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.

Comments

[cycnus]

the 2-11 event is as bad as the 9-11 event.
elop should be condemned as terorist.

[elmo]

Dodge & Cox, just extend their older on Nokia to over 5% few weeks ago.
Capital Research and Management, few days ago also got over 5% Nokia share holding.

Is looking like that the American Funds that pur eFlop on power in Nokia, want that eFlop complete his mission, without any risk that somebody could come and undo the hard work of eFlop.

Timo, why you never speak about the mayor share holders of Nokia that dictate the board member and the CEO inside NOKIA ?

Tchuss

e_lm_70

[E.casais]

Tomi insists that retailers have been boycotting Windows Phone and Nokia devices (especially Symbian ones). The assertion is disturbing, but he has not really provided any factual evidence for this, just hints, and this does not seem to square with what I can observe around me.

I therefore embarked on a little empirical investigation. In Switzerland, the firm MobileZone is a major retailer (perhaps the main one) for mobile phones, comparable to Carephone Warehouse in the UK. MobileZone sells phones with contracts or in pre-paid SIM-locked configurations for all major operators and several MVNO in Switzerland, as well as the same models without contracts and unlocked. The company publishes a monthly catalogue with the current and latest offerings that is deposited in every postbox in the country. A catalogue dated YYYY-MM is distributed at the very end of month MM-1.

I have taken the MobileZone catalogue for 2010-12 (before the platform burning shock), 2011-05 (just before the acquisition of Skype by Microsoft), and 2011-08 (after the disastrous results of Nokia and the announcement of the Meego devices). I counted each ad for each model separately, and tallied the results for each manufacturer in % of the total number of models listed. Here are the summary results:

2010-12 2011-05 2011-08
Nokia 31.67 30.00 29.11
Samsung 21.67 27.14 29.11
SonyEricsson 20.00 15.71 16.46
LGE 8.33 4.29 7.59
HTC 8.33 15.71 8.86
Apple 5.00 1.43 3.80
Huawei 0.00 0.00 1.27
BlackBerry 0.00 2.86 0.00
Miscellaneous 5.00 2.86 3.80

all W7 phones 3.33 1.43 0.00
Nokia platforms
s3 8.33 14.29 11.39
s60 13.33 2.86 1.27
s40 10.00 12.86 16.46

Total models 60 70 79

I could list a long disclaimer: the sample is small, one should weight ads by their surface in print, Switzerland might be an atypical market, etc, etc.

Nevertheless, one can draw some conclusions:
1) The data are entirely incompatible with a boycott of Nokia.
2) The data for s60 are evidence of the wind-up of this obsolete platform.
3) The data for s3 are compatible with lacklustre sales, not with a systematic boycott.
4) The data for W7 are compatible both with a boycott (zero references after May 2011), as well as with a brutal failure of the platform on the market.
5) Except for SonyEricsson, which is surprisingly present in the offerings of mobile operators, the % are very roughly consistent with the market shares and the market share evolution of the major manufacturers (see for instance the evolution of Samsung, now at par with Nokia, and the share of Symbian devices overall).
6) More daunting is the complete absence of Motorola and the near disappearance of RIM.

In conclusion: there might well be a boycott of Windows Phone under way, but it is difficult to see one affecting Nokia. More likely, people are just not buying Nokia terminals, and this without any boycott campaign by retailers. If Tomi has figures that substantiate his claims, I would be interested in seeing them.

[David]

Hi, very nice reading, but I do not agree that current Nokia situation is caused by Microsoft cooperation which is very often linked by analysts together. The picture I see is that every single Nokia touch screen smartphone performs far below expectation in both sales and data attach rates despite majority of customers have no clue about any future commitment towards Microsoft. Touch screen experience and application ecosystem matters in customer choices and today Nokia devices simply do not satisfy this demmand very well. Not becouse Microsoft, but becouse Nokia was constantly failing to deliver on that, which resulted in the partnership.

I do not defend the Microsoft partnership - especially announcing it so soon before all possible impacts have been carefully analysed (and it wasn't as Nokia was not clear for long time about strategy over remaining platforms). I just believe Nokia would sit in very similar position anyway.

