 2 in downloads. Far ahead of Blackberry or Palm or Windows or bada or any other stores, except now after the 'Burning Platforms' Memo and other statements by Stephen Elop, Nokia's ecosystems have been damaged and Android has passed Nokia. But even if we agree that now Android is number two, and Nokia down to number 3 in downloads. Take this big picture view.

Who has biggest installed base? Nokia. Who has biggest number of developers. Nokia. Who has most retail outlets? Nokia. Who has most apps? Apple. Who has most downlods. Apple. So. Apple's ecosystem is more 'vibrant' and 'active' but Nokia's is far bigger and has far greater long-term viability. And Nokia was ramping up its Ovi store downloads and actually catching up to Apple, the gap was closing in downloads, when the CEO started to sabotage his own ecosystem this February.

And if you say but in the USA. Yes. In the USA, Nokia is nowhere. I grant you that. Nokia has almost no hope of even recovering in any meaningful way there. But didn't you pay attention? The world's biggest mobile phone market is not the USA anymore. It is China. And have a guess who has most downloads in China? Nokia Ovi Store. And the world's second biggest mobile phone market is... India. Who is number one app store of India? Nokia. The number four country (3 is USA) is Indonesia. In Indonesia who is biggest app store? Nokia Ovi.

I can easily grant you the argument, yes, that ecosystems are very important. But then all the real growth markets, where half the population of the planet lives (in Asia) and in all those biggest markets, Nokia totally rules. If you are talking of the future, sorry, the USA will not be the main show. It will be China (so says, for example Google's Chairman Eric Schmidt) and India and Indonesia etc. And Nokia Ovi store, which launched a year after Apple, has ALREADY PASSED Apple iPhone App Store in all those markets.

No we are not finished. Nokia's Symbian based ecosystem which is open source and open to third party manufacturers with half a dozen handset makers still supporting it today like Sharp, Fujitsu etc - has the world's most advanced mobile operator/carrier NTT DoCoMo as a loyal supporter of it (until this year's February). So yes, NTT DoCoMo, the company that launched the world's first mobile cellphone network. That very same NTT DoCoMo that invented the mobile internet. The same NTT DoCoMo that invented the app store. Etc etc etc. So in creating the most advanced phones ever on the planet, NTT DoCoMo did that always on Symbian (if you liked your WiFi on your iPhone 2G - NTT DoCoMo did that first. If you liked your 3G on your iPhone 3G, NTT DoCoMo did it first. etc etc etc). There are no carriers supporting the iPhone OS nor the Android OS nor the Microsoft Windows Phone OS nor Palm nor Blackberry etc.

 

Now the kicker. Nokia's migration path. This is sheer genius. All the benefits of Symbian and Ovi in the above, will be migrated to MeeGo using Nokia's Qt development tools and the Ovi store will seamlessly support the MeeGo environment as well. Now Nokia's world-leading best ecosystem just grew bigger still. It adds Intel (bigger IT company than Apple by revenues). It adds LG (sells more phones than Apple). It adds ZTE (sells more phones than Apple). It adds Panasonic and Huawei too. And then the trump card. With MeeGo, Nokia adds - China Mobile! China Mobile is the world's largest telecoms operator. It is so huge, if it was a country it would be the third largest nation on the planet. Its subscriber base is more than twice as big as all US carriers added together. So if you thought it was a 'big deal' for Apple to add Verizon to the iPhone family this January, Nokia gets about 8 Verizons all rolled into one, in just China Mobile. (for the record, China Mobile doesn't currently even sell the iPhone). And yes, in MeeGo, this becomes only the second smartphone OS platform that has a carrier as a major supporter of it. Second only to, Nokia's other OS, Symbian.

Nokia wins. If the battle is honestly about ecosystems, don't come talk to me about Blackberry or Microsoft or Palm or bada or yes, iPhone or Android. Nokia had BY FAR the most robust, the biggest, the most healthy, the most nurturing ecosystem ever created. If you say ecosystems will win, Nokia is then years into the future with only Apple and Android conceivably in the same race and all others are not even pretenders. The Nokia lead is that enormous. It is number 1 in most counts, and was at worst number 2 on a few counts but closing in on number 1 (by February) and even now, after the CEO of Nokia has done some sabotage, the Nokia ecosystem is still no worse than number 3 on some counts.

Yes. The 'mindshare' of US based developers is totally different to this. Yes, we can survey 1,000 US developers and none were prioritizing Symbian I am sure. Just remember, that only 8% of the planet's mobile phone subscribers live in the USA. I know this is an English language blog, and those who read it will often read US based tech blogs and tech press etc. What do you think if you went to read a Chinese language tech blog? Chinese language is now the most used language on the internet, you knew that, right? Won't be the Apple App Store. The China based developers do Ovi store. What of Hindi language websites? Do you think they will rave about Apple iPhone App Store or Ovi Store? The USA myopic view will sometimes blind readers to the global picture. But that is partly what I am here to help with. My clients are often global giants with global footprints like HP or Google or Nokia or Ericsson or Intel etc, or here where I live in Hong Kong, the regional powerhouses among my clients like say, China Mobile or NTT DoCoMo or SK Telecom or Axiata etc.

There is a very widely held myth, that Nokia had somehow 'lost' the ecosystem battle to Apple (and to Google). The facts absolutely concretely prove that to be false, indeed a myth. Nokia had by far the best ecosystem. But - again - Nokia was horridly bad in trying to explain this. To communicate its leadership, its vision and to promote its ecosystem. Apple and Google are masters at this, they celebrate every milestone and do big press events of their successes. Nokia mostly used to be shy, almost apologetic about its achievements. That is part of the execution - and the market perception - which Nokia's new CEO should have come in to do better.

Instead he issued a memo claiming that Nokia's platforms were on fire. And he took a series of steps to destroy Symbian and Nokia's ecosystem, gutting it from the inside firing thousands of staff. And then he went and BOUGHT the smallest weakest under-performing smartphone operating system out there, Microsoft's Windows Phone - abandoning the best strategy for smartphones and adopting one that is condemning Nokia at best to being a slave to Microsoft - literally going from best strategy to worst - now even Motorola's 'all eggs in one basket' strategy is better because at least Android is a success. Nokia stuck all its eggs in the one basket which is broken. And at worst, Nokia will die in this unnecessary, incredibly costly and disruptive transition, which screws Nokia's customers, developers, carriers and of course Nokia owners, the shareholders. The new Microsoft phones cannot come to the market until the end of hte year in tiny numbers and next year in larger quantities. Nokia's market leading market share of 29% will crash to 7% by year-end (I am not kidding, it is down to 15% already, Nokia lost half of its loyal custoemrs in only 5 months. This is the biggest destruction of corporate value ever seen. But thats another blog.)

But we need to be clear. Nokia did have the best strategy. I am not saying Symbian could beat the iPhone or Android. It was not even ever supposed to. It was Nokia's answer to how to get low-cost handsets evolved into smartphones. The new Microsoft WP7 powered phones are not suitable for ultra-low cost components, they require high spec CPUs, tons of memory etc just to run properly. Symbian ran happily on modest spec equipment.

And Nokia had its migration path to MeeGo. It was 95% ready by January of 2011. Nokia had in fact its first MeeGo phone ready to announce at the biggest Nokia event in the Autumn of 2010. You know what CEO Stephen Elop did as his first act as new CEO. He cancelled that announcement that had already been promoted. He decided that Nokia will not show the hot new MeeGo based phone. Then he postponed MeeGo's official commercial launch. It was supposed to hit our stores for Christmas last year. The phone was ready, MeeGo was ready. Elop just pushed that to 'the new year'. The head of Nokia's MeeGo unit resigned in protest.

It was a phone known as N9-00 (not the same as the current N9). That was supposed to be Nokia's showcase phone for the biggest telecoms event in the world, GSM World Congress in Barcelona in February. And you know what the nurturing loving new Nokia CEO did. He cancelled the whole phone days before Barcelona! A fully developed smartphone with a brand new OS, that was announced, and was to be Nokia's future. The CEO cancelled it days before. Now all that development and nobody gets to buy one handset. The new head of Nokia's MeeGo unit? Resigned in protest.

 

So Stephen Elop then went on stage with Microsoft's Steve Ballmer and announced the Microsoft alliance. In that process he annoucned that the promised migration path from Symbian to MeeGo was cancelled. It was nearly finished. But he cancelled it in total. How did that go down? The Chief Technical Officer of Nokia resigned in protest! What does this Stephen Elop know, that he overrrides his head of MeeGo, appoints a new head. Overrrides him. And then overrides his CTO? And all are so principled about the colossal mistake - that three highly regarded specialist top managers of the most complex technology ever created - a smartphone - and its newest most advanced OS ever made - all resign in protest? Either Elop is a genius or..

If MeeGo is an utter failure, surely Intel knows this and is cancelling MeeGo as well. No? MeeGo is actually alive and well. During Barcelona week, Intel was happy to celebrate the first MeeGo based device commerically launched, a netbook by Fujitsu launched comercially in Singapore that week. So Elop is right. his MeeGo boss is wrong. His new MeeGo boss is wrong. The Nokia CTO is wrong. Intel is wrong. Fujitsu is wrong. Yeah.. Since then several more MeeGo devices have launched.

 

And Nokia has shown us the N9 running MeeGo. And all technology reviewers have fallen in love with it. This is the best Nokia superphone ever and the best smartphone OS this side of the iPhone, far ahead of Android or Palm or Blackberry (or Symbian) and yes, far far ahead of Microsoft's Windows Phone 7.

So Stephen Elop has a hit phone on his hands on a hit OS that everybody seems to love. This is the best possible moment for a new CEO? He gets to ride an unanticipated hit, boost his sales, his profits, run to all the big trade shows and have his 'Steve Jobs iPhone' moments showing the magnificent N9? Sounds fantastic.

And it gets better. There is yet another MeeGo device, the N950. This is an even more advanced version, with a full QWERTY slider keyboard, a kind of big brother to the hot N9. And it too is ready to sell now, in Q3. These are phones with price tags North of the iPhone, so as Nokia reported losses in Q2, these two phones could not come at a better time for Stephen Elop.

BEHOLD: THE BRILLIANT NEW CEO

This is what the smart CEO does. He cancels everything else. He takes the early excitement and uses his strong communication skills to go to every major market, every trade show, every tech TV show, every newspaper and magazine, use his new CEO status as the hook to get maximum publicity now for the N9 and N950. And as half of his smartphone factories are idle, he now authorizes tons of overtime and ramps up high volume production of his hit phones. Get early production models into the hands of every tech reviewer, in particular those in the USA and those who love Apple iPhones and Androids. The smart CEO understand that this kind of hit phone comes along only once in a career if you are lucky. Motorola had one such hit phone, it was the Razr. Apple had its iPhone. Now only 9 months since he took office, Nokia's new CEO finds his golden eggs being laid by the Golden Goose called MeeGo, right there before his eyes. So then the marketing budgets. Get Lady Gaga to do her Tweets on her brand new N950. Get Justin Beeber to prance around with an N9. Get the cast of Entourage to play with MeeGo handsets in the upcoming movie. Pony up the money so Mr Coolest on the Planet, James Bond will use an Q-modified N950 in the next 007 adventure, and so forth. That is what the smart CEO does with his superhot ultradesirable sexy new handsets. And then..

(Brrrr... The alarm clock rings. We are awaken to reality). Stephen Elop, the new CEO of Nokia, however, announces that the N9 will not be sold in most of Nokia's biggest and most important markets. It will not be sold in the UK, in France, in Germany, in Italy.. in India for goodness sakes. It will only be sold in 29 'countries' including such giants as UAE (3 million population), Singapore (4 million population), New Zealand (4 million population) and Norway (5 million population).

WTF?

Then he says that the N950... will not be sold to anyone? Yes. It will only be made in small production runs and be given to some developers. No sales at all. This is how to market a hit product.

When the stock market fell in love with the N9 and the MeeGo story and Nokia's share price - which had been falling for 5 months straight, down 50% from its peak in February, and found the first meaningful uptick with the positive news about N9 and MeeGo. Elop killed the story the VERY NEXT DAY, showing a mock-up of the first Windows Phone based Microsoft phone by Nokia - a clone of the N9 - and this disappointed all tech and financial press, and Nokia's share price returned to its downward spiral. It hit a 14 year low last week.

And this is what Stephen Elop thinks of MeeGo and the N9. He told Helsinging Sanomat, the biggest newspaper of Finland, that "even if the N9 turns out to be a huge hit, there will be no more MeeGo phones from Nokia".

That is how you destroy your own company in world-record setting time. The burning platforms memo was no accident. I said in my analysis of the memo, that no sane Nokia CEO could have written that memo, that it would need to be a delusional psycopath to make such statements that Nokia is losing the battle for ecosystems and that Nokia's platforms were on fire. Now we know. If Elop, while his company just now, under his stewardship, posted its first-ever loss at its handset unit - and Elop finds the N9 and N950 highly desired highly priced highly profitable next generation smartphones that are ready to sell right now - and his smartphone factories are sitting idle. If Elop won't rush the N9 and N950 to every Nokia country and market and give it his fullest support, he is acting against the best interests of Nokia and has to be fired immediately. I calculated yesterday, that every day now that teh Nokia Board waits in firing Elop costs Nokia abandoned profits of 10 million dollars per day. He is the Billion-dollar man. Every 100 days he destroys another Billion dollars of Nokia profits just by showing up at the office. Even a monkey would now run Nokia better. Even a Stephen Elop stuck in a coma, would cause Nokia less damage than an awake Stephen Elop is doing now as we speak. He is causing the greatest damage to any brand in the economic history of mankind.

So thats the story of the myths of the smartphone OS and the ecosystem.

The Ten Million Dollar Man - Stephen Elop Costs Nokia 10 Million Dollars More of Lost Profit - Every Day He Remains as CEO of Nokia

This is a long blog (10K words). I will attempt to calculate a 'minimum' level of how much the misguided Microsoft strategy is now costing Nokia, after we find that the strategy cannot revive Nokia's smartphone market share and in the absolute best case, would only get Nokia to 7% by end of 2011, a bottom of 6% in mid-2012 and recover to at best 8% by Q4 of 2013. Nokia is currently at twice that - 15% today and was almost twice that still, at 29% market share as recently as February 10th of this year.

This is what I have done. I have created a 'base case' of the bare absolute minimum level that Nokia would have been selling Symbian (and from mid 2012, MeeGo) smartphones, at the bare minimum average sales prices, and minimum profitability, to build the base case of what level of Total Unit Sales, Market Share, Total Revenues, and Total Profits, the Nokia smartphone unit would have generated, if Stephen Elop had not announced his Microsoft alliance on February 11. We can never know the true scale of that 'opportunity cost'. But we have enough absolute concrete data, that I can make a base case on the utter minimum assumptions, to get us a base case. It is VERY conservative, the real Nokia, even if run by some clueless clowns, would have done better than my base case. But I want to make the base case believable to even the most ardent critics.

Then I have plugged in the real numbers of what the best case scenario is for Stephen Elop's new Microsoft Strategy (as per my blog yesterday) through year 2013. And again, I have taken the absolute best case stats, the best most rosy and borderline-plausible numbers, to suggest if all went totally perfectly for Stephen Elop's magical strategy, what would that produce for Nokia in total Unit Sales, Market Share, Total Revenues and Total Profits.

Then we can compare what is the 'absolutely lost' opportunity. If the base case is extremely conservative, and the Elop strategy is the most optimistic possible, then the difference between the two will be the absolutely minimum acceptable difference - and any real cost to Nokia will be more than what I calculated. I think you will be aghast, when you are done with the analysis with me. Stephen Elop is now destroying Nokia at the value of roughly 10 Million dollars of pure profit abandoned every single day he is allowed to remain as Nokia CEO. Not 10 million dollars of 'revenues'. He is destroying 10 million dollars of profits. PROFITS. So as Nokia reported a loss of 487 million Euros in Q2, now today, July 26, you can add another 10 million dollars more of a loss he has personally achieved, just in his smartphone unit mismanagement today (there are more losses he is generating in the featurephones ie 'dumbphones' unit, but I won't even try to calculate those. The majority of the damage Elop is doing, is in the smartphone strategy with Microsoft). So yeah. On July 21 Nokia reported its Q2 quarterly results (ending June 30). Just in the five days since that press conference and conference calls with investors, Stephen Elop has now destroyed another 50 million dollars of Nokia profits. This is not 'shareholder value' as in the price of the share price (who can guess how huge that damage will be, by the time Elop is done). No. I mean just by Being Stephen Elopovich, he causes 10 million dollars of eliminated profits every day. He is the very definition of management poison.

So. Nokia Board? The CEO is destroying actual Nokia value at the rate of 10 million dollars of profit per day - that level is by the way increasing also - so how long will you put up with the 'Microsoft Muppet' - and when will you fire him. No matter what contracts and escape clauses and penalty clauses there are in Elop's contract or the Microsoft partnership deal - this damage is so severe, Nokia you have to fire Elop now! But lets get to the math.