[Stanil]

The most on spot analysis ever!!! Congratulations,
YES there is a boycot of nokia PHONES, why buy them?
YES Elop is incompetent( at the least)
THERE is a thresold of the NOKIA share price if it falls bellow of $19B MKT/cap some one or a consortium will buy the remains.
Tomy, you underestimate the value of NSN to nokia, not a long time ago in a country not far and away from London, if an operator/carrier bought non NSN hardware nokia would not work properly, this was dreadful because nokia phones where market leaders.ONLY NSN hardware supported EDGE!!!

What you maybe miss about iPhone and android is that they're NOT smartphones, they're full blown desktop class operating system attached to fast application processor and wireless connectivity with acceptable battery longetyvity devices, in one word WEB phones! Nokia never made them, they imagined them, dreamed about them, but....

The death of nokia(nothing will save them) in a perverted sense maybe positive overall, they sucked all the brains( in telecommunications in Europe ), now new entrepreneurs may start new businesses and not go to work for nokia.

What Elop has done is incompetent and borderline criminal.
LG the biggest WP7 supporter posted a loss, it can be attributed to the flop that is WP7.

Apple/google/Microsoft don't care about smartphones, phones. What they care is that the computing platform they provide is the one that is most used. Apple/google/Microsoft will not blink if they fall bellow 1% of the "smartphones" market, if they control more than 30% of the future COMPUTING platform(be it tablets, ultraportables etc...)

Btw sorry for any misspellings, written from my iPad :)

[kevin]

Good analysis, Tomi. Even if there is no explicit "boycott", Symbian phones are seen as end-of-life by carriers and thus "worth" less, so I agree that Nokia is in danger today. I agree its troubles were made worse, not by the switch in platforms, but by the early announcement of switching platforms. I expect that Nokia weighed the risks and decided it was worth it; in hindsight, it was the wrong decision. (It would've been very difficult to have kept this transition a secret until August, plus Nokia would've had to continue to waste big money on Symbian and MeeGo software development in the meantime.)

I agree with LeeBase that Microsoft is the most likely acquirer if they decide they need to go the Xbox business model route instead of the Windows route. They would sell off NSN, integrate NavTeq, and continue patent licensing to Apple and others.

Some hope: WP7 Mango was released to vendors recently (and I have not seen any grumbling) so its quite possible that Nokia WP7 with the N9 body will be out by October, and ramp into Christmas.

[Brian S Hall]

Wow. You are on a roll.
I don't always agree with you re the *causes* of Nokia's problems, with their heavy focus on Mr Elop. Still, the end result is the same. Doom, death, destruction.
This was brought home to me yesterday. I was working on a podcast re smartphones in China and repeatedly used old Nokia share numbers because sometimes I forget just how rapid Nokia's decline has been. Shocking. It's as if they made typewriters in the 1980s, only everyone with a typewriter turned it in for a shiny new PC -- in the span of 18 months.
Time may be running out for Nokia. Sad.

[Gerard]

1st part

Well, nothing to say about the 2nd "event", but regarding the first ... Symbian would have experienced huge losses, with and without Elop. This is a fact, you don't know but 99.9% of possibilities said that nobody likes symbian, and that very soon you'll have low-cost versions of iphones and androids.

So then, symbian was dead before Elop.

Then you have to make a decision. Meego is so cool, but at 2011 still no devices. You cannot risk the entire future of a company to a OS that looks like vaporware. So you decide to move to Windows, probably the only train you can catch if you don't want to be diluted.

Ok, you move to Windows.

Option 1)

Do not say anything fancy. Just wait until you have a device. Symbian sales will resist until Apple has its low-cost iphone, you N9 perhaps gives you some air, although there is a high risk to be another palm-like phone, so cute, so good, but people don't buy it. And finally, you have your first Windows mobile. Then you claim for attention ... and, guess what, you are the 3rd o the 4rth to present a Windows mobile. Ouch, big deal. Nobody is really interested. Nokia is already down, nobody knew what is Nokia doing. Nobody cares now. You don't know how, but you're already the 15th company of the world.

[Gerard]

2nd part

Option 2)

You know that Option 1 will happen. And you don't want it to happen. What can you do??? Easy. You still have momentum. Everybody expects something from you. So here we go. You burn Symbian (who had only 1 year being optimistic), you burn Meego, and you say you are gonna make impressive things with Windows.
You create BUZZ, you make your own VAPOR, suddenly, people say you are crazy and you've killed Nokia. Well, Nokia was already dead. However, suddenly, everybody is now waiting for Nokia. Suddenly, Nokia has a very big opportunity to do something, he has the attention of the next Windows phone, everybody is talking of it. You are the star.

And guess what, they've chosen the second option. I could agree with the analysis, but the author does not say how Nokia was going to survive when Symbian died. So, Elop has commit suicide one year before Nokia was going to die, in exchange to one shoot, in exchange to an impressive marketing. We are talking about Nokia, don't we? Are we talking about Siemens? Motorola? No, but we are talking and WAITING for Nokia.

Chapeau

Of course, as a user of an n900, I'm very sad that nobody is gonna buy the N9 after Elop's intervention. But if it was my money, I think I wouldn't bet all I have to Meego. Microsoft is just Microsoft. Difficult to think they will not succeed in mobiles.

[Robert]

Why would it be such a tragedy if someone buys Nokia. The current management is horrible. They are currently very busy digging their own graves.

Being under new management could only improve the situation. I bet that if Nokia announce that Elop is fired and are looking for a finish CEO, share prices will go up by 5 points in an hour..

[Price of CoIP]

Hmm. Maybe the reason why Elop originally said we'll get "billions" from Microsoft is because they both knew Symbian will be dead very soon and that would instantly put Nokia in serious position.

So maybe it was not just marketing money. Maybe it was related something obvious - something Elop can't say. Maybe, just maybe MS will help Nokia over difficult transition period.

Well, we'll see.

[Sami]

Complete and utter BS. I wonder Tomi's motivation; his comments on Elop sound like those of extreme right-wing people talking about immigrants. Pure hatred, speculation, generating fear and even twisting some key facts (comparing q1 to q4 is quite odd).

Would be nice to hear his opinion on Ollila and other board members. How come all this is Elop's fault? How come Tomi gets so personal? How would you comment e.g Siilasmaa's work (I guess he was key person in nomination process).

Regrading an earlier comment about E being a terrorist: in the light of 911 and recent events on Norway, I sincerely hope I would not need to read such disrespect towards victims and their loved ones. Disgusting.

[Earendil Star]

@ Gerard Elop

1st: it's Windows Phone you thought you were talking about, not Windows Mobile. Windows Mobile was the legacy OS MS itself dumped with the introduction of WP7.

2nd: Nokia is already the umpteenth company that will sell WP. No big deal here and no need to anticipate a product many other companies are already selling. Therefore, no "novelty" effect foreseeable from a OS that's been out for months, save probably a couple of services that MS might decide to leave to Nokia (e.g. maps), which I doubt.

3rd: risk management is about diversification. Placing bets on more OSs is safer than pointing all one's cards on a single OS, even more so if:
a) you do not control it
b) it has a teeny tiny market share (despite all the MS muscle behind it)
c) is developed by a company that for the past decade has miserably failed in the field
Diversifying with Meego, an OS which is now being boycotted by its own creator, would have been at little additional cost: all Nokia had been geared for that step, a transition strategy was in place, everything had been ready for months.

Yeah, I know, MS, Nokia's current Dark Lord, would not have appreciated. Therefore... ZAP!

And regarding Vapor, nobody has been earning anything from it since the times of the steam locomotive...

[Roo]

@E.casais

What you may be missing in your analysis is that there ads are purchased by manufacture, it placement in the catalogue requires a fee to be paid. In many case catalogue like these can be a profit center for a retailer.

So there may as well be a boycott of Nokia phones. It does not mean MobleZone is not more then willing to take the "slotting fee" from them. In fact it could be argued manufactures may even spend more if they are feeling the pressure of not being supported and try to push the product through the channel. So even though there may be ads in a catalogue it does not mean the firm is carrying inventory to support the ads.

While I think your case study is inconclusiveI, I too would like to see more tangible evidence of a "boycott".