BASE CASE

Lets create the Base Case. To see what was Nokia doing just before Stephen Elop started to mess with success on Feb 11 ie middle of Q1. Here is the actual performance of Q4 of 2011. Nokia smartphones unit grew unit sales by 7% from the quarter before (23% annual growth rate). That was real growth, it was not done with gimmicks like price cuts (that Nokia had tried before in attempting to boost market share) or by high marketing spending. Why do we know that? We know it, because the Average Sales Price (ASP) of Nokia smartphones went up. So there was no price cut to achieve artificial growth. And we know the other marketing efforts were also not used in excess. Why do we know it? Because Nokia profitability went up (this was the information we did not have under previous Nokia reporting when Nokia did not give details of the profitability of the smartphones unit, but Nokia has offered that info now in July, after the re-organization, and gave historical accounting data for all of the year of 2010).

If there is unit sales growth, added with ASP growth and a simultaneous growth in profitability, the unit sales growth is honest, real and valid. This is absolute proof that Nokia had a hit product with Symbian's latest edition, S^3, which was released for Q4, and which powers such phones as the N8 - which in turn became Nokia's bestselling new phone launch ever. And the ASP? It not just grew, where Nokia trend was a decline in the ASP of about 7% per quarter, for Q4, the ASP jumped an unprecedented 14%! This has never happened at Nokia. The N8 was truly a hit phone using Symbian, which powered all of Nokia's smartphones.

How much? The profitability leaped up a growth rate of 32% quarter-on-quarter from Q3 and hit 12.5%. That all meant that Nokia smartphones total revenues grew by a healthy 22% and the profits - my oh my - Nokia smartphone unit profits skyrocketed by 68% in just one quarter! reaching 548 million Euros (713 million US dollars) in just one quarter. On an annual level that is equivalent to 2.2 Billion Euros of profits - and yes my American readers, that is 2.8 Billion dollars of profits. For context, the latest Fortune Global 500 issue of the biggest corporations on the planet, reported that Nokia total 2010 profit was... 2.4 Billion dollars. By Christmas, powered by the hit new version of Symbian S^3 and Nokia's new hit phones led by the N8, the smartphone unit was driving so much profit, it alone would grow Nokia's total profits (bearing in mind that there is also the 'featurephones' unit and NokiaSiemens Networks and Navteq - these three units generate twice as much revenues as the total smartphone unit, so one third was able to generate essentially all of the profit by Q4)

You the reader may think that Symbian was a dead OS, it was undesirable, it was failing in the market, it was obsolete etc. That all may have been true of the older versions of Symbian, up to September 2010. It is not true now. The facts are irrefutable. From October 2010, Nokia had an honest hit OS that powered increasing sales, increasing ASPs and most importantly for Nokia - dramatically increased profits! Only a complete fool would step on this incredible success, and kill it.

You might say that Nokia problems started years before. Fine. That point is moot about Q4 Symbian S^3 and Nokia N8 etc success. No matter how much the Nokia ASPs and profitability and market share had declined, in the past, under previous Nokia leadership etc, if Nokia suddenly reverses all the trends, turns unit sales, ASP's and profits into growth - that is a hit product. Undeniably.

You might say Nokia market share was in decline and maybe even that "Nokia was losing to Apple's iPhone" Sure, if you measure profits, every tech company on the planet is losing to Apple. Apple is a profit factory. That is hardly a fair comparison, Google generates less profits than Apple, etc. Nokia should not be compared to a niche premium phone maker like Apple which only makes luxury phones, Nokia should be compared to its real rivals like Samsung, LG, Motorola etc who make all types of phones, smartphones and 'dumbphones.' That is the fair comparison. The appropriate comparison for Toyota's rivals is not Porsche a niche luxury car maker with essentially one product and massive profits due to the incredible loyalty - Toyota's real competition is Volkswagen and Ford and GM and Nissan etc. And when compared against its real rivals, Samsung, Motorola etc Nokia's profits towered over those of its real rivals. The Apple argument is utterly bogus, Nokia cannot ever become Apple and should not try. I am not saying Nokia should not try to make desirable phones. I am saying that Nokia cannot abandon all of its huge advantages of scale, to try to become a niche luxury phone maker. That would be as stupid as Toyota ending the manufacturing of the Celica and Corolla and HiLux pick-up and Landcruiser etc.

But lets look at Apple and Nokia. If you measure unit sales and market share - back in Q4, Nokia was as big as all Apple iPhones and all of those Samsung smartphones combined (Apple has just passed Nokia and many analysts including me, expect Samsung also to have passed Nokia pushing it from number 1 to number 3 this past quarter, Q2 of 2011). As big as Apple and Samsung, combined. If that is failure, please give me some of that failure.

Nokia invented the smartphone 15 years ago. That means, Nokia started with 100% market share. It cannot hold, the moment ANY competitor arrives, whether Palm or Compaq or HTC or Motorola or RIM or Samsung or Apple or whoever - the market share for the inventor will have to come down. That is normal. That is what is happening to the Apple iPad right now! Nothing wrong with that. It is normal competition. What is amazing, is that 14 years after inventing the smartphone, and with such global giants as HP (HP is twice as big as Nokia) and Microsoft and Google and Apple and Dell and Lenovo and Compaq and Sony and Ericsson and SonyEricsson and Siemens and Philips and Panasonic and Sharp and Toshiba and Fujitsu etc etc etc - all attempting do do smartphones - by Q4 of 2010, Nokia was still far and away - the runaway market leader - massively bigger than its rivals. MASSIVELY bigger. And that Nokia was growing sales - yes, it was growing slower than the market, but Nokia was still growing sales - and Nokia was increasing its average sales prices by a huge 14% in just one quarter and boosting its profits by 68%. This is legitimately called a juggernaut.

Nokia was by far the biggest smartphone seller in the world's biggest mobile phone market: China. (Just China's biggest mobile operator/carrier, China Mobile - one of three Chinese carriers - alone is as big as all US carriers put together - and that number doubled again! Yes, more than twice as big as all of US cellphone subscribers on all US networks). Nokia was not just big in China, it dominated that market. Canalys told us in 2010 that Nokia's market share of smartphones in China was - get this - 76%. Similarly India, the world's second biggest mobile phone market. Who was the dominant market share leader in India? Nokia. What of Russia, of Brazil, of Indonesia.. Nokia, Nokia, Nokia. And don't think its only the Emerging World markets. In 2010, Comscore did a comparison of market shares of the big European markets. Nokia in the UK, Germany, France, Spain and Italy - the big 5 nations of the EU which have a combined population bigger than the USA. Who was the top brand in every one of those 5? Nokia, Nokia, Nokia, Nokia and Nokia, with the worst market share of those big 5 European nations they had in France of 41% and the highest they had in Italy of 76%.  

Nokia smartphones had a continental market share lead in every continent but one, North America. So yes, I understand many of my readers feel that "Nokia had failed" and feel that "Apple had defeated Nokia", when the only market where Nokia has been weak for years before there ever was an iPhone, is North America. So North American analysts tended to get the Nokia picture a bit wrong. Nothing wrong with their views, its just that it was colored by what they saw at home, and they mistakenly thought also earlier that Palm would rule the smartphone world or that Motorola had defeated Nokia and Nokia was lost because Nokia did not do a Razr clone etc.

I am not trying to say that Nokia did not face challenges. Nokia's previous CEO, Olli-Pekka Kallasvuo had foolishly pursued a mad strategy of buying market share with deep price cuts and marketing support of the reseller chain. That came back to haunt Nokia which approached the brink of reporting a loss by the summer of 2010, and OPK was fired as CEO. So Nokia's big problem, when Stephen Elop came along, was not what operating system it had in its phones, it was the profitability. And what did Stephen Elop inherit. Thanks to the careful nurturing of Nokia's Symbian S^3 OS and the new N8 smartphone - which was delayed by Anssi Vanjoki - when it launched, it was a hit. And Nokia's profits skyrocketed by 68% in one quarter. If you were a competent CEO, you would say that Symbian S^3 and the N8 are actually 'solving your problem' - come on, 548 million Euros of profits (712 million dollars) - when Nokia's total annual profit was little more than 3 times that. When your profit jumps 68% in one quarter, you celebrate and boost that success. You don't go killing the profit engine and firing the 7,000 people who made that miracle happen that exploded profits.

But yes. Lets be clear. Nokia HAS HAD PROBLEMS. Nokia has had problems WITH PREVIOUS MANAGEMENT. Nokia has had problems with MARKETING and with EXECUTION. But the facts are, that Nokia's Symbian OS, in its newest version for Q4 was LOVED by the market, bought in huge amounts, boosting unit sales growth, average prices, profitability, total revenues and total profits. This is the ultimate win-win-win that is very rare in marketing (mostly you have to cut price to increase sales, etc, but understand how strong Nokia was in Q4 - they increassed sales WHILE INCREASING PRICE and while boosting PROFITS. That almost never happens unless your company is named Apple haha)

SO WHAT TO USE GOING FORWARD

What numbers can we use? I could easily say, that since Nokia grew 7% from Q3 to Q4, it would be fair to use 7% growth rate in our base case model. There is a lot of good evidence saying that is fair. The N8 had not even been sold in most countries for a full quarter yet, and was selling like hot-cakes in January in China for example. Then there was the E7, a superphone, even more expensive than the N8, running of course the Symbian S^3. The E7 was receiving a huge positive reception in late January and early February. Then there were many good Nokia premium phones coming down the pike, including the new X7, which powers Nokia's next update to Symbian, called Anna - already hailed as the best Symbian OS ever.

I am not going to pick 7% as the growth rate. I want to build not a credible model, but a really conservative model with minimal assumptions of the absolute worst case for Nokia. So lets go back to history. What of market share? Nokia's market share has been in gradual and steady decline since it invented the smartphone. The historical rate of decline for Nokia's market share has held almost exactly the same, at about 5 percentage points of market share, per 12 months. Every year, pretty much exactly 5% decline in Nokia's market share in smartphones compared to the year before. That pattern was broken only once, when OPK had his ill-advised adventure to try to buy market share, but after that mistake was corrected, you know what? The Nokia market share corrected itself - as we might expect - and returned - EXACTLY to the level it should have been. That decline brings Nokia to 29% market share (globally, obviously) at Q4 of 2010. And that model says Nokia should be abandoning 1.25 share points every quarter since.

This is what I will use. That brings us to 33 million quarterly Nokia smartphone sales by Q2 of 2012. And what growth rate on average would get us from 28 million in Q4 of 2010, to 33 million smartphone sales in Q2 of 2012. A mere 3% growth rate - I am using a model where Nokia's growth rate it had in Q4 - that 7% growth rate I could have used, will be cut by more than half! Is this fair? I am using such a bare-bones minimum model, it cannot be denied by anyone. Even when Nokia faces its best Symbian OS ever, having a superhot N8 phone with Nokia's best new phone launch ever - with many better phones coming in short succession - I am ignoring all that and cutting Nokia's growth rate in half. Is this not fair? As a minimum level, even the most incompetent fool could have managed as 'caretaker' CEO of Nokia to achieve that level of growth for a year and a half. So this is how I project Nokia market share and unit sales of Nokia smartphones from Q4 of 2010 to Q2 of 2012 for my base model:

Q4 2010 . . . 29.0% . . . 28 million

Q1 2011 . . . 27.8% . . . 27 million
Q2 2011 . . . 26.5% . . . 29 million
Q3 2011 . . . 25.3% . . . 30 million
Q4 2011 . . . 24.0% . . . 36 million

Q1 2012 . . . 22.8% . . . 34 million
Q2 2012 . . . 21.5% . . . 33 million

I think that is very conservative and cautious. This is a good base model. Some will never like anything I say, haha, but I think most fair-minded people will agree, Nokia should under any competent management, manage better than this.

THEN LETS ADD MEEGO

Why do I end at Q2? That is the original point in time, when CEO Stephen Elop said he would end Symbian sales and have all Nokia smartphones switched to Microsoft Windows Phone 7. If Nokia can manage the switch-over from Symbian to WP7 by end of Q2, and Nokia needs to change tons of specifications and use different chips (Qualcomm's Snapdragon CPUs rather than Texas Instruments ARM CPUs etc) - and the first WP7 phone won't even be ready until end of Q4 of 2010 (and wont' even be made in Nokia's own factories, it is outsourced to Taiwan) - then certainly Nokia can manage the same transition from Symbian to Nokia's home-grown OS, MeeGo. MeeGo was ready as an OS by Q1 of this year and the first MeeGo phones have been ready to sell for a long time. The first MeeGo handset, N9-00 (since cancelled by Elop) was ready to ship in February. The second MeeGo handset the N9 (internally known as N9-01) was ready to sell in Q2 but was delayed by Elop to Q3. And the third MeeGo handset the N950 is already shipping now in small quantities. Nokia arguably has a 'fourth' handset that could run MeeGo (and has run it in prototype tests) called the N900, an earlier variant of the N950 and with lesser specs, could be sold as a discount version as an 'entry level' MeeGo device today.

If Stephen Elop can expedite Microsoft WP7 adoption at Nokia - he could have done the same for MeeGo (instead he has repeatedly and consistently delayed and postponed MeeGo launches, gutted its staff and resources and actively torpedoed its market attention - this to the effect of several top MeeGo execs resigning in protest, and Nokia's CTO, yes Nokia's Chief Technical Officer resigning also in protest. He is now on 'indefinite leave' until the end of the year when his contractual obligations end to Nokia)

So I am assuming from Q3 of 2012, the sales of Nokia smartphones will be MeeGo based. And that Nokia will transition from Symbian to MeeGo (just like Elop expects to migrate from Symbian to WP7). Except that I give a longer migration time for MeeGo as it would have started in Q2 of 2011 of course.

And what do I expect Nokia to do with MeeGo? You may have read that MeeGo is the hottest newest most impressive OS out there, many Apple loyalists call it the first Nokia phone they have ever wanted, its that good. Many US based tech reviewers call it superior to Android and on par with the iPhone! Some have even compared it to how the iPhone is called the jesusphone, now giving the N9 with MeeGo the monicker - godphone. Is there any way to trump the iPhone? Lets play some poker. If you bet 'jesusphone', I can call your bet,  raise you that, and call this 'godfphone'.

I am not here to say the N9 with MeeGo is a godphone, please don't get upset. I am reporting what OTHERS have said. I am not here to say N9 with MeeGo will be an iPhone-beater, that would be a very big ask. I honestly do believe - and have said repeatedly - that nobody will ever make a smartphone that is more desirable than the iPhone. That is Apple's core competence. But this side of the iPhone, go read the reviews of the N9. They are positively glowing, every single one of them. It is BY FAR the most loved new Nokia phone, ever. It is miles above the best that anyone writes about the latest Motorolas or HTCs or Samsungs or Blackberries or SonyEricssons or any other smartphones (except iPhones, although there are plenty who call the N9 Nokia's first iPhone-beater).

So, what will happen when all Nokia phones are MeeGo based? Remember, MeeGo has a migration path for all Nokia's 400,000 strong Symbian developers (world's biggest army of mobile app developers) by using Nokia's development tools called Qt. No other OS platform has gone through this trouble to provide a migration path. Not even Microsoft bothered when they switched from Windows Mobile to Windows Phone. (Bizarre, as Microsoft did it on the PC side, migrating from DOS to Windows. Oh, that was in the era of Bill Gates when Microsoft knew what it was doing. Now in the Steve Ballmer era, Microsoft is interested only in screwing everybody, including its own developers). And yes, Nokia's world's best (or arguably second-best) ecosystem with by far carrier relationships - over 130 carrier billing relationships ! (what all app developers prefer to get maximum payments from their customers). Something so valuable Microsoft wanted it to its ecosystem. The world's most used mapping on Ovi maps. The worlds' second-most used app store (at the time in Q4, now after Elop sabotaged Nokia/Symbian/Ovi etc, Ovi has fallen to third). An installed base of Symbian phones in use that is twice as big as the second biggest smartphone platform by installed base. And thats not counting the S40 phones, many of which can use Ovi services and other Nokia services. And so forth, and so forth and so forth. If Stephen Elop had bothered to celebrate Nokia's massive lead in ecosystems, he would have huge love and loyalty from it. Instead, Elop went to pains to hurt and damage and destroy his own ecosystem, replacing it with the weakest, that of Microsoft.

What do I project after MeeGo is on all Nokia phones? I think its obvious Nokia's gradual market share decline will turn into growth. If MeeGo today - today - is far better than say Blackberry's OS or Palm or Windows Mobile or - many say - better than Android - and Nokia push that and develop it even further - this is the newest OS, it is fully open source, it is Linux based - then its fair to assume it will be very competitive by summer of 2012.

I will not allocate any growth due to MeeGo. I will keep my model conservative. I only assume that Nokia sales will hold steady, that Nokia's market share will stabilize. Yes. I count no recovery, only a stabiliziation of Nokia market share. And by Q2 of 2012, we arrived at 21.5% market share. I will model that share to hold until the end of our period, to Q4 of 2013. Thus the Nokia Symbian-MeeGo market shares and unit sales will look like this:

Q4 2010 . . . 29.0% . . . 28 million

Q1 2011 . . . 27.8% . . . 27 million
Q2 2011 . . . 26.5% . . . 29 million
Q3 2011 . . . 25.3% . . . 30 million
Q4 2011 . . . 24.0% . . . 36 million

Q1 2012 . . . 22.8% . . . 34 million
Q2 2012 . . . 21.5% . . . 33 million
Q3 2012 . . . 21.5% . . . 36 million
Q4 2012 . . . 21.5% . . . 41 million

Q1 2013 . . . 21.5% . . . 42 million
Q2 2013 . . . 21.5% . . . 46 million
Q3 2013 . . . 21.5% . . . 50 million
Q4 2013 . . . 21.5% . . . 57 million

Note how modest even the MeeGo total unit sales growth will be when the market share holds steady. The growth rate is only 9% quarter-on-quarter, this is not iPhone territory. It is what RIM ie Blackberry has been doing recently until its growth stopped. That is the modest level of growth I project for Nokia using MeeGo. If Nokia has the planet's most astonishing new phone and OS (this side of the iPhone 5), and I only say it matches the recent growth of the Blackberry, thats fair, don't you think. This is not an optimistic model. This is a very conservative model.

LETS POPULATE THE BASE MODEL

Good, now we have Nokia market shares and unit sales, on a very conservative 'even a fool could do this' model up to the end of 2013, and yes, I slash Nokia's global market-leading market share of 29% in Q4 down to 21.5% market share by end of 2013, when Android would be twice the size of Nokia and Apple would have jumped ahead of Nokia too. But these three brands and their operating systems (Android, iOS and MeeGo) would control about 80% to 90% of the global market of smartphones. And yes, I am modelling Nokia to having fallen from biggest to third in the operating system wars. This is a very conservative model for our base case.

Lets add average sales prices and profitability. What level to use? Nokia's ASP was 155 Euros in Q4 of 2010 (about 200 US dollars) and it had just jumped 14% from Q3, powered by Nokia N8 sales and other premium phones. The N8 wasn't sold in every market from October 1, it was 'ramped up' so by Q1 of 2011, Nokia N8 would be selling the full quarter in every one of its markets. The ASP would definitely go up. Then there is the E7 - a phone costing 15% more than the N8 - this would raise the Nokia ASP even more in Q1. And then from Q2 we would have the X7, another premium Nokia smartphone, etc. At least in the short run, next few quarters, it is certain the Nokia ASP would go up, not down (if there was no silly Burning Platforms memo by Elop disparaging his own phones and then his ill-timed Microsoft announcement on February 11, etc). Then there are the new MeeGo phones such as the N9. The tech press reaction has been unprecedented love for the N9 and MeeGo - and bear in mind, the N9 costs more than the E7. This is priced above the iPhone. So the ASP trend would be upward from the 155 Euro/200 US dollar level of Q4. What level should I use? I think I will play this ultra-conservative. Lets say NO GROWTH.

Lets keep the ASP at a steady, even 155 Euros for the duration of the model. No growth whatsoever. Now we don't have to argue with comments on if my growth rate was too aggressive or too mild. Lets make this bare-bones. Nokia ASP growth simply stalls and holds steady.

Then what of Profitability? Again, the N8 and Symbian S^3 powered Nokia to a massive 68% jump in profits for Q4. Massive. The profit margin for the whole smartphone unit was up to 12.5%. For Q1 there would be more N8 sales, and new E7 launches and soon new MeeGo phones and even more advanced Symbian Anna based smartphones like the X7. The profit margin was on a strong growth trend. I will again say, lets make the base model with no growth in profit margin at all. Yes, zero growth. Keep the profit margin as flat, at 12.5% for the duration of the model. Is this reasonable - go read those comments on the N9 and MeeGo, how much it is desired now, and how much Nokia can sell those new smartphones at a premium. There is plenty of opportunity to boost profits. But I keep the profit margin flat.

So now we can populate the model. I get these numbers for period, market share, unit sales, ASP in USD, total revenues (in USD), profit margin, total profits ie 'contribution':

NOKIA BASE CASE (WITHOUT MICROSOFT) - SUPER CONSERVATIVE PESSIMISTIC CASE

Q4 2010 . . . 29.0% . . . 28 million . . . $200 . . . $5.7B . . . 12.5% . . . $713M profit

Q1 2011 . . . 27.8% . . . 27 million . . . $200 . . . $5.6B . . . 12.5% . . . $699M profit
Q2 2011 . . . 26.5% . . . 29 million . . . $200 . . . $5.9B . . . 12.5% . . . $734M profit
Q3 2011 . . . 25.3% . . . 30 million . . . $200 . . . $6.1B . . . 12.5% . . . $763M profit
Q4 2011 . . . 24.0% . . . 36 million . . . $200 . . . $7.3B . . . 12.5% . . . $907M profit

Q1 2012 . . . 22.8% . . . 34 million . . . $200 . . . $6.9B . . . 12.5% . . . $860M profit
Q2 2012 . . . 21.5% . . . 33 million . . . $200 . . . $6.8B . . . 12.5% . . . $839M profit
Q3 2012 . . . 21.5% . . . 36 million . . . $200 . . . $7.4B . . . 12.5% . . . $921M profit
Q4 2012 . . . 21.5% . . . 41 million . . . $200 . . . $8.4B . . . 12.5% . . . $1.05B profit

Q1 2013 . . . 21.5% . . . 42 million . . . $200 . . . $8.4 B . . . 12.5% . . . $1.06B profit
Q2 2013 . . . 21.5% . . . 46 million . . . $200 . . . $9.3 B . . . 12.5% . . . $1.16B profit
Q3 2013 . . . 21.5% . . . 50 million . . . $200 . . . $9.9 B . . . 12.5% . . . $1.24B profit
Q4 2013 . . . 21.5% . . . 57 million . . . $200 . . . $11.5 B . . 12.5% . . . $1.44B profit

That is our base case. If Stephen Elop had let a good thing be. Taken the amazing success he found in Symbian S^3 and Nokia N8, had supported fully the Symbian family, developers, the Ovi store, the migration path to MeeGo, the Qt developer tools, and launched MeeGo phones in a timely manner globally, his cash cow and profit engine, the crown jewel, Nokia's smartphone unit, would be generating - in a VERY conservative model - this year 2011, total revenues of 25 Billion dollars and 3.1 Billion dollars of profits (the smartphone unit alone generating 29% bigger profits than all of Nokia Corporation with all four business units in 2010). And that would grow to 29 Billion dollars of revenues out of smartphones in 2012 (not this would be half of the total size of Nokia when he took over only 15 months before) and balloon to a very nice 39 Billion dollars of revenues from smartphones by 2013. Meanwhile Nokia profits out of the smartphones unit, in this VERY conservative base case model would grow to 3.7 Billion dollars next year in 2012 and a very nice 4.9 Billion dollars by 2013 - yes twice the total profits all of Nokia earned last year, just before Elop took charge. If you double your profits, that is usually a very good sign of competence in the CEO. But if your name is Stephen Elop, you don't like growing profits. You want to destroy value.

This is our base case. Stephen Elop inherited a company, where its premium smartphone unit had just completed a turn-around, was greatly increasing profits, increasing revenues and increasing sales. He was on schedule to earn 10 million dollars of profits every single day of his stewardship if he just had let the success in his smartphone unit continue to happen. But he did not. He is the Microsoft Muppet. He took all that profit and destroyed it. Or thats not fair. In Q1 his Microsoft Melodrama caused Nokia smartphone unit profits to plunge to less than half, to 218 million Euros (283 million US dollars). So in Q1 his 'management' cost Nokia 429 million dollars of abandoned profits. In Q2 he plunged the smartphone unit from making profits to making losses. In Q2 the Nokia smartphone unit generated 147 million Euros of a loss ie 283 million US dollars. So in Q2 in addition to abandoning 699 million dollars of certain profits, Elop added 283 million on top of that with his moronic market moves angering his reseller channel etc - so his cost in Q2 was 982 million US Dollars of lost profits to Nokia Corporation.

So far, since February 11 (or to be precise, a few days prior to that, as these problems started with the notorious and ill-informed Burning Platforms memo where all the Nokia troubles started) the wise 'Stephen Elop Management Style' has so far cost Nokia only 1.4 Billion dollars of abandoned profits. If we assign February 4 as the starting date of the mess - Stephen Elop has destroyed 9.7 Million Dollars per day, of Nokia PROFITS every single day since February 4, Saturdays and Sundays included.

If you are an investor. Imagine how much more healty Nokia share price would be, if Nokia had generated 1.4 Billion dollars more of profits in the past two quarters, rather than now reporting a huge loss? And if you are a Board Member of Nokia, if this Microsoft Muppet causes Nokia a daily drain of almost 10 million dollars of lost profits - every single day - how many days will you put up with his tomfoolery? Lets do the math. Elop costs Nokia 291 million dollars of abandoned profits every month! (abandoned profits means, this is what Nokia would have generated in 'ceteris paribus' conditions. Nokia 'automatically' earns that and only active intervention by the CEO would eliminate that. You have to take active measures to destroy it. If Elop had done nothing. If CEO Stephen Elop had been in a coma from February to now, Nokia would now be generating 291 million dollars more of profits every month than the losses it now makes. What is that in a quarter you ask? Easy to do the math for you, per quarter Elop now costs Nokia 873 million dollars of abandoned profits. And yes, since his February delusions, Elop has already caused Nokia irretrievable never-to-be-recovered damage worth 1.4 Billion dollars of pure profit. Pure profit. Please consider the biggest swindlers and hoodloms of history. Bernie Madoff the Wall Street swindler who stole billions of US investor money. While Stephen Elop so far has only destroyed his first Billion dollars so far, if we let him continue, he will soon be rivalling Madoff for the world record biggest heist in US corporate financial scandals. For we can now calculate what damage Elop will do with his moronic Microsoft Strategy.

CAN MICROSOFT SAVE NOKIA

No it can't. The Microsoft strategy was announced on February 11. There were many who said immediately this was madness. There were others who felt it was a good move by Nokia. Many others felt that Nokia should have gone with Android. And those who were more familiar with Nokia details, knew that Nokia Symbian S^3 was actually very strong and competitive (see above) and had performed a remarkable come-back, and because of the migration path to MeeGo, Nokia would be a fool to abandon the world's best ecosystem (some would say second-best) and go with the weakest ecosystem out there, that of Microsoft's Windows Phone.

But can Microsoft save Nokia? No it can't. I have already given the clear math, that even if we take the ABSOLUTE best launch of a new OS ever, growing from zero to 11 million units per quarter - that of Google's Android - and we add the best mass-market growth of any single smartphone maker ever from 11 million to more - that of Apple's iPhone - and use both of those growth rates - Nokia and Microsoft will end up by 2013 with merely 8% of the global handset market. Nokia had 29% market share before this silliness started. Nokia has now suffered what we all knew would happen, the widely accepted technology marketing theory called the 'Osborne Effect' and Nokia has killed the sales of its own products. Less than five months from announcing the end of Symbian, Nokia has seen its market share cut in half - to 15%. This is BY FAR the biggest drop of any leading market share of any company in any industry. As I wrote, when BP had its darkest moments in the oil spill, it did not lose half its market in five months. When Exxon Valdez crashed in Alaska and caused its oil spill, Exxon did not lose half its market in five months. The worst marketing and management blunders from Toyota car brakes to Sony exploding laptop batteries to British Airways cabin staff strikes and walk-outs, none have caused half the market lost in five months. Even New Coke, launched by Coca Cola in 1985 - did not cause Coca Cola to lose half its market in five months. Pay attention to Nokia now, this is history being made. Nokia is making a new world record destruction of a brand.

So, take the world's biggest markets share by a massive margin to number two. Cut that in half in 5 months. The cut it in half again! And that is the best case - best case - that Microsoft and Nokia could hope to achieve. Remember, I used the best ever performance in smartphones, that of Google at its launch, and that of the iPhone when it really hit its global potential with the iPhone 4 model. The very best possible stats as comparison. Nobody in their right mind dares to say Microsoft the Evil Empire can achieve as good performance as Google, or Nokia the wounded giant, could hope to better Apple's iPhone. And using that as the benchmark under the absolute bright-eyed, pie-in-the-sky wishful-thinking mathematics, we arrive at 8% market share by end of 2013, after two hard years of the best efforts by Microsoft and Nokia.

So if you think Blackberry's 13% market share today is 'great' - that is still 50% better than where Nokia+Microsoft will be in 2013. No. Microsoft cannot save Nokia. But lets see how expensive is this Microsoft Madness. How much is Stephen Elop's Ego-Trip costing Nokia over the next two and a half years. I think this is illuminating.

POPULATE THE MICROSOFT MODEL

I had constructed the Microsoft + Nokia smartphone sales model yesterday, using the most optimistic, wildly too happy assumptions, if all goes perfectly for Nokia and Microsoft, truly every single bit is perfect, this is what Nokia and Microsoft will sell in the next years up to end of 2013. (please see my blog yesterday for the exact logic in buidling this forecast - and please remember, I was the most accurate forecaster of how badly Nokia market share, ASP, total revenues, total profits etc would fall from February 11. So I do know what I am doing). Here is my model from yesterday for Nokia Microsoft sales forecast as Nokia transitions from Symbian to Microsoft WP7 based smartphones:

Q4 2009 - 28 M total Nokia Symbian smartphones (actual this was 29% market share before Microsoft announced)

Q1 2011 - 24 M total Nokia Symbian smartphones (actual)
Q2 2011 - 17 M total Nokia Symbian smartphones (actual this is 15% market share today)
Q3 2011 - 13 M total Nokia Symbian smartphones
Q4 2011 - 11 M total Nokia smartphones - 1 M WP7 + 10 M Symbian (Nokia market share hits 7% by time Microsoft phones arrive)

Q1 2012 - 11 M total Nokia smartphones - 4 M WP7 + 7 M Symbian
Q2 2012 - 11 M total Nokia smartphones - 7 M WP7 + 4 M Symbian
Q3 2012 - 11 M total Nokia smartphones - 10 M WP7 + 1 M Symbian (Nokia market share bottoms out at 6% before starting painful and slow climb back)
Q4 2012 - 12.4 M total Nokia Microsoft WP7 smartphones

Q1 2013 - 14.0 M total Nokia Microsoft WP7 smartphones
Q2 2013 - 15.9 M total Nokia Microsoft WP7 smartphones
Q3 2013 - 17.9 M total Nokia Microsoft WP7 smartphones
Q4 2013 - 20.3 M total Nokia Microsoft WP7 smartphones (this will be 8% market share)

That gives us the comparison of how the current Stephen Elop strategy can do - under the absolute best case scenario - in the next coming years. It is not pretty. But that is not the full picture. What of revenues, perhaps this is good news? What of the average sales prices of Windows Phone based smartphones? What of the profits? While the market share declines, theoretically if the profitability is really good, this could still be good news for Nokia.

Yes, that is a nice fairy-tale. Lets put in the facts as we know it. The truth is brutal, it is incredibly bad for Nokia. I have reported already that Nokia reseller channel is in boycott of Nokia Symbian phones. Well, what of Microsoft? Actually, the Microsoft based smartphones were put on its own boycott in June, right after Microsoft went and bought itself a company called Skype. Skype is hated by the carriers! They saw how Skype destroyed the voice minutes, revenues, profits - especially of international calls and long-distnace calls - for the fixed landline carriers/operators. The mobile operators have fought tooth-and-nail against unlimited Skype calls on their networks (some operators sell Skype in premium packages and some challenger operators/carriers like Three offer Skype in thier bundle, but have already priced Skype into their base prices, obviously). Now when Microsoft bought Skype in the end of May, Microsoft became the carrier/mobile operator community's Public Enemy Number One. Over 70% of the global mobile operator revenue is in voice calls - and about half of their profits - and most of the profit is in the lucrative international calls that Skype targets. The carriers worldwide will refuse to subsidise and support any Microsoft based smartphones.

Please note - it is NOT what the customer wants, that gives us a market success in mobile phones. It is what the carrier/operator wants. If what the customer wanted, we'd all be using Google Nexus One phones now. If its what the customer wanted, US consumers would be using Nokia premium phones - which years before an iPhone were offering unrestricted WiFi - what the consumers want - but the US carreirs refused to support and wanted blocked. If its what the consumers want, we'd know big global smartphone success in the brand of Palm (killed by the carriers, loved by consumers) or by Microsoft's Kin phones (killed by carriers...) etc. If it was what the customer wants, and the carrier did not matter - then Apple's iPhone would not have gained any sales from Verizon. The EVIDENCE is clear. The carrier is what decides smartphone success, not whose phone is better. Yes, I agree, you and I want Skype on our phones. The carriers will not let Microsoft do that across its platform and destroy 70% of carrier revenues and 50% of their profits. This is never going to happen.

If the Nokia Microsoft strategy was seen as smart and clever in February by some, that vision of a Microsoft+Nokia paradise died in May. And there is already widely reported a reseller boycott hitting Microsoft based smartphones. Now Microsoft is so afraid to release its Windows Phone sales numbers (they have crashed) that Microsoft is not even giving us the number. It is that bad!