[Tomi T Ahonen]

Hi everybody! Thanks for the comments. I'll respond to all. I will do it by name in short sets.

Hi cygnus, LeeBase, elmo, E, David, Stanil and kevin

cygnus - yes, for Nokia definitely (arguably worse, the USA didn't die because of 9/11) and to some degree also Finland, I agree

LeeBase - thanks, really! and yes, very likely that Nokia will end in pocket of Microsoft as an outright purchase, either because a, Nokia Board finally figure out the basic math, see MS strategy is certain ruin, fire Elop and Nokia terminates MS alliance. In this scenario MS is instantly out of the mobile game. All other significant 'partners' of the WP7 handset makers have already recently announced they hate it and are going full speed to Android. If Nokia quits MS, MS is out of mobile. But MS is rich enough to buy Nokia outright now and due to problem 2, they don't have to pay much for what they want - the smartphone unit and Nokia's sales channel. They'll sell dumbphones, most of the factories, the Nokia brand (their own phones would be sold as Microsoft phones anyway) and of course sell NSN. They'd keep Navteq and Nokia's patent portfolio.

The second option is the share price dive, and the moment 'anyone' be it Google or Samsung or HP or Lenovo or ZTE or Huawei or HTC or perhaps an Indian company like a Reliance or Tata, or for example the world's richest man Carlos Slim - express the slightest interest to buy Nokia - MS will pounce. I am sure they have that scenario ready, and they have their cash ready.

The third option is the 'long' game, if Nokia suffers into mid-to-late 2012 with ever dwindling market share and ever deeper into losses, with the cash reserves spent, MS would come in as the 'saviour' and 'rescue' Nokia. I don't see Nokia limping along that long without part 2 kicking in haha.. especially considering the battle for IPR, Nokia's patent portfolio is like a pirate's treasure waiting out there for anyone to put 2 + 2 together and notice, that because of the share price, with Nokia, 2 + 2 = 6 today, gives you the patents for free...

elmo - thanks and good points. Yes, it looks like some big investors are indeed acting to safeguard their investment. I am not sure they want to hang onto Nokia when the share price drops below 4 dollars and 3 dollars haha..

As to why not talk about the institutional investors, haha, thanks. This really 'is not' a Nokia blog haha.. I really do want to talk about other smartphones too, now as this is the Q2 results and we get very important market data on the dramatic races there. And I want to talk about more than phones in smartphones, the apps, etc. And I want to talk about non-smart phones, ie dumbyphones. And I want to talk about the far bigger mobile industry (most of that is the operator business and I have some important blogs to write, waiting) and I want to talk about the even bigger digital convergence world in anytyhing from media, advertising, social etc to things like money, telematics, robotics etc. Tons and tons of other stuff.. So yeah. I know we could dig ever deeper into this, but I am REALLY hoping to inspire others to start to write about the Nokia disaster. I would hope to read such analysis and numbers by someone else so I don't have to do this amount of writing haha...

E - I know the evidence was not in this blog nor not for several in the recent past. That is because the reseller boycott (of Nokia) was reported back around March (might have been end of Feb) in several sources and I quoted those sources then. I would ask you to go back and see the early discussion of Nokia soon after the February 11 annoucnement (but it was not in the first week, I remember that, so its not the first long blogs I did around Feb 14 or so haha). I remember there was a story from CNBC, and there was a story from a mobile industry newsletter (I forget which) which had contacted several stores and their sales staff, etc. I think it became utterly academic at the point when Nokia write in Q2 official quarterly results that there were unanticipated moves by the resellers and that the retail channel has been reducing inventory (ie not buying Nokia) and we see volumes cut in an unprecedented level when the market itself is exploding. So Nokia has all but confirmed that their reseller channel is not selling Nokia actively anymore. I'd say thats a boycott verified, don't you?

but yes, thanks for the update on the Swiss market. If you scroll through all the recent messages here, we have several commenting from many countries who report the opposite, that they are clearly seeing Nokia vanishing in their countries. But thanks, for showing that WP7 is now disappearing from the Swiss market. That is interesting