But lets put all that on one side. Lets use the most optimistic possible Nokia fairytale scenario in the above, and lets populate that with some reasonable assumptions of Nokia Microsoft WP7 based smartphone numbers. We do have guidance on the ASP's for example and we can make reasonable guesstimates on the profit margins etc. Lets plug it in.

What ASP? Well, we know the Nokia Symbian ASP declined 4 Euros from 142 Euros (185 US dollars) in Q1 to 138 Euros (179 US dollars) in Q2. This reflects the Osborne Effect, obviously, ie the wholesale rejection by the retail channel of Nokia Symbian smartphones after the Burning Platforms memo and the February 11 announcement of the death of Symbian, to be replaced by Microsoft WP7. Now right after Q3 started in July, Nokia announced across-the-board cuts to its prices of 15% at the top end of the phones (ie smartphones). That would suggest the Nokia smartphone ASP for Q3 might be as low as 117 Euros (152 US dollars). And Nokia is forcing 10 new Symbian phones into the market that is comprehensively rejecting Nokia smartphone sales (note in total contrast to Q4, by Q2 Nokia unit sales declined by a catastrophic 31%, Nokia ASP fell by 3% and Nokia profit margin fell by 12.4% from a positive 6.2% to a negative (-)6.2%. Nokia even included in its accounting data that they boosted marketing expenses by 6% in Q2 in a desperate attempt to generate some demand for the dead Symbian product line. So in Q4 all numbers were up, in Q2 all numbers had reversed and were down).

So. What is the verdict? I say we make this Elop scenario the most rosy it can possibly be conceived. Lets ignore the radical across-the-board price cuts (which were so hazardous they got previous Nokia CEO fired in 2010) - and lets assume Nokia Symbian phones can retain most of their prices, and the ASP would decline only 5 US dollars per quarter (it should be 5.20 US dollars to keep the Euro/US dollar exchange rate but lets keep this simple, we don't need the decimal point, and note, the model is even more optimistic because every five quarters, I am giving the Elop strategy a bonus dollar in higher ASP than what they should have). So we say the ASP for Symbian phones will decline by 5 US dollars every quarter, from the 179 US dollars it was in Q2 of 2011. That is a linear decline in ASP falling only to 154 US dollars by Q3 of 2012, when the last few Symbian phones would be sold.   

Then what of the new Microsoft Windows Phone based smartphones? We do have good guidance on that ASP. Microsoft's head of the Windows Phone division, Andy Lees, speaking to 15,000 Microsoft developers at the big Microsoft event in July, said that Microsoft smartphones had an average price of 400 US dollars recently, but that has tumbled to 200 US dollars today (Tomi comments - perhaps this is yet another sign of the reseller boycott, even as Microsoft cuts prices in half, they lose so much sales, Microsoft is now ashamed to publish the number of units sold..)

But yes, Andy Lees gives us the July 2011 number, ie Q3 number of 200 US dollars. And then he tells us how Microsoft projects WP7 phone average sales prices to decline next year. He says the prices will fall dramatically to up to half where they are now. He said ASP's for Microsoft WP7 phones next year will be between 100 and 150 US dollars.

Very good. We have solid numbers here. Lets be very generous to Nokia and Stephen Elop's Microsoft alliance strategy. Lets take the absolute top levels of that. Lets say the current ASP of Microsoft phones drops only to 150 dollars in 2012, and lets further push that to Q4 of 2012. So from 200 US dollars in Q3 of 2011, to 150 US dollars ASP by Q4 of 2012. And a linear decline, 10 dollar decline per quarter.

Then lets take Andy Lee's number for the bottom assumption, but use that for 2013. So lets not assume the prices fall again by half for 2013. Lets say Microsoft's ASP only falls to that 100 dollar level by Q4 of 2013. This is an extremely rosy interpretation of Microsoft's guidance on its smartphone ASP.

And finally what of profitability? Thats the toughest one. Nokia was very strongly profitable in its smartphone unit back in Q4 but now is making a big loss in that unit. Stephen Elop promised in his Q2 results that Nokia would generate a zero loss plus/minus two percentage points, so Nokia could do as high as 2% profit or as badly as 2% loss. That is some kind of wizzard-magic, Elop has been watching too much Dumbledore. (Why is it madness to expect Nokia zero loss for Q3? Because first the smartphone unit reported a nominal loss of 147 million Euros ie 191 million US dollars. By 'nominal' I mean, that the loss is mitigated by a one-time royalty payment by Apple for IPR infringements that happened over Apple's use of Nokia patented properties without permission since 2007. So that one-time payment covered 16 quarters. And its value was 430 million Euros (560 million US dollars). Yes. You understood it correctly. Nokia's real operating loss was 430 million Euros / 560 million US dollars worse in Q2 than reported. That is the point from which Nokia has to start to 'recover' in Q3. Nokia did not produce a 247 million Euro/321 million US dollar loss from its handset unit. In reality Nokia produced nearly a 677 million Euro loss ie 880 million US dollar loss in the handset unit!

From that, we hear that the NokiaSiemens Networks unit (loss-making in Q2) is doing so badly, that even after half a year of attempting to sell NSN, all buyers have walked away, knowing Nokia is doing so badly, they can buy NSN for much less if they wait.

Then yes, the handsets unit (both smartphones and 'dumbphones' or 'featurephones') generated nearly a Billion US dollars of operating loss in Q2, after we remove the one-time royalty payment from Apple. With that, now Stephen Elop's 'management' has cut Nokia handset prices by as much as 15%. If you generate a loss - and you cut prices - your losses will get bigger. That is not a way to produce a profit.

There are no silver bullets in sight. Nokia would have a magical profit-making smartphone - Nokia's N9 with MeeGo but Elop refuses to release that in most of Nokia's big markets like say Germany, England, France, Spain, India etc - and so. Nokia forces undesirable Symbian phones to the market. So is there any honest chance of Nokia managing a 'zero profit' in Q3. This is not a financial analysis blog, but I think its pretty safe to say, Nokia will report huge losses in Q3. Expect a profit warning soon from Nokia. And please judge the competence of Stephen Elop when that comes, why on earth would he promise zero losses now with Q2 results? Did Stephen Elop fail basic mathematics in prep school?

But for our model? Lets suspend reality, lets accept this "Elop Economics" based forecast, that somehow Nokia returns to zero losses in Q3. And lets say, that means the smartphone unit - before any Microsoft phones are sold - also returns to zero losses (zero profits).

And lets say, even as the Symbian phones become ever more toxic, ever more undesirable, ever more hated, lets say somehow Nokia manages to keep the smartphone unit at zero profits when selling Symbian phones until the end. I think this is absolutely implausible, when the unit is ramped down, but lets say he manages the miracle and Symbian phones produce a zero profitability till the end of Symbian.

(Let me contrast this to the Nokia Symbian+MeeGo scenario in the above. Because Nokia offers a migration path from Symbian to MeeGo, the whole ecosystem will support the migration and there would be no reseller boycott and that is why the profitability would stay stable. This loss of profits is directly due to the Osborne Effect and incompetent Elop management)

Then what of Microsoft Windows Phone 7 based smartphone profitability? Thats the biggest unknown here. We do know some things. We can see that for example the first Windows Phone based smartphone is a clone of the N9 (but adding one button for differentiation I guess). The specs are mostly similar to the N9 so the costs should be similar. But we also know the Microsoft WP7 operating system is very demanding of the CPU, memory etc resources. Nokia will have to buy faster and more expensive CPUs from Qualcomm and place more memory on the phones just to be able to run WP7 effectively. These will increase costs. Also look at the massive market failure of all WP7 based phones and how much the market prefers the MeeGo powered N9 compared to the first WP7 based Nokia phone sample.

So Nokia has less demand, it has to push the WP7 phones more so invest more marketing. Microsoft already tells us the demand is so weak that prices will fall to half in just one year. And the costs go up with more expensive components. What is worse, Nokia owns the world's biggest capacity of mobile phone factories in nine countries including China, India, Brazil etc. Now half of their smartphone factories sit idle, but what does Stephen Elop do? He outsources first WP7 smartphone manufacturing to .. Compal of Taiwan! How inefficient is that? Stephen Elop came to Nokia, all Nokia analysts, and the Nokia Board and the Nokia investors said Nokia's primary problem is in execution, its efficiency is a problem. What does Elop do? He adds complexity, he adds inefficiency. And this helps execution exactly how?

But lets be optimistic in the Elop model. Lets say WP7 based smartphones can achieve the same level of profits Nokia did in the last quarter when Elop was in charge, and Nokia managed a profit with its smartphone unit - ie Q1 of 2011. At that time the profit margin of Nokia smartphones unit was 6.2% essentially exactly half what it was when Nokia had the success of Symbian S^3 and the N8 one quarter before. Is this fair? It should be clear, that because Nokia has to add more costly components, it cannot make smartphones on WP7 as cheaply as on Symbian now. As Microsoft admits no demand for their phones clearly Nokia marketing costs have to go up. And most of all - because Nokia never had to pay a royalty when using Symbian (or MeeGo) but Nokia has to pay a royalty for every licence of Microsoft WP7 - then yes, if we say Nokia's smartphone profitability with Microsoft would be half that of the best that Symbian could do at its recent peak - I think 6.2% is a fair profitability to assign to the Microsoft WP7 phones at least in the first two years when they are ramped up and introduced to the market.

Now we can populate the Elop Microsoft Strategy model with the ASPs, Revenues, Profitability and Total Profits. It gets interesting.

NOKIA MICROSOFT SCENARIO - ULTRA-POSITIVE OPTIMISTIC CASE

Q4 2010 . . 29% . . 28M Symbian . . . . . . $200 . . . . . $5.7B . . . 12.5% . . . $713M profit

Q1 2011 . . 24% . . 24M Symbian . . . . . . $185 . . . . . $4.5B . . .   6.2% . . . $278M profit
Q2 2011 . . 15% . . 17M Symbian . . . . . . $179 . . . . . $3.0B . . . - 6.2% . . - $185M loss
Q3 2011 . . 11% . . 13M Symbian . . . . . . $174 . . . . . $2.3B . . .   0.0% . . . $    0M profit
Q4 2011 . .   7% . . 10M Symb/1M WP7 . $169/$190 . $1.9B . . .   0.6% . . . $  11M profit

Q1 2012 . .   7% . . 7M Symb/4M WP7 . . $164/$180 . $1.9B . . .   2.3% . . . $  43M profit
Q2 2012 . .   7% . . 4M Symb/7M WP7 . . $159/$170 . $1.8B . . .   3.9% . . . $  71M profit
Q3 2012 . .   6% . . 1M Symb/10M WP7 . $154/$160 . $1.7B . . .   5.6% . . . $  98M profit
Q4 2012 . .   6% . . 12M WP7 . . . . . . . . . $150 . . . . . $1.8B . . .  6.2% . . . $115M profit

Q1 2013 . .   7% . . 14M WP7 . . . . . . . . . $137 . . . . . $1.9 B . . .  6.2% . . . $119M profit
Q2 2013 . .   7% . . 16M WP7 . . . . . . . . . $125 . . . . . $2.0 B . . .  6.2% . . . $123M profit
Q3 2013 . .   8% . . 18M WP7 . . . . . . . . . $113 . . . . . $2.0 B . . .  6.2% . . . $125M profit
Q4 2013 . .   8% . . 20M WP7 . . . . . . . . . $100 . . . . . $2.0 B . . .  6.2% . . . $126M profit

There you have it. This Microsoft ultimate best case scenario of super-duper wishful-thinking market love, will produce at best, by Q4 of 2013, yes in two-and-a-half-years, a minimal profit of 126 million US dollars, on smartphone sales of 2 Billion US dollars. That in a quarter where Nokia has clawed back market share to 8%, selling Microsoft-powered smartphones that have an average price of 100 dollars.

To put it in annual numbers, by this model, Nokia's new Microsoft strategy would produce in 2011 total Nokia branded smartphone sales of 11.6 Billion dollars of revenues (down from about 20B in 2010). That would be cut further in 2012 to 7.3 Billion US dollars with a slight upturn by 2013 to 7.9 Billion US dollars of total revenues by the smartphone unit. How bad is that? Remember RIM, the company who makes the Blackberry and all analysts seem to think RIM is now dead? RIM sold... 19 Billion dollars of smartphones last year! And Stephen Elop's Microsoft 'strategy' would trade a giant Nokia smartphone empire for a tiny bit-player less than half the size of RIM. He IS on a mission to destroy Nokia!

What of those profits. Yes, 2011 smartphones at Nokia would by this supremely optimistic scenario still produce an annual profit (and please, PLEASE do not assume that will happen. Nokia's profits of smartphones this year will not materialize, this year will produce losses). But yes, lets give Stephen Elop every conceivable benefit of the doubt. Lets say he is honest and accurate and really he did not fail basic mathematics - then yes, this scenario says Nokia smartphones will produce a modest 104 million dollar profit in 2011. Now we are in Motorola and SonyEricsson territory of meaninglessly small, truly miniscule profits.

And just one quarter of Nokia Symbian S^3 powered smartphones like N8 yielded profits of 713 million dollars in Q4 when Elop took over! How mad is the Microsoft Muppet? He trades 713 millions every quarter for 104 million once per year? That is only 28 times worse! He HAS failed math!

But lets look beyond this year. Maybe there is a silver lining. What of 2012? Yes. 2012 is better, according to this super-rosy scenario. How much better? Nokia's Stephen Elop Microsoft strategy gets Nokia smartphones unit to produce an annual profit of.... 328 million. The Nokia before Elop destroyed it, was generating that much profits every 5 weeks. Now he struggles with his Microsoft buddies - under the very rosiest scenario imaginable - to produce that level in one year - not this year but next year.

And the end game? Yes, its a bit better. By 2013 the total annual profit generated by Nokia's Microsoft strategy in the very best case imaginable, would bring total profits of 493 million dollars. You know how ironic that is? Its almost exactly the same, what Nokia did in just one quarter BEFORE the new Symbian S^3 based smartphones. Yes, that 'failing' Symbian was so powerful, in Q3 of 2010. Nokia smartphones produced almost that amount of profit - in one quarter. And now Nokia can look forward to the Microsoft Miracle producing that level of profits in a whole year.

WHAT IS STEPHEN ELOP COSTING NOKIA NOW?

So we calculated that Stephen Elop's actions have already caused 1.4 Billion dollars of abandoned profits in just five months. He should be fired for that already. It is criminal. But it does get far worse. Now he is causing more damage to Nokia, every single day that he remains in office, and that the Microsoft strategy is held as Nokia's official smartphone strategy.

We can calculate the absolute minimum of how much Nokia loses every quarter, every year, in fact every day. And its easy. Take the absolute worst case scenario of the best case as the starting point. Then subtract from it the absolute best case of the Stephen Elop strategy. That gives us the bare minmum of how much is Stephen Elop costing Nokia, for every single day he remains at Nokia. (remember, because we made an ultra-conservative Nokia base case, and a super-rosy Microsoft scenario, the real damage to Nokia will be much bigger than these numbers.) The numbers make me weep, really. Look at this:

This very quarter, right now, Q3 of 2011, in July of 2011 - every day that the Nokia Board waits in firing Stephen Elop - he costs the company another 8.5 MILLION dollars of ABANDONED PROFITS that can never be recovered. Every day he loses Nokia 42 million dollars of abandoned sales of Nokia branded smarthphones - that can never be recovered. He is actively shrinking the company every day he is let to remain in the helm. He is destroying Nokia so fast, he kills off one tenth of the size of Nokia as it exists today, every four months! He is an assassin!

But Stephen Elop's Microsoft Madness is like a cancer, it gets worse the longer we wait. By Q4 of next year (if there is a Nokia left by next year) every day waited before Elop is fired, Nokia abandons 10.5 million dollars of pure profit. And it gets so bad, that by Q4 of 2013, Stephen Elop's daily cost to Nokia profits is up to 14.5 million dollars. Yes, just by being Stephen Elop, he of Burning Platforms and of Microsoft, he costs Nokia shareholders lost smartphone sales revenues of 105 million dollars per day - yes, 1 Billion dollars of abandoned sales every ten days, and - and - he every seven days - every week - Elop destroys another 100 million dollars of profits that can never be recovered.

NO NPV, NO IRR, NO ROI

There are standard measures that accountants use to measure the value of investments. They are called Net Present Value (NPV) and Internal Rate of Return (IRR). These are used to calculate the Return On Investment (ROI). This Mad Microsoft Misadventure by Stephen Elop has no return on investment. Its NPV is negative. It never achieves an IRR break-even point ! Hello! The Microsoft project - under the MOST ROSY SCENARIO IMAGINABLE - cannot return a profit to Nokia. This is utter madness, it is a dead end, it has to be ended IMMEDIATELY.

Understand also what that means. It means that any monkey could have run Nokia better than the damage done by Stephen Elop. Understand - it means very literally, if Stephen Elop had been in a coma from February - Nokia would be 1.4 Billion dollars better off today - not in revenues, in PROFITS. I would put it to you, my readers, Nokia's share price would be far healthier if Nokia produced strong profits. And if Elop is allowed to run Nokia for the next two-and-a-half years, he will destroy a total cumulative amount of 10.5 Billion dollars of profits. How can I put this in context. Thats more than total Google profits last year! This is what Elop will destroy (at a minimum) if he is allowed to stay in charge and pursue this suicidal Microsoft strategy for Nokia.

THE STRATEGY IS STILL REVERSABLE

But there is one silver lining. While Stephen Elop has been on a destruction rampage at Nokia HQ, firing thousands of competent people willy-nilly and badmouthing all of Nokia's ecosystem assets etc, the damage can be undone. Not completely, Elop has been the worst CEO ever and has certainly destroyed more value than any CEO in history, and will go down as the worst year ever seen, but - but - but - the damages can be undone, to some degree. 

And now we have the tools to measure at least in rough term, what kind of value would any options have. Nokia cannot ever recover to 29% market share with 28 million unit sales of smartphones and 200 US dollar ASPs and 12.5% profitabilty and 5.7 Billion dollars of sales per quarter and 713 million dollars of profits per quarter. BUT THE DAMAGE CAN BE UNDONE, to at least some degree.

Note, every single day that change is delayed, destroys PERMANENTLY Nokia existing value that can never be recovered. This guy is poison. He is destroying Nokia profits simply by existing. I am not even saying what his perception is with the carrier community who mistrust him; with the Nokia developer community who despise him for destroying the promised migration path; the Nokia employees who have lost all respect for him and think of him as a joke incompetent to run any major company.

The question now becomes - Why is Nokia's Board not reacting. By very many other analysts, not just me, Nokia's CEO Stephen Elop is a total failure and leading Nokia to ruin. Why are the Board members not acting to remove him? If the Nokia Board does not act - especially after we see the kind of massive losses to Nokia that Elop is now causing - then the Nokia Board is in collusion - and that means - yes, if the Board does not act, they are guilty too! They too must be investigated and the guilty parties in collusion with Elop must be fired 'for cause' and sued by Nokia investors.

This farce has gone on long enough. The Microsoft Muppet costs Nokia 10 million dollars of abandoned profits every day he remains in office. He is the costliest CEO in history. He is actively damaging the company by his mere presence now. He has to be fired. (but yes, this series is not done. I will come back to study the costs and benefits of abandoning the Microsoft strategy. What options does Nokia have and what would they cost now, after all the damage by Elop. Stay tuned).

UPDATE 29 July - I have now calculated the cost of undoing the damage. Much damage has been done that can never be recovered, but what if Nokia did abandon the Microsoft strategy and return to MeeGo (and continue with Symbian). What would that business case look like? Read Imagining the Impossible.

First Look into Microsoft Nokia Smartphones in 2012 and 2013. Expect climb-back to barely 8% markets share by Q4 of... 2013 - best case scenario

Modelling the Upscale Potential for Nokia-Microsoft Smartphones in 2012 and 2013 - Best Case Scenario

EXECUTIVE SUMMARY

This is a longer blog, with some mathematical modeling and showing the logic involved. Some of my readers will want to see how I came to the conclusions. But others may only want the top-line numbers, as this is a series of blogs studying the biggest destruction of market value of any corporation in the history of technology companies. So here is the overall projection. Please read the full blog to see how I came to this projection. And please note, these are based on real world smartphone performance numbers and an absolute best-case, ie using Google Android and Apple iPhone as the benchmark - even the most optimistic Nokia smartphone execs will not claim they can match Google Android or Apple iPhone with the Microsoft Windows Phone performance. But this is what the Noki-Soft Micro-Kia smartphone performance looks like from end of 2011 to end of 2013 (see previous blog for year 2011 performance how we get to 11 million in Q4 of this year): (and note, from Q3 2011 all numbers are projections by my consultancy, TomiAhonen Consulting)

Q4 2009 - 28 M total Nokia Symbian smartphones (actual this was 29% market share before Microsoft announced)

Q1 2011 - 24 M total Nokia Symbian smartphones (actual)
Q2 2011 - 17 M total Nokia Symbian smartphones (actual this is 15% market share today)
Q3 2011 - 13 M total Nokia Symbian smartphones
Q4 2011 - 11 M total Nokia smartphones - 1 M WP7 + 10 M Symbian (Nokia market share hits 7% by time Microsoft phones arrive)

Q1 2012 - 11 M total Nokia smartphones - 4 M WP7 + 7 M Symbian
Q2 2012 - 11 M total Nokia smartphones - 7 M WP7 + 4 M Symbian
Q3 2012 - 11 M total Nokia smartphones - 10 M WP7 + 1 M Symbian (Nokia market share bottoms out at 6% before starting painful and slow climb back)
Q4 2012 - 12.4 M total Nokia Microsoft WP7 smartphones

Q1 2013 - 14.0 M total Nokia Microsoft WP7 smartphones
Q2 2013 - 15.9 M total Nokia Microsoft WP7 smartphones
Q3 2013 - 17.9 M total Nokia Microsoft WP7 smartphones
Q4 2013 - 20.3 M total Nokia Microsoft WP7 smartphones (this will be 8% market share)

I will be returning with more analysis of those numbers, adding the value calculations, average sales prices, total revenues, profits etc - and calculating the true cost that Stephen Elop's mad strategy is now costing Nokia. I hope to have that for you tomorrow on this blog. But yes, this is the best case scenario, and Nokia in Q4 of 2010 saw increasing smartphone sales (that is true!) with increasing average sales prices and increasing profits (that is true! it means Nokia's Symbian was not failing in the market, it was actually a hit product that was then killed by CEO Stephen Elop in February). And Nokia trades the world's biggest smartphone OS platform, with 29% market share and growing sales, growing average prices and growing profits, for 8% market share with diminishing average sales prices and vanishing profits. But please read the full blog to understand how I get to these numbers and why this is indeed the best case scenario for Nokia.

HE DID NOT ANTICIPATE THE OSBORNE EFFECT?

We now have the first full quarterly data on what the self-inflicted damage of the 'Osborne Effect' as caused by Nokia CEO Stephen Elop is causing to Nokia's current line of smartphones. We also know that the reseller market has put Nokia smartphones on a sales boycott (Nokia acknowledges as much, with Stephen Elop saying there were "unexpected sales and inventory patterns" and Nokia explaining in the Q2 results "distributors and operators purchased fewer of our devices across our portfolio as they reduced inventories of Nokia devices." Thats trying to paint a nice picture over the cruel reality of a reseller boycott, as has been reported in the press since March of this year.)

 

As regular readers know, I was one of the first analysts to make a projection of what the February 11 announcement of the Nokia-Microsoft alliance would do to year 2011 Nokia smartphone sales, on this blog, on February 15. That blog was widely referenced and many commented that while my general direction was correct, I was being too harsh on Nokia, that the damage would not be so bad as I projected. At the time I said it was my best case. Unfortunately that turned out to be true. All of the individual elements I projected - declining market share, declining unit sales, declining average sales prices, declining total revenues and declining (vanishing) profits - turned out to be true. But as I warned, that was the 'rosy' scenario. The reality was much worse. Most of the projections I had anticipated for Q4 have already happened now by Q2 or are happening as we speak in Q3.

But that projection was made with the best available knowledge, and without knowing really how badly Nokia sales would decline (only knowing they would). Now we have one full quarter of data and can give a much more accurate forecast. And now we can clearly see that Nokia's market share in smartphones will continue to collapse through Q3 and Q4, as Nokia desperately attempts to push ever more undesirable Symbian based smartphones to the market - another 10 new models will still be released this year, says Nokia. They will fare increasingly worse in the market. By the end of Q4, Nokia's market share will be about 7% and its sales of smartphones will have fallen to about 11 million. To compare, in Q4 of 2010, Nokia's market share was 29% and it sold over 28 million smartphones.

WORLD RECORD DESTRUCTION OF A BRAND

 

I have made the point before, but need to re-iterate. Nokia's Symbian based smartphones had been suffering in the market recently, as late as the summer of 2010. But by the Autumn, for Q4, when the new Symbian operating system version, called S^3 had shipped on for example the N8 smartphone, Nokia's Symbian based smartphone platform was in strong rebound mode.

 

That may sound strange to many readers, but I do not deal with fanatasies and myths on this blog - I deal with the real world numbers and facts. We now have not only the sales performance numbers, we have Nokia's re-organization-based accounting - we can see the actual performance of the smartphone unit! So going from Q3 of 2010, when Nokia did not have Symbian S^3 based smartphones, Nokia sold 26.5 million smartphones, at an average sales price (ASP) of 136 Euros (177 US dollars). The general trend of the ASP for Nokia had been falling by about 10 Euros (about 7%) per QUARTER. The total revenues of the smartphone unit was 3.6 Billion Euros (about 4.7 Billion USD) and the profitability of the smartphone unit was at 9.3%. The total amount of profit ("Contribution") by the smartphone unit was 335 million Euros (435 million USD).

Then came the new Symbian S^3 on several phones, led by the new flagship phone N8 which set a Nokia record for fastest sales in a quarter. All declining trends were turned into growth - this tells us the market loved Nokia's new smartphones on the new Symbian S^3 operating system and this is absolute proof that Nokia was on a come-back. Whatever you may have thought of Symbian prior to Q4 of 2010, became obsolete. Nokia had indeed on its hands, a true hit series of phones and a hit operating system  with the N8 setting internal Nokia records for new phone sales. Look at the facts.

In Q4 of 2010, Nokia grew smartphone sales to 28.3 million units (7% growth). You cannot claim that Nokia's Symbian sales were "declining" or in any way "suffering." Nokia Symbian based smartphone sales were growing. That is a fact. And in size, Nokia at Q4 of last year was quite literally as big as all smartphones made by Apple and Samsung added together (these would both individually pass Nokia by Q2). That is a fact. Nokia ASP grew to 155 Euros (200 US dollars) which reflected a jump of 14% from just one quarter before. That is a fact. If we add in the trend line, that the ASP had been in continuous decline of about 7%, the actual jump in Nokia ASP was a breathtaking 21% !!!! Don't tell me Nokia was not back. The phones were jumping off the shelves. And how did this impact Nokia revenues? In Q4 Nokia smartphone unit geneated 4.4 Billion Euros of revenues (5.7 Billion USD). That was a growth of 22% - in just one quarter! That is a fact. And what of profits. Nokia's profit margin jumped ------  34% !!!!!! ---- to 12.5%. That is a fact. And total profits of the smartphone unit powered by the new Symbian S^3 phones rocketed up by ------- 64% ----- !!!!! ------- Sixty Four Percent ------ in one quarter ! ------ to 548 million Euros (712 million USD). That is a fact. See Nokia official Quarterly Results Q3, and Q4 to verify all those numbers, as well as the new official Nokia accounting reports for profitability of Nokia units in the 4 quarters of 2010.

If you can grow unit sales, and grow average sales prices, and grow profitability of your product line - there is absolutely no way that product line is suffering in the market. It is a hit product (line). Symbian S^3 was a hit! It was on a trajectory to produce close to a Billion dollars of profit per quarter this spring until Stephen Elop jumped on the success and sabotaged it with his idiotically-timed Microsoft announcement. Note, I am not saying he was an idiot to select Microsoft (that remains to be seen). But all tech experts agree, it was his moronic timing that caused Nokia smartphone sales to collapse.

How badly? We cannot look at Q1 because the announcement came in the middle of that quarter. But when we look at Q2 results - compare to the above - Nokia unit sales are down to 16.7 milion (down 59% of where they were before he started). That is a fact. Nokia ASP has fallen to 142 Euros (down 9%). That is a fact. Nokia revenues are down to almost half at 2.4 Billion Euros.That is a fact.  The positive profitability of the smartphone unit is now generating a loss with 'negative profitability' of (-)6.2%. That is a fact. And obviously the smartphone unit generated a loss of 147 million Euros, a reversal of 695 million Euros of profit destroyed (904 million US dollars). That is a fact.

It is absolutely concretely true, that Nokia's Symbian S^3 based smartphone sales were growing, with an unprecedented jump in average sales price, matched with a 68% leap in profits generated by the smartphone unit. This is not failure. But it is also absolutely concretely true, that by Q2 of 2011, all those trends had been terminated and reversed so Nokia smartphone sales were declining at not just Nokia's biggest record-setting rate, the worst loss in sales of any mobile phone maker in any quarter ever (including Panasonic, Siemens, Sony, Ericsson, Motorola, Palm, etc). And Nokia reversed increase in average sales price to a decline, and turned dramatic profit growth to a devastating crash-dive into loss-making.

The phones did not change. The OS did not change. The Ovi store did not change. In fact, since Q4, the tech press have been positively impressed by newer Nokia phones such as the E7 and X7; by the newest Symbian version called Anna and the continued great growth of the Ovi store. The change between Q4 and Q2 is February 11, when Stephen Elop announced his Microsoft strategy - and ever since, all channels report collapsing Nokia sales from European big markets like UK, France, Germany etc to Asia's giant markets like China, India etc. The only thing that changed, is 'the announcement' of February 11. It is Stephen Elop and only Stephen Elop that killed the Nokia success, smartphone growth, average sales price jump, and massive leap in profits, that the Symbian based Nokia smarpthones had been generating. The CEO killed the success of his hit products - destroyed the cash cow - killed the goose that lays the golden eggs - snatched defeat from the jaws of victory. (But I will return on this blog to count what is the true cost of this wanton destruction of value) 

MAYBE MICROSOFT IS THE RIGHT STRATEGY?

Yes. Maybe the Microsoft strategy turns out to be the right strategy? But to be so, it would have to OUTPERFORM what Symbian S^3 was doing in Q4 of 2010, before Stephen Elop's ill-timed February surprise killed Symbian's come-back. So can the Microsoft strategy generate better unit sales than 28.3 million smartphones per quarter (a market share of 29% so by 2012 would be about 46 million smartphone sales per quarter, and by 2013 produce about 58 million smartphone sales per quarter), with better than 155 Euro/200 US dollar Average Sales Price, to produce better than 4.4 Billion Euros (5.7 Billion US dollars) of revenues (plus the growth rate as per above) - and better than 12.5% profitability, where the smartphone unit would generate more than 548 million Euros (712 million US dollars) of profits per quarter (again, doubling to more than 1 Billion Euros of profits per quarter by 2013).

If the Microsoft strategy can reasonably - reasonably - be seen to generate better performance, then yes, the Microsoft strategy is worth pursuing. If the Microsoft strategy is destined to do far worse, then Nokia CEO Stephen Elop has committed the ultimate crime as a CEO of a major corporation, taking a winning hit product line and destroyed it replacing it with a weaker substitute. If so, he needs to be fired for incompetence - and Nokia must abandon this futile path of self-destruction immediately!

And now we have the first view to how likely is the Microsoft resurgence. We know Nokia will end this year with about 7% market share and about 11 million smartphone sales (generating massive losses) as it launches the first Microsoft based smartphone a little before Christmas.

TRANSITION YEAR 2012

So, if Q4 of 2011 ends with Nokia selling 11 million smartphones per quarter, how will 2012 go? Well, we have a transition of one smartphone OS to another. There is really no model for us to compare. But lets be 'provocative' and offer a 'best case'. What is the fastest any - any - smartphone OS has ever gone from zero sales to 11 million units per quarter? That was not Microsoft's Windows Phone 7. That was not Microsoft's Windows Mobile. It is not Blackberry, it is not Palm, it is not Samsung's bada either. And it is not Apple's iPhone. The fastest OS ever to ramp up from zero to 11 million was ... Google's Android, which did it in four quarters.

Please recognize this is quite a huge leap of faith, but lets say, Microsoft and Nokia manage to match the fastest ramp-up ever (ignoring all the bad will that Microsoft has now been generating with its under-performing Windows Phone OS, which after all, launched in 2010 and still hasn't reached even 2% market share and lingers in 7th place among smartphone operating systems behind even Samsung's bada and Microsoft's own, older OS, Windows Mobile). So, lets say Nokia-Microsoft based Windows Phone handsets ramp up from zero at start of Q4 of 2011, to 11 million sold by Q3 of 2011. And to keep the math 'easy' lets say the Nokia Symbian ramp-down will exactly mirror that increase, so for every million lost in Symbian sales, Microsoft Windows Phone exactly matches that decline, picking up every lost Symbian sales. So we get this pattern for the first 12 months of Nokia Microsoft Windows Phone + Symbian combined sales:

 

Q4 2011 - 11 million

Q1 2012 - 11 million

Q2 2012 - 11 million

Q3 2012 - 11 million

We can also give a rough model of a linear transition (only as a guide) so if Symbian starts with 10 million to 1 million at Q4 of 2012, and reverses that by Q3 of 2012, we'd get this pattern:

Q4 2011 - 11 million - 1 million WP7 + 10 million Symbian

Q1 2012 - 11 million - 4 million WP7 + 7 million Symbian

Q2 2012 - 11 million - 7 million WP7 + 4 million Symbian

Q3 2012 - 11 million - 10 million WP7 + 1 million Symbian

 

CANNOT BE BETTER

 

Note, this is taking the fastest ramp-up of any OS ever, by Android, when HTC was hot, when Samsung was hot, when Motorola was in full fight-back mode etc. It was a concerted effort by all the major brands in the Android camp - and was further powered by Google's own hype and excitement around the 'Nexus One' smartphone which Google labeled a 'superphone'. While that Nexus One didn't end up being the 'iPhone killer' that Google had hoped, the hype around Nexus One helped HTC, Samsung etc sell many more Android phones.