David - I hear you. Your observation is very good and matches what is happening in the world. But you were not paying close attention to what happened in the market about seven or eight months ago. This is what happened. The consumers did not particularly like Nokia's smartphones and especially the Symbian system's touch screen around August and September of last year. It was clear, that to grow sales, Nokia had to be cutting prices and pushing phones with heavyt marketing support which cut profits. That changed for Q4 of last year. For the Christmas season, Nokia saw a growth in unit sales - AND a growth in average prices - AND a growth in profits. Nokia was suddenly VERY desirable. It is almost impossible to have all three at the same time - which means customers love your product so much, they are willing to pay 'extra' to have it. They don't ask for discounts etc. Nokia had a RECORD jump in average price and while they do not report smartphone division profitability beyond 2010, I believe the jump in profits was also a Nokia record. So Nokia customers LOVED the new Symbian S^3 based phones (like the N8) and the new touch screen phones. I am not telling you this, that is from the Nokia Q4 quarterly results (and the new profitability info we got this summer from Nokia). So your point, that consumers do not want Nokia phones was once true, last year, but was no longer true after October. The facts are irrefutable on this.

That growth rate continued through February 10. Then Elop announced that Symbian is dead and Nokia would go to Microsoft. That was noticed by us geeks and the tech press but the average mom or pop who happens to buy a nice Nokia phone has no clue that there is something called Symbian in it, and that there is Microsoft coming. The consumer is mostly ignorant of this. They would be buying Nokia Symbian phones quite happily right now, the phones are no worse, in fact the latest Symbian version, Anna, is even better than S^3. It is the resellers who suddenly notices that Nokia is obsolete and that to sell Nokia Symbian phones is stupid for any sales guy. Any client could walk back into the store, weeks or months later, and claim they were cheated and demand a full refund. For a phone that is out of the box, already worn, that has to be taken back, sent for refurbishing and packing - and the customer then will need to be given a new phone by another maker, and the salesguy goes through all that hassle - and gets NO new commission. FAR more work, for absolutely no gain. Of course the CHANNEL refuses to sell Nokia's obsolete line now. They'd be utter fools to do otherwise. I know, I was a salesrep for many years and a sales manager for many years after that (and then supported sales up to my last job at Nokia). The successful salesperson is always thinking money and there is no money in attempting to sell an obsolete device, only hassle and pain.

Stanil - thank you very much! and yes, we clearly agree.

kevin - thanks and yes, I very much agree with that point - that the decision must have seemed the right one at the time, and now ANY way you look at it, the math works out as 'death'. This Microsoft path (and Elop as CEO) is certain death, but that was not obvious back in February when the decision was made. Now it comes down to, 1 - will the Board understand this in time, 2 - will they have the guts to make the right move before its pointless, and 3 - even if they fired Elop tomorrow, it might be now too late and who knows what the next CEO does. I was thinking back in February that this cannot get worse - and then I saw what Elop did with Meego and N9. So as bad as things are - with the wrong guy in charge even if Elop is replaced, that guy could still make matters worse haha. But worse means Nokia dies sooner.

As to WP7 on an N9 by October, no way. It takes 18 months to design a new phone from scratch. Nokia is now pushing it ridiculously with the first WP7 phones they are releasing in modest numbers (more like beta test versions) just before Christmas and not done at Nokia factories, but at a Taiwanese factory. They are going to be a butcher-job, a hack-job, and trust me, that phone in December will be so full of bugs its not even funny. But Nokia will politely take them back in January and replace and 'fix' them free of charge, what Elop needs DESPERATELY is to prove that there WILL be Microsoft phones, and whatever problems the first phone has, he can apologize for, use Nokia's deep cash reserves to 'fix' at considerable cost - and promise the next WP7 phones out in Q1 will be better.

The formal decision to select MS was done in the first week of February. The informal decision was made no later than December as a handshake deal between Elop and Ballmer and then the two months were getting the Nokia board to agree, and playing out the last steps of the 'dance' with Google Android. So Nokia has been able to start the design of the new WP7 phones from about December 2010. That means the first 'properly designed' phones would be out in tiny pre-production numbers (enough to say they are selling) in a handful of countries around March of 2012 and shipping in volume in Q2 of 2012. If you look at all major mobile specialist analyst houses, they have said immediately from February's announcement that volume shipments of WP7 phones won't come until Q2 of 2012 at the earliest... And Elop is only committing to one phone for Christmas now.