So. Please do not for one second think Nokia and Microsoft can do better than this. We use the most successful ramp-up ever, and even with that, we find that Microsoft WP7 sales only match up the ramp-down of Nokia Symbian sales (where Nokia's original 150 million commitment from February 2011, suggested a linear decline to exactly that time. Nokia should have ended Symbian production in summer of 2012).

Note on CEO Stephen Elop 'promise' of 150 Million more Symbian phones. this model pushes Symbian one full quarter FURTHER than all analysts concluded by Elop's February 11 announcement. And how many total Symbian smartphones will Nokia end up producing in this best case scenario before switching to Microsoft? 62 Million. Yes. Only 62 million! Nokia CEO Stephen Elop is lying to us and the Symbian developer community by a factor of 59% ! He is going to under-deliver on his promise by 6 out of 10 promised Symbian phones. There will never be 150 Symbian phones with Stephen Elop in charge with his mad Microsoft strategy. 62 million - is the BEST CASE scenario! Any more that he'd now push the utterly undesirable Symbian phones for 2012 and 2013, would only hurt Microsoft WP7 phone sales - AND hurt Nokia profitability as long as there exists a Nokia Microsoft based phone out there, nobody wants Symbian phones, no matter how great Symbian S^3 or its latest Anna version or any update might be. 62 Million is the new 150 Million. Be prepared for that number. Stephen Elop is obviously utterly incompetent.

Note also on MeeGo, while I am on it. As of now, Nokia is saying that it will not release MeeGo into broad distribution and will not expand the sales of MeeGo beyond the one premium phone model. So the model here assumes no significant MeeGo sales (in the several millions) and what perhaps one or two million total MeeGo sales might be, will be included in Symbian sales).

EMPIRE STRIKES BACK: MICROSOFT GROWTH POTENTIAL?

So, now we know that Nokia Microsoft WP7 smartphones are in transition until about the end of Q3 of 2012. And the first quarter of true Micro-Kia/Noki-Soft comeback will not start until Christmas Quarter of 2012. Yes. Please note first, the pain will continue absolutely definitely until not Christmas Quarter of this year 2011 - no, the pain will continue on this strategy until Christmas Quarter of 2012. And then lets see how we can project growth for Nokia using the Microsoft WP7 operating system for its smartphones.

 

Where can we find a good model to project. There are not many smartphone manufacturers who have grown bigger than 11 million and kept growing for several quarters after that. We only have two - Blackberry and Apple. So lets again take the very best out there, Apple's iPhone. After Apple had passed 11 million sales, at that level, how fast has Apple been growing since? This is the world's biggest smartphone maker now, the company that toppled Nokia. It is certainly an 'optimistic' scenario - most would say that under no circumstances can Nokia, with or without Microsoft, manage as good a market reception as Apple's iPhone has in the recent past. But lets use this as the model. This is clearly the topmost optimistic scenario. Apple's iPhone has been growing at a quarterly rate of 13%. And look at what we get:

Q3 2012 - 11.0 million Nokia Microsoft WP7 smartphone sales
Q4 2012 - 12.4 million Nokia Microsoft WP7 smartphone sales
Q1 2013 - 14.0 million Nokia Microsoft WP7 smartphone sales
Q2 2013 - 15.9 million Nokia Microsoft WP7 smartphone sales
Q3 2013 - 17.9 million Nokia Microsoft WP7 smartphone sales
Q4 2013 - 20.3 million Nokia Microsoft WP7 smartphone sales

THAT IS THE BEST CASE 2012 + THE BEST CASE 2013

So taking the very best case of 2012, using the best ramp-up ever, and then using the best case of growth in mass market scale, we get Nokia's Microsoft Windows Phone 7 based smartphones - the very very best case scenario - to hit 20.3 million smartphones not at the end of 2011, not at the end of 2012, but the end of 2013. By that time, Nokia's smartphone market share will be at .... 8%.

And for those who say 'but other Microsoft manufacturers' yes - how excited do you think they will be to see Microsoft prioritizing Nokia ahead of them? That Microsoft actually paid 'billions' to Nokia to bring it to the WP7 family? We already now see WP7 manufacturers diminishing WP7 production and prioritizing other operating systems (Samsung does its own bada OS, HTC reducing WP7 phones in favor of Android, same for LG etc). Maybe Microsoft can get 2% of phones made by other manufacturers, so it might see a total MS market share in smartphones of 8% by Q4 of 2012 and as 'high' as 10% by Q4 of 2013.

Note that Microsoft has earlier had 12% market share in smartphones as recently as 2006 (before the iPhone obviously) so even after all that, Microsoft would be a bit-player at best - smaller than Android, smaller than the iPhone, smaller than Samsung's bada, and likely also smaller than Blackberry. Its possible even at 10% that Microsoft would be smaller than MeeGo even without Nokia's support of MeeGo, as there are several big smarpthone makers - and China Mobile the world's biggest carrier/mobile operator - committed to MeeGo. So any hopes of 'the third ecosystem' using Microsoft is a fantasy. Under the absolute best-case scenario, Microsoft might just break 10% two-and-a-half years from now. Best case. And trust me, that won't happen. It will be worse than that. Microsoft will linger in the single digits as a has-been in smarthphones, once the second biggest smartphone platform, whose manufacturers and suppliers all soured on Microsoft as the Evil Empire and one after another, abandoned Microsoft to its own devices. How long will Nokia punish itself on this path to ruin? I trust Nokia management is smart enough to jump off the Microsoft bandwagon as soon as they can.

Also remember, there were several analyst houses who promised that Microsoft based smartphones could propel Nokia back to about 20% market share (or even better than that) and achieve a 'third ecosystem' level of market share. Those projections were made before these Q2 results were known. Those analyst houses will look supremely silly if they dare repeat those projections now. It is totally inconceivable that Microsoft-Nokia would somehow achieve 20% in 2012 - or even by 2013. They would have to do literally TWICE as well as Android at its best, and then twice as well as Apple iPhone at its best. With Microsoft? Microsoft? Listen to yourself! Microsoft the Empire still known as Evil? With Steve 'I love to scr*w any partner' Ballmer in charge? With one reseller boycott already hurting Nokia and another even bigger reseller boycott hitting Microsoft. What planet would the analyst live on, to think now after these Q2 results, that Microsoft and Nokia can recover to 20% market share. When Nokia already destroyed 31% of its market share now, in just 3 months! No. The 20% vision is a sheer fantasy and the analyst houses who talked of such rates will quietly downgrade their projections to be closer to where I project Nokia-Microsoft now. It will be embarrassing to them, so they will do it in small stages, but expect each of them to issue updates that show lower forecasts for this alliance, every time.. 

WE ARE WITNESSING THE DESTRUCTION OF A JUGGERNAUT

Before Stephen Elop killed Symbian, Nokia's smartphone market share was 29%. Nokia towered over its rivals and was growing smartphone sales with highly desirable new smartphones. Today just five months after his ridiculously-timed announcement of Microsoft, Nokia's smartphone market share is down to 15% and collapsing. The Microsoft 'strategy' cannot recover Nokia to more than perhaps about half that level at 8% in absolute best case scenario - it would take superhuman effort just to match the models I used - I promise you Nokia-Microsoft cannot match Google's Android ramp-up rate, and cannot match Apple's iPhone sales climb.

There is a huge demand for Nokia premium phones by consumers (remember, they were willing to sustain a huge JUMP in average sales prices and MASSIVE jump in profits just before this silly announcement). The Nokia sales decline is not because Nokia phones are bad. It is not because Nokia OS Symbian is bad. It is not because Nokia apps or 'eco system' is bad (Ovi store was world's second-bestselling app store before Elop killed Symbian). Even today, if Nokia abandoned the ruinous Microsoft path, and returned to Symbian - even as crippled as Symbian is now after the massacre by Stephen Elop, if Nokia abandoned Microsoft and restored the migration path to MeeGo - Nokia would DEFINITELY do BETTER than with Microsoft. The Microsoft path is certain ruin of Nokia.

LOST SALES, LOST REVENUES, LOST PROFITS !!!!

But even if somehow Nokia and Microsoft were able to produce this miracle, Nokia will have replaced a growing smartphone performance, where Nokia grew unit sales, grew average sales prices, grew total revenues, grew profitability and grew profits - and replaces this with a miniscule level of sales, after the next ten - ten - quarters, two-and-a-half-years - making losses with the Symbian unit, seeing declining average sales prices, declining total revenues, declining profitability (ie increased losses) and yes, what was Nokia's cash cow, its goose that layed the golden eggs, the smartphone unit, is now a liability.

 

That will be replaced by Microsoft Windows Phone 7 based smartphones. Can they be more desirable by the market? Not likely. The latest Windows Phone 7 to Symbian comparison we had, (last quarter for full numbers) had those so-called 'obsolete' Symbian smartphones by several manufacturers including obviously Nokia, outselling all smartphones made by Microsoft partners, by a mere... 15 to 1. What about the ASP for Microsoft? The head of of Microsoft's Windows Phone unit, Andy Lees has told us that Microsoft WP7 based phones will not be premium phones, their average prices will be only half the industry's ASP, ie they can be expected to yield between 100 and 150 US dollars (and declining) next year ! Yes, Microsoft knows its own smartphones are so undesirable, they will see prices HALVED in ONE YEAR. This, while Nokia's last quarter of un-damaged Symbian sales yielded average sales of over 200 dollars and growing by 14% in just one quarter (thats 48% cumulative growth over 4 quarters)! How utterly idiotic is this switch away from the successful Symbian to the colossal failure Microsoft WP7? When their own head tells the world, WP7 phones will see average prices falling to half in only one year! Symbian phones are so good, they increase prices by half (on an annual level) and these are replaced by undesirable Microsoft phones whose prices are cut in half (on an annual level). Duh! Earth calling Pluto? Hello space cadets? Want to return to reality, perhaps? 

How incredibly undesirable are those Microsoft phones if this is happening? Even with the reseller boycott of Nokia now, the average prices of Nokia Symbian based smartphones have not fallen more than 9% since February (thats a loss of 20% in one year). And remember, there is a reseller boycott now of Microsoft phones, because the carriers hate Skype. Trust me, they hate Microsoft based phones MORE than they hate Symbian phones. All the evidence also tell us, that switching from Symbian to Microsoft will make Nokia worse off - worse off - than staying with Symbian (and where MeeGo was actually a winning strategy)

So profits then? Surely there must be some logic to this. And yes. There is a "logic" to this, but it is a weird kind of "Stephen Elop logic" where anything good for Microsoft and simultaneously bad for Nokia is somehow 'desirable' for the Nokia CEO. Microsoft Windows Phone based phones cannot do all that current Symbian based phones can do, so there will be downgrades in what the consumers can expect. That cannot help their desirability, especially with any loyal Nokia users. (But sadly, the Nokia internally developed MeeGo OS would be compliant with Nokia features). Microsoft Windows Phone based smartphones are typical Microsoft-style 'resource hogs' so they require higher performance CPUs - not to perform faster - just to keep up with what Symbian was able to do with lower-performance CPUs. So Nokia needs to source more expensive Snapdragon CPU's by Qualcomm to achieve the same level of performance using WP7 as it currently gets from Texas Instruments ARM CPUs running Symbian. And yes, Microsoft WP7 requires more memory installed on the phone just to run. Again, this added memory is not to make consumer get any better functions like more pictures or videos to store - it is to enable WP7 to run! So Nokia hardware costs go up - quite dramatically - with WP7 based phones.

And then there is the royalty. With Symbian, Nokia needs to pay no royalties. If Nokia had gone with MeeGo, its home-grown OS, there would be no royalty to pay (and bizarrely, even the Google Android option would have meant no royalties to pay). But only the Microsoft Windows Phone smartphone OS option has a royalty that Nokia has to pay. Forever. For every smartphone ever made using that OS. Nokia's CEO has taken a totally free Nokia corporation, and enslaved it to Microsoft, and guaranteed Microsoft a massive royalty stream that Nokia never paid before (and Microsoft was spectacularly failing to get from any kind of mass market success before).

Of the major smartphone makers (Apple, Samsung, Nokia, RIM, HTC, SonyEricsson, LG, ZTE, Motorola and Huawei) - all of the others, for either all or at least the majority fo their smartphones, they do not pay any royalty for the OS. Except Nokia.

PROFITABILITY - DON'T THINK APPLE: THINK DELL

So we now see that Nokia will struggle just to manage the decline in smartphone sales. And we see the unit sales go down to 11 million during 2011, will remain at that level with a tiny recover at Q4 of 2012, to about 12.4 million units. And by 2013, Nokia with Microsoft WP7 can slowly recover to selling 8% of all smartphones by Q4 of 2013 - and produce 20.3 million smartphones - under the very best scenario.

 

In this time, Nokia's smartphone average sales prices will continue to crash. I don't say so. Nokia doesn't say so. So says Microsoft's head of Windows Phone. Smartphone average prices with Windows Phone will be cut in half in only one year. How much worse will it be by 2013, is anyone's guess. And during this time Nokia's costs will increase simply on the side of hardware (CPUs, onboard memory etc) and Nokia has to start to pay a per-smartphone royalty to Microsoft. So if you think Nokia's smartphone profitability is now in a squeeze - it will be far more so during 2013.

If there is a Nokia still existing, that pursued this utter madness Microsoft strategy, they will be a bit-player, with at best 8% market share, producing a trivial profit if any. This destruction of Nokia will make New Coke or Toyota Brakes or BP Oil Spill look like a market triumph! What is far more likely under this scenario is that the repeated quarterly disasterous results will result Nokia share price to plummet so low, that Nokia will be sold for scrap years before we get to Q4 of 2013.

The Microsoft Strategy is dead. This analysis just based on the best possible scenario using the absolute best performance in the industry that Nokia and Microsoft would be silly to even promise to match. And this is before we look at all the other reasons why the Microsoft strategy is already still-born, and needs to be scrapped before the end of this year. I will return with that in a later blog. But next, I will do a calculation of how much is Stephen Elop's obstinance now costing Nokia, per quarter and per year. I think that will be illuminating. I hope to do that tomorrow on this blog. How expensive is the Microsoft Muppet. Stay tuned.

UPDATE 26 July - I have now finished the blog with the costs of what Stephen Elop costs Nokia every day simply by showing up at the office. He is the most costly, most damaging CEO of history, his mere presense costs Nokia abandoned profits - profits not revenues - of 10 million dollars every day (actually increasing to 14 million dollars by 2013). Read the blog with all the math.

Mid-year Update to Nokia Smartphone Forecast to 2011, with View to 2012 and new Microsoft based phones

On February 15 I was one of first analysts to provide a detailed quarterly forecast for Nokia's smartphone sales this year, after the bizarre announcement by CEO Stephen Elop to select a new Microsoft based smartphone operating system while having no phones to sell, or even to show. That caused what is known as the Osborne Effect ie it killed sales of current models. If Elop was competent, he would have seen this coming. He admits now at Q2 results that it took him by surprise. I think its fair to read into that, that Stephen Elop is completely unfit and incompetent to run Nokia in these difficult times. But lets not talk about Elop now. Lets look at the performance of Nokia's smartphone unit.

My February 15 forecast included a lot of very detailed analysis of why I felt those numbers would happen. There are tons of comments too, and many suggested I was being too pessimistic. Here is the actual forecast from February and the Reality of Q1 and Q2 results to see how pessimistic or not, I happened to be:

TOMI ORIGINAL FORECAST FROM FEBRUARY 15:

Quarter . . . Market Share . . . Unit Sales . . . .  ASP . . . . . Total Revenues of Smartphones
Q1 2011 . . 28% . . . . . . . . . .  29 M . . . . . . . . 146 Euro . . 4.3B Euro
Q2 2011 . . 21% . . . . . . . . . .  25 M . . . . . . . . 136 Euro . . 3.3B Euro
Q3 2011 . . 16% . . . . . . . . . .  21 M . . . . . . . . 126 Euro . . 2.6B Euro
Q4 2011. .  12% . . . . . . . . . .  17 M . . . . . . . . 116 Euro . . 2.0B Euro

ACTUAL NOKIA PERFORMANCE

Quarter . . . Market Share . . . Unit Sales . . . .  ASP . . . . . Total Revenues of Smartphones
Q1 2011 . . 24% . . . . . . . . . .  24 M . . . . . . . . 146 Euro . . 3.5B Euro
Q2 2011 . . 15% . . . . . . . . . .  17 M . . . . . . . . 142 Euro . . 2.4B Euro

I was being as honest and accurate and detailed as I could be. But I also wrote on the blog, that this was my best case scenario. Now we have Q2 results, the first full quarter with the Stephen Elop Effect to destroy Nokia Symbian phone sales. And look at the results. I projected 21% market share. Nokia managed 15%. I projected 25M unit sales. Nokia only did 17M. On the ASP Nokia did better but the total revenues are still almost a Billion Euros BELOW what I had projected. Yes. Tomi was indeed - far too optimistic in his initial forecast haha..

TIME TO UPDATE AND CORRECT THE MODEL

So now we have the first full Quarter of the Elop Effect and we can now do a realistic update to the model to the end of this year (and do some prelim analysis towards next year when Microsoft Windows Phone based Nokia smartphones are expected to sell in mass market quantities).

Lets change the formula for the model. I used the only analogy I could find, and I set the level of lost market share at one quarter (25%). Now we have the real number. All things considered, my guess was not bad haha, the real number is 30% loss. I don't mean 30 market share points, I mean losing nearly one third of your existing customer base - per quarter. But then we recalculate the remaining customers at hte end of the quarter, and then take another nearly one third, and remove those, and repeat and repeat..

NEW MARKET SHARE PROJECTION EFFECTIVE 21 JULY

Quarter . . . Market Share
Q1 2011 . . 24% (actual) 
Q2 2011 . . 15% (actual)
Q3 2011 . . 11% (TomiAhonen projection)
Q4 2011. .    7% (TomiAhonen projection)

Yes. Sadly. Nokia will end this year with 7% market share in smartphones, give or take a point. Single digits most certainly. (if Nokia continues on this suicidal path towards Microsoft and with the psycopath Stephen Elop in charge).

Nokia had 29% market share with growing unit sales, growing average sales prices, growing revenues and growing profits as recently as Q4 of 2010 ! Now Nokia has already destroyed half of its market share. This, during a year when smartphone sales are exploding globally. A year when Apple can't sell enough iPhones with the demand exceeding supply. Where Samsung is doing more than double the sales from a year before. And Nokia is destroying half of its market in a mere 5 months.

Also do undestand what 7% means. RIM, ie Blackberry, has now fallen to 13% market share in Q2 and everybody is calling them a failure, and most who consider future operating systems and 'ecosystems' are counting RIM out now, as having failed. THAT'S TWICE where Nokia will be, in only 6 months. Nokia is completely doomed on this path. By current projections, Nokia is not only falling from biggest to second to third, behind Apple and Samsung. And obviously by Q3 will fall behind RIM and HTC, but by Q4 Nokia will be playing 'Honey I shrunk the kids' falling behind LG and SonyEricsson and racing Motorola for who gets to be 7th biggest smartphone maker. And may even fall behind ZTE. So Nokia could be as little as 9th biggest smartphone maker. From first to 9th in less than 11 months. This is so outrageous, if someone at Hollywood suggested this as a plot for a movie, it would be rejected as unbelievable.

Lets populate the model with the rest of the data. I am modelling smartphone sales this year to hit 475 million units (up from 300 million in 2010). And I will use a linear decline in ASP, dropping it the same 4 Euros per quarter. Then I multiplied it across to get the revenues.

TOMIAHONEN PROJECTION: NOKIA SMARTPHONE SALES BY QUARTER 2011 (REVISED)

Quarter . . . Market Share . . . Unit Sales . . . .  ASP . . . . . Total Revenues of Smartphones
Q1 2011 . . 24% . . . . . . . . . .  24 M . . . . . . . . 146 Euro . . 3.6B Euro
Q2 2011 . . 15% . . . . . . . . . .  17 M . . . . . . . . 142 Euro . . 2.4B Euro
Q3 2011 . . 11% . . . . . . . . . .  13 M . . . . . . . . 138 Euro . . 1.8B Euro
Q4 2011. .    7% . . . . . . . . . .  11 M . . . . . . . . 134 Euro . . 1.5B Euro

Source: Nokia (actuals Q1 & Q2), TomiAhonen Consulting July 21, 2011 (projections Q3 & Q4)

PROFITS

I said in my original Feb 15 forecast that Nokia smartphones would be reporting zero profit by Q2 and losses from Q3 pushing all of Nokia Corp into losses by Q4. I was right about what would happen but again, Nokia's suicide has been far more rapid than even I was able to project. They reported a massive loss not just in smartphones by now, in Q2 but also the whole of Nokia Corp has gone from making profits to making losses, already now in Q2. While the delusional CEO, Stephen Elop promises that Q3 handset sales would be near zero profit or loss (in other words a big improvement from now), that should be taken with a grain of salt. This is the same man who didn't foresee the Osborne Effect and who thought China sales in Q1 willl repeat in Q2 (ie didn't know about China gifts for Chinese New Year, the Chinese culture equivalent of Western Christmas gift-giving) and who had to rush only weeks after Q1 results, with a profit warning for Q2. So he is pretty well clueless as to how Nokia's handset unit might do profits or losses.

Here are the facts. Nokia's Q2 handset profitability (ie about 500 million Euros / 700 million US dollar loss) had a one-time positive profit injection - the IPR payment from Apple covering patent lawsuits and iPhone sales for the past 16 quarters since 2007. That was worth half a billion dollars. So in reality Nokia's handset unit in Q2 is doing so horridly, it is generating one Billion dollars of a loss.

Then what does Nokia do? In early July they annnounced big across-the-board price cuts - price cuts - up to 15% in their most expensive phones. So while they already report a massive loss, and in reality their operational performance hides an even more gargatuan loss, now Nokia cuts its prices - that boosts its LOSS. Nokia handsets will not be reporting a zero profit/zero loss for Q3. Ain't gonna happen. No f*cking way.

In the Q2 results Nokia reported their marketing costs grew dramatically by 6% from Q1, for the smartphones unit (because nobody is willing to buy - or sell - Nokia phones). The quarterly results also offer Nokia's validation of my claims here, that there is a reseller boycott - Nokia admits that the channel, the resellers and the operators - are 'reducing inventories' - ie refusing to stock and sell Nokia. But Samsung, HTC, Apple phones are jumping off the shelves into the pockets of happy new customers. And what of Nokia other costs? Their smartphone sales have been cut by half from their peak at Q4. So Nokia owns all those expensive mobile phone handset factories in 9 countries including China and India, and they now are running at half-capacity. HALF CAPACITY? Imagine the costs of that! This again, while rivals are complaining they can't meet demand. Nokia can't even keep its factories running at normal capacity. Texas Instruments complained that their biggest chip customer (ie Nokia) has seen a huge drop in component shipments.. So the costs for Nokia keep going up, while the prices they charge keep coming down. This is a sure way to make BIGGER losses, not less losses.

PROJECTION FOR MICROSOFT PHONES IN 2012 (COMING SHORTLY)

I will do my update and detailed first projection for Microsoft based Nokia smartphones for 2012. At this moment its late here in Hong Kong and I can't really concentrate to do this properly. But I know there are readers of mine who are waiting for my updated forecast for 2012 sales in Q3 and Q4. So I will post this blog now, I will return shortly to do the Microsoft and 2012 bit (and beyond). But trust me, it won't be rosy. Nokia and Microsoft will not get 20% or better market share in any conceivable scenario now, not after the carnage we see happening in 2011. Microsoft will not even get into the low double digits by end of 2012. But yes, I have to come back to that, at this point I will just post this blog and get some rest.

UPDATE July 25: I have now provided the update for Microsoft based Nokia smartphone sales for years 2012 and 2013. I used best case example of real existing smartphone sales patterns, so this is very real, and it is the best-case scenario.

Nokia Q2 Results 2011: 15 Years after Inventing the Smartphone, Finally The King Is Toppled: By Who? Apple's iPhone of course

Nokia Q2 Results are out. 15 years after inventing the smartphone in 1996 with the iconoic but outrageously expensive Nokia 9000 Communicator, and selling more smartphones than any rival every single quarter since then, we have now seen a moment in history: The king has been toppled. And that was done by who else, Apple and the iconic iPhone.

Imagine going back in time, and witnessing the success of the first mass-produced automobile, the Ford Model T. Ford did not invent the car, that was Daimler-Benz (ie Mercedes Benz). But while Daimler-Benz started with the world lead, it was the Ford Model T which made the car affordable for mass markets. Or take Apple the PC maker. It was once the world's biggest computer maker by volume of desktop computers. Then along came Charlie Chaplin in an IBM advertisement for the IBM PC, which ran away with the PC market (and propelled Microsoft to become the biggest software company). Those are iconic moments in industrial and technology history, are studied in MBA classes worldwide.

Now we are witnessing that kind of historical moment in technology, and this transition will be studied in MBA case studies in business schools for this whole century. Mobile phones are the most widely spread technology on the planet (3x bigger than TVs, 4x bigger than PCs, 5x bigger than cars, etc). And Nokia is the biggest phone brand, and all phone makers and major analysts agree, that the future of mobile phones is smartphones. So remember this July of 2011. This is truly a big moment and we are witnessing history.

Q2 RESULTS CATASTROPHIC FOR NOKIA

We have the Q2 Results from Nokia. As so many expected, the results are brutal. Nokia's new CEO Stephen Elop's bizarre timing of his (very misguided) Microsoft strategy have devastated Nokia smartphone sales. As Nokia faces global reseller boycott of what now are perceived as obsolete Symbian phones, the sales of Nokia Symbian smartphones have collapsed. With it so have revenues, average sales prices and profits also all crashed in world-record-setting style. What a way to go, Stephen Elop! You will be famous - or should we say more accurately, infamous.

Nokia just reported their total sales of smartphones for Q2 was 16.7 Million smartphones. That gives Nokia a preliminary market share in smartphones of 15% (was 24% in Q1 only three months ago!)

The unit sales of smartphones are down 31% from just 3 months ago in Q1 when Nokia still sold 24.2 Million smartphones.

I also want to mention that Stephen Elop says in the Q2 results document that the 'challenges' were 'greater' than he had expected. ??? So. Anyone studying technology business at university will learn of the 'Obsorne Effect' of what happens to your existing products if you announce a superceding product. The current product sales will collapse. This is not rocket science and only an incompetent fool would have been taken by surprise by the crash of Nokia's smartphones after February 11. Now we have a good comment on Twitter from Nick Doulas @nickdoulas who said 'Osborne Effect to be forgotten in history, replaced by Elop Effect: much larger failure by comparison." Excellent, funny and also, sadly, completely true. Oh, and this delusional Stephen Elop now dares to suggest that in Q3 Nokia will generate about a zero profit from the handsets unit? What? After we remove the one-time payment of IPR royalties from Apple, Nokia handsets unit actually generated one BILLION dollars of a loss in Q2. That is his 'starting point' now. And what does Elop do in early July? He CUT the prices of Nokia smartphones. That pushes Nokia deeper into the red. One Billion dollars of losses is not enough for Elop. He wants to establish his mark. He wants to be sure, his world record will never be bested. He wants to go down in history as the most incompetent CEO ever.

DESTRUCTION OF PROFITS

The smartphone unit which made over 500 million Euros (over 700 million dollars) of profits per quarter as recently as six months ago, has now crashed and reports an operating loss! And please understand, this is not the bottom. The situation is going to be far worse in Q3, Q4 and Q1. Nokia has already in early July responded to the global market collapse by cutting prices across the board, as much as 15% from its top phones. If your smartphone division is making a loss - and you then cut your prices by 15% - you are ADDING to your losses MASSIVELY. While this blog is not a finacial analysis blog, we should point out that this new Microsoft strategy and Nokia's catastrophic performance has been so strongly punished by Wall Street, that Nokia's share price earlier this week hit a 14 year low (and while I am no forecaster of share prices, haha, I think the continuing flow of bad news about Nokia smartphone market shares, average sales prices, revenues and profits/losses, will hurt the share price severely in the weeks, months and quarters to come).

WE ARE WITNESSING WORLD RECORD DESTRUCTION OF A BRAND

The real comparison of Nokia's crazy shift in smartphone strategy cannot be done to the previous Quarter, ie Q1 of 2011, because the market collapse started in the middle of that quarter. The comparison of Nokia's current malaise has to be compared to the last full healthy quarter before that fateful announcement of February 11, so we have to go to Q4 of 2010 for comparisons. What was life like before Stephen Elop started to destroy the brand most widely spread on the planet (more people use a Nokia phone than drink a Coca Cola, than wear Levis's jeans, than tell time on a Timex watch, than wear Nike running shoes, than smoke Marlboro cigarettes, or write with a Bic pen). 

In Q4 of 2010, Nokia sold 28.3 million smartphones and had 29% market share. The average sales price of Nokia smartphones was 156 Euros or about 210 US dollars. We have since learned with Nokia's new financial reporting also about the smartphone division profitability, so in Q4 Nokia smartphones made a profit of 548 million Euros (715 million US dollars) which gave a profitabilty of 12.5% for its smartphones unit. Obviously this is nothing like as spectacular profitability as Apple does with the iPhone, but Apple is not Nokia's primary competitor, and of Nokia's main competitors (who sell globally both smartphones and simpler 'dumbphones') - LG, SonyEricsson and Motorola have all been struggling to do any kind of profits. Only Samsung of Nokia's main rivals is consistently profitable in its handsets unit. And up to now, never has Nokia reported a loss in its handset unit.

Also understand how Nokia was doing at the time. The 'conventional wisdom' mostly led by US based analysts who tend to view the global market from what they see in the US domestic market - where yes, Nokia had failed years earlier and was a bit-player - suggests that Nokia was 'in decline' before Stephen Elop announced his Microsoft Strategy and that Nokia was doomed without it. That sounds great but does not correspond with the facts. I deal with the facts here, not myths. The fact is - go ahead and check the numbers - Nokia grew unit sales of smartphones from Q3 to Q4 in 2010. Yes, Nokia's 'obsolete' Symbian was growing, not declining. It was the world's bestselling smartphone OS well ahead of Android until Elop assassinated Symbian in February. Symbian had half a dozen manufacturers still supporting it including several Top 10 sized Japanese smartphone makers.

To understand how bizarre the Microsoft Windows Phone 7 decision is - all handsets makers who made Windows Phone 7 handsets - were outsold by those Symbian makers who are NOT NOKIA !  Yes, the 'other' Symbian makers ALONE outsold all Microsoft Windows Phone manufacturers. But yes, where was I? Nokia? How much did customers love or hate Nokia's Symbian smartphones in Q4? They loved Nokia so much, that the average sales price grew by 15% from Q3 - a Nokia record jump in ASP in one quarter AND the total revenues of Nokia smartphones grew 22% from the previous quarter. This is not a platform on fire, unless by 'on fire' you mean - it was hot and growing and generating profits.

How much profit? We didn't have the numbers back then because Nokia did not break out its smartphone profitability until now. But now we can see, that In Q4 the Nokia smartphones unit generated 548 million euros of profits - and yes, the profits grew from Q3 by a massive 64% !!! Yes. Nokia's Symbian phones were so much 'on fire' that they grew unit sales, they grew revenues, they grew average sales prices and they grew profits. They grew profits 64% from the previous quarter! This is the 'goose that lays the golden eggs' which was truly and thoroughly killed by Stephen Elop on 11 February 2011. Now the smartphone unit generates a loss of 146 million Euros.

So yes, its a widely repeated myth that somehow Symbian was killing Nokia and Symbian didn't have life in it and customers were abandoning Symbian etc. All utter rubbish. You read the facts and see, Symbian was a powerful, world-leading operating system, totally updated and modern by its S^3 version that was on for example the N8 smartphone. Yes, Nokia was developing Symbian's replacement, called MeeGo, but Nokia had years of lifespan left in Symbian, where Symbian is particularly well suited for modest power, modest CPU and modest memory requirements of low-cost smartphones.

Understand how enormous Nokia was just six months ago. As a smartphone maker when measured by units sold, Nokia was bigger than Apple and Samsung added together (its likely Samsung has also passed Nokia in size, as Nomura has already calculated. We will not know Samsung Q2 results until 29 July). Nokia was the run-away market leader smartphone maker in all continents but one (North America). In China (world's biggest mobile phone market) Nokia was reported to have 72% market share in smartphones in 2010; in India (The world's second biggest market) over 60%. Now we learn that Nokia's market in smartphones in China has collapsed to 22% and similar in India. European major markets have seen Nokia smartphone sales collapse anywhere from around half lost to as much as three quarters lost in just a matter of five months.

So now, with Q2 results, compared to the time before Stephen Elop's ill-timed announcement of its Microsoft alliance ie Q4 results, we know how bad the damage has been. And because the announcement was on 11 February, we know that the crash in market share, average prices, revenues and profits has happened in under 5 months. With Stephen Elop at the helm, we have seen Nokia destroy half of its total market in smartphones.

Lets understand how significant this is. This is not like the carnage that caused the death of Motorola (and the company to be split) or the destruction of Palm (that caused it to be sold to HP) or similar disasters in mobile telecoms. This is truly the world record for market share capitulation not just in mobile or tech; it is brand destruction world record - in any industry, ever. Toyota's damage with the brakes in its cars, BP's oil spill, British Airways worst quarters fighting with labor disputes; etc have not slashed market share by half in only five months. Nokia and CEO Stephen Elop will go down in history as the notorious and misguided names that destroyed the best-known brand on the planet. This is management stupidity in the scale of Coca Cola's 1985 launch of New Coke.

THIS IS ONLY BEGINNING OF THE NIGHTMARE

We can now update the first projections to how badly Nokia will bleed market share to the end of 2011 when the first Microsoft Windows Phone 7 based Nokia smartphones will start to ship. That level is definite to hit single digits but I will return shortly with that full analysis. It is FAR WORSE than anyone had projected so far, and Nokia cannot recover to its pre-February 2011 levels, not even half-way with Microsoft, because of the severe problems with the Microsoft partnership. So please understand what I am saying - some analysts have bravely and optimistically projected Microsoft and Nokia to get something like 20% market share in 2012. That is utterly impossible now. That is a fantasy. The facts now show that Nokia will never recover its smartphones using Microsoft OS, to that kind of levels.

I was one of first analysts to project that the Microsoft announcement would cause a collapse of Nokia sales, and that Nokia smartphone sales this year would hit a level of 17 million sales per quarter, and the average sales prices of smartphones to 116 Euros. My blog was called by many colleagues as "too pessimistic". Now we have the first meaningful facts ie Q2 results. And Nokia is nearing those numbers already. I felt that level would be seen by Q4 of this year, not Q2. Thus I was being too optimistic! The situation is far worse than even I could have guessed. But now we can make a revision and more accurate projection for the rest of the year and into next year. I have just updated my projection with the new number for 2011 Q3 and Q4. Spoiler alert: Nokia's market share will crash to 7% by Christmas.

MICROSOFT IS COMPLETE ILLUSION AND WILL NOT PAN OUT

(Quick comment about Microsoft and why what once looked like a good strategy for Nokia is now a recipe for a disaster. It starts from the design of Microsoft WP7 operating system which is typically Microsoft-ish 'resource hog' so it requires more powerful chips, much more memory onboard the phone, etc. So Nokia is now making losses in its smartphone unit, using Nokia's own well-known, well-fine-tuned manufacturing and design processes, using its own software. Then when it shifts to Microsoft, the costs and manufacturing and design of new Microsoft phones is far more costly to Nokia than it was with Symbian phones. And with Symbian and MeeGo, Nokia did not have to pay a royalty. With Microsoft Nokia has to pay a royalty for every phone. Thus we have far greater costs to Nokia smartphones on the new OS.)

(Then we have Microsoft's own admission that the operating system is failing in the markets - Steve Ballmer Microsoft CEO said that Windows Phone market share which was tiny in 2010, is now ... tiny. Far worse is the average sales price. Don't expect fancy high-end expensive 'iPhone killer' smartphones from Nokia, like the sexy N9. The average sales prices on Windows Phone will be slashed - thats not what I say, that is what Microsoft says - that smartphones on WP7 next year - will only earn half - half - of what modern smartphones are sold for - so Nokia costs go up, the complexity goes up, the customer experience - delays in using the phone - go down; and the price that Nokia can expect from those new phones go down - to half their current level. If you thought Nokia profits were bad recently - they will be FAR WORSE with Microsoft based smartphones.)

(This Microsoft alliance sounded great to some analysts looking at it in February. By now that we know much more of it, and all facts say this is suicidal move by Nokia and is not sustainable and will be abandoned just like HTC did with Microsoft, and LG did, and Motorola did. And add on top of that misery, now we learn in late May/early June, that the carriers have revolted against Microsoft in a reseller boycott after Microsoft bought Skype - carriers hate Skype - and then add the point that Microsoft's other handset makers are now deserting the platform and shifting their production to ever more Android. The Microsoft strategy is utter folly by Nokia, but I will do a more thorough analysis of that option shortly on this blog. Stay tuned). 

(Incidentially - when the analysis is done thoroughly, it is clear that the Microsoft option is certain death to Nokia. There is no chance for that to now rescue Nokia. Thus every penny spent on any Microsoft evolution is totally wasted. And because Nokia has to transition away from Microsoft as soon as possible, this is going to be enormously painful. Nokia desperately needs to distance itself from Microsoft now. But Microsoft needs Nokia desperately to remain relevant in mobile. While Elop has said there were no talks of Microsoft buying Nokia, if Nokia moved away from the WP7 operating system, Microsoft could panic and rush in to buy Nokia, especially now that Nokia's parts are worth much more than the share price. Now consider Stephen Elop and his loyalties? What a challenging conflict of interest is it, to abandon Microsoft or to drive Nokia into the ownership of Microsoft? Elop has to be fired right now, because he will not look at Nokia's best interests)

WHAT COULD SAVE NOKIA? MEEGO

So what to look for. If Nokia fires its incompetent CEO Stephen Elop and hires some smart CEO from the carrier/mobile operator community, that would be a good start. Then if Nokia abandons the moronic Microsoft strategy, that would be a strong signal. Symbian has now been damaged so badly by Elop that it cannot recover but Nokia has a real chance, if it goes full speed with MeeGo, its home-grown OS. The MeeGo based Nokia N9 smartphone is shortly starting to sell. It is the best-received Nokia smartphone ever, utterly loved by the early reviewers. But idiot Stephen Elop refuses to let the N9 be sold in most markets where Nokia is now bleeding - like the UK, Germany, France, Spain etc - and major international markets like, haha, can you believe it, Elop refuses to release the N9 in India for example!.

And what is even worse, there is a SECOND already fully designed Nokia premium smartphone running the amazing MeeGo OS, called N950. And Elop refuses to release that phone to any markets, and it is only given to some developers. How mad is that? The reviewers who hate Nokia and love Apple, are now comparing the N9 and MeeGo to Apple's iPhone, commonly called the jesusphone based on my blog from 2007, and now those analysts are calling the N9 and MeeGo as the god-phone.

Unlike Microsoft Windows Phone, the MeeGo OS was designed to take advantage of Nokia's competences and components and designs. Thus a MeeGo smartphone by Nokia can take advantage fully of Nokia's competences rather than be crippled like early phones with Microsoft. The MeeGo OS is fully supportive of Nokia's current 400,000 strong app developer community via Nokia's development tools Qt, something Microsoft is not. MeeGo phones are capable of high-end devices at high prices (something Microsoft says WP7 is not capable of). MeeGo production costs would be less for Nokia, and made in Nokia's own factories (The first Microsoft phones will be made in Taiwan by subcontractors! Imagine the lunacy of that CEO decision, when Nokia's own factories are running at half-capacity, he goes and hires an outside factory to make the Microsoft phones. What will that do to Nokia brand value when we hear of suicides at sweat shops, while Nokia's own smartphone factories are idle). And on and on and on.

If the early reviewers are even partly correct, Nokia is sitting on the biggest hit they have ever had. The N9 and MeeGo (and N950) could be to Nokia what the iPhone was to Apple or what the Razr was to Motorola. IF there ever was a time when the N9 was needed - it is now as Nokia profits have vanished. And what a HUGE profit engine would the N9 and N950 be to a market starved for competitive Nokia premium phones! The first Microsoft phone won't ship until the end of the year! But the N9 and the N950 could ship now! Yesm now. In Q3. Both of them! And Nokia has smartphone factories on idle. But the clueless Nokia CEO, Stephen Elop (aka the Micrsoft Muppet) - refuses to release the N9 in most of Nokia's biggest and strongest markets, and only offer the N9 in very limited release in 29 countries, many of which are small countries like New Zealand, Singapore and Norway. And he is not even allowing the N950 to be sold. And get this - this from the CEO of Nokia - he told Finland's biggest newspaper, Helsingin Sanomat - that even if the N9 with MeeGo was a huge hit, Nokia will not make more phones on MeeGo. Who is he working for? This from the Nokia CEO? 

If the CEO of a company has a hit product and restricts its sales - he is actively destroying shareholder value - it is not only 'cause' to fire him without compensation, it is breach of duty and the shareholders should sue Stephen Elop. Any Nokia Board Members who don't voice a call of no confidence for the CEO are suspect to collusion with the traitor and must also be fired and sued. (but I will return with the full scoop on the MeeGo and N9 and N950 later, including some financial modelling on what their impact could be to profits if launched broadly)

ALL HAIL APPLE

So, Nokia invented the smartphone. It had held the global lead in smartphone sales for 15 years. That has been a nice long run. It didn't have to end this rapidly - and certainly Stephen Elop will go down in history as the notorious saboteur CEO who destroyed his own brand and market - but there is a particular poetic justice in who is the new boss.

Apple was once the biggest PC maker. Then came IBM who took it. Apple saw its market erode was on the brink of bankruptcy making losses in the middle of the 1990s. By that time a Finnish phone maker decided to merge the pocket computer and cellphone and invented the smartphone. Then during the 2000s decade the PC makers all agreed that modern smartphones were indeed computers. With Steve Jobs at the helm, Apple joined the smartphone races very late in 2007 with the radical, iconic and all-altering iPhone and its iOS, app store and ecosystem; and in only four short years Apple displaced Nokia as the bigger smartphone maker (we cannot say for certainty if Apple is only bigger than Nokia, or if Apple is biggest smartphone maker - because Samsung might report bigger results as well). Nonetheless, it must be a good feeling over at Apple that their smartphone strategy succeeded in only 4 years to topple the global giant smartphone maker, Nokia.

And now when we add together Apple's Mac shipments, and iPad shipments, and iPhone and iPod Touch shipments - Apple actually sells more 'computers' than any other computer maker including HP, Lenovo, Dell, Acer, Toshiba (and in smartphones Nokia, RIM/Blackberry, HTC, Samsung, etc). So the king is dead, long live the king! Congratulations Apple. The jesusphone did truly change everything in mobile. Only four years to topple the giant. Wow. We were witness to history.

A TALE OF TWO STEVES

I want to mention also the two Steve's. When Apple was making losses, they brought back Steve Jobs, who rescued the company, turned into a powerhouse which now makes astronomical profits. Then we have Stephen Elop, who came to Nokia when it was making the biggest profits among the traditional handset makers (excluding those who are pure smartphone-makers like Apple, RIM and HTC). So Elop took profit-making juggernaut Nokia - and he destroyed it so it now makes massive losses, while slashing prices to make even more losses (and refuses to release profit-making MeeGo phones). So yes, Steve Jobs is the hero of all technologists. Stephen Elop is the evil opposite of Jobs. Where Jobs turns loss-makers into profit-powerhouses, Elop takes profitable giants and guts them. Hey. Am I the only one who is stunned that while Stephen Elop's Microsoft strategy clearly killed Symbian sales, why are dumbphone sales so badly down? Simple answer if you know anything about brands. When the CEO torpedos his own premium brand Nokia smartphones - that hurts ALL Nokia branded phone sales. Yes, Stephen Elop, you Microsoft Muppet. You must be fired and sued and barred from any executive position in any publically traded company. You are a disgrace! Your name will be synonymous with total corporate destruction from the inside - and by the CEO. Shame!

There will be several update blogs to these Q2 numbers. First up, you may want to see how the most accurate forecaster of Nokia performance now updates projections for Q3 and Q4. Yes, it won't be pretty. I will also return with projections for Nokia-Microsoft alliance smartphone market performance in 2012-2013; with the explanation why Microsoft is now a dead end for Nokia; and why Stephen Elop must be fired now. But read the Nokia market projection first.

Apple 20.3M iPhones in Q2. WOW. Throws gauntlet to Nokia and Samsung: stakes claim at biggest smartphone maker status

So the first of the 3 biggest smartphone makers has just announced Q2 results. Apple announces 20.3 Million iPhones. Wow. That is a monster quarter by Apple not because it grew by 9% quarter-on-quarter (three months ago the iPhone grew by 15% quarter-on-quarter) - the reason this is superb performance, is that Apple managed the growth in both unit sales and market share - is that there was no new iPhone 5 released for late June.


UPDATE 21 JULY - Yes, Nokia Q2 results came in at only 17.3M smartphones. Apple has toppled Nokia. I now only await Samsung results (May 29). We know the biggest is no longer Nokia. Depends on Sammy's performance whether its Apple or Samsung. Congratulations Apple for passing Nokia in only 4 years. Wow! (here is the link to my blog on Nokia Q2 results analysis which includes the paragraph also on 'A Tale of Two Steves' comparing Steve Jobs and Stephen Elop)


So, I am tentatively projecting iPhones's market share to be 19%, up one percentage point from 18% in Q1. Apple is now closing in on selling 1 out of every 5 smartphones on the planet. Awesome for the smartphone brand which is by far the most expensive phone among the major brands (ie excluding the luxury phones like Vertu and Tag Heuer etc). Apple obviously grew revenues and grew profits massively this past quarter. It also reported excellent sales in its iPads and Macs. Only iPod sales declined (being partly cannibalized by the iPhone and iPad).

How does this set the stage for global hegemony in smartphone handset makers? Its an awesome first salvo in the battle among the big 3. We hear from every market that Nokia sales in smartphones are down. Nokia will report on Thursday. Nokia sold 24.3 Million in Q1 and its quite likely Nokia's fall in sales will drop it below the iPhone in smartphones (but Nokia will likely remain the world's biggest mobile phone handset maker when we add 'dumbphones' where Apple is not even nearly rivalling Nokia, there Nokia's real rival is of course Samsung). But yes, if Nokia reports sales that dip under the 20M level, so any smartphone sales level in the 'teens' (19M, 18M, 17M etc) then yes, iPhone will have jumped past Nokia and relegated Nokia from the top dog status in smartphone makers for the first time in smartphone history (as Nokia invented the space and has been biggest smartphone maker from the beginning up to now).

If so, it was this blog who first called it on 6 June, that Apple has passed Nokia in smartphone makers.

But that is before we have Samsung Q2 numbers. And Samsung will report on 29 July. The gossip around Samsung talks of a monster quarter there. In Q1 Samsung sold 12.6 Million smartphones and under normal times, it would be nearly impossible for one brand to jump from under 13 Million to around 20 Million in one quarter, but these are not normal times. After the Nokia smartphone customer give-away of the Stephen Elop 'windfall' when the Symbian Nokia phone sales collapsed from February, now is the time for rival smartphone makers to gobble up all those disgruntled Nokia Symbian customers. Obviously Apple has taken 1.7 Million of those. But the analysts around Samsung are estimating something around 19 Million smartphone sales for the South Korean maker. Samsung mobile phones unit CEO just yesterday released a bullish statement about the full year 2011 Samsung smartphone sales, saying that Samsung will exceed its 60 Million smartphone sales target (up from 25 Million sales in 2010 making Samsung the fastest-growing smartphone manufacturer this year). It means a Samsung Q2 could be tantalizingly close to the Apple 20.3 Million number. My gut says Sammy will not quite make it this quarter but Nomura earlier in June already called it for Samsung to have become biggest smartphone maker this quarter, so it will be very close and if they have a surprising surge, they could have done it. We'll know on 29 May.

Where did the 1.7M unit sales growth come from? Apple obviously has benefitted from the Nokia give-away, but also remember RIM reported a decline in smartphone sales for Q2. And RIM's loss in Blackbrry sales was specific to major losses in the North American market (while growing international sales). So the iPhone has taken some of Blackberry's American Pie, while another part of iPhone growth came by spoiling Nokia's European Vacation. Was there also perhaps for Apple a China Syndrome, we will probably know soon as we get the various analysts reporting in and the data filtered and analyzed.

Meanwhile please remember, on the platforms for smartphones, Google's Android is by far the biggest now, and they sold about 49 Million smartphones in Q2 so yes, Android selling about 2.5x more smartphones now globally than the iPhone. So while Apple is likely now the world's biggest actual mobile phone smartphone handset maker, the operating system with most smartphones sold will continue to be, with an ever-increasing lead - Google's Android.

So, lets wait until we get the Nokia numbers before we formally celebrate Apple toppling Nokia from biggest smartphone crown. That is very likely to have happened now and we'll know in two days. And then we have to wait another week to find out if Apple has also taken the crown (or if it was grabbed by Samsung). But Congratulations to Cupertino! This is a MONSTER quarter once again. Full 10 out of 10 points for excellence in smartphone sales. With almost a year-old design, Apple still grows unit sales, increases revenues, increases profits, and increases market share. Excellent Apple. Truly great.

And two superb silver linings on the record-breaking quarter for Apple. We are expecting the next iPhone (maybe iPhone 4S or may be iPhone 5) and expected to be sold in late August or September. When that new iPhone comes to the market, it will be again Apple loyalists camping outside stores and long lines waiting for it. That hysteria will boost iPhone sales to a new record.

And we are also hearing ever stronger gossip of the lower-priced Nano iPhone (as I called on this blog for now more than a year) and whenever that is launched, hopefully by September, but at least please Apple release it in time for Christmas sales - that would be a huge further jump in iPhone sales. So expect a banner year for Apple in smartphones, clearly the master of the smartphone class in this Year 2 of the Smartphone Bloodbath.