The sad thing is, that Nokia could be shipping four smartphones using MeeGo right now in full volume. The N9, the N950, plus the cancelled N9-00 (was ready in February) and also the older N900 can natively run MeeGo, Nokia could sell that as a new MeeGo device as a lower-spec 'discount' or 'entry level' model, much like how Apple sells the iPhone 3GS now as the discount model with the iPhoen 4 the main new phone.

Thank you all, please keep the comments coming

Tomi Ahonen :-)

[@rodrigottr]

Tomi

Please. Answer @Elmo's statement. He always says very relevant things!

For me it is very clear that Elop is there to save Microsoft from it's dead end on PC. All his decisions are in favor of Nokia being completely dependable of Microsoft no mater their prices are to Nokia. Even himself states there will be no plan B. Nokia has many other alternatives that Microsoft has not. Its Microsoft who is on a burning platform, we know it.

The killing of Symbian was due to success of N8 and E7. He needed to kill it while he still could. It is true that Symbian has not the same user experience iOS or Android has. But HEY! User experience is not everything! There are tons of users who still want rock solid phones, good qwerty keyboards, good battery life, more then apps.

If Nokia is going to be cut into pieces or not still a possibility. I believe that is part of the stupidness of Ballmer's and Elop's strategy to save Microsoft. As they parasite Nokia, they are taking the risk of killing their last chance of perpetuating Microsoft as a software company on mobile era. If Nokia be bought by ZTE or Samsung their WP divisions will be left as their plan C or D.

If Microsoft intends to buy some parts of Nokia, then I believe (and wish) European Union, or even Finland's government make a good investigation of it. Cause this entire story smells like shit. And where there is smell of shit, then is very likely to be some shit.

[Tomi T Ahonen]

Specific to the rodrigottr comment here a moment ago:

Hi. Thanks for 'fetching' me from Twitter haha. Hey, excellent point and yes, I totally agree. I think now with better hindsight, it is clear to see WHY Stephen Elop rushed his February 11 announcement. It was stupid from Nokia's point of view, it was foolhardy. It was clear to cause big damage to Nokia sales for at least three next quarters - and one didn't need to be Nokia's CFO to see that would cost Nokia billions of Euros in lost sales this year AND as the smartphone unit made most of Nokia's profits, losing that would cause all of Nokia Corp to go into loss-making. No new CEO would want to take a healthily profit-making - in fact growing profits company, and plunge it into loss-making within six months of taking office haha.

So Elop did do it for a reason. And we now can see what that reason was. First, he saw that MeeGo was a world-beater. He was well familiar with Microsoft's failing Windows Mobile back in the summer of 2010, and of Microsoft's glorious new WP7 project and its promise. So he knew what was possible out of Redmond. And then he came to Nokia, and got the first real look into MeeGo. And he was stunned. He was smart enough to see this was going to resurrect Nokia definitely, MeeGo was a true iPhone-beater and would fight Android neck-to-neck for the decade. Fine, if you are neutral. But Elop clearly came in with a mission to switch Nokia to Microsoft (that may have been promised to him in hiring him to Nokia even, in his negotiations for the job).

So that is the only explanation why Elop is so incredibly hostile to MeeGo and the N9 and the whole project - and explains why the three topmost Nokia execs involved with MeeGo resigned from Nokia within four months of Elop taking charge.

But that does not explain February 11. Feb 11 happened yes, like you say, because of Symbian's recovery. This took Elop by surprise! He had been convinced like all of us were, that Symbian is dead. But the Symbian developers were not told that. They worked meticulously on their plans and projects, and they did indeed turn the old turkey into a winner, and the S^3 was truly world-class competitive. Not an iPhone-beater, but truly competitive. As Nokia could sell Symbian phones at far lower price points than Apple, this meant Nokia customers could get a very good Apple-like experience at half the price. And with two nice flagship phones in the N8 and E7 - he was witnessing a genuine recoery out of Symbian. If that was allowed to run to the end of Q1 - the trajectory meant - remember this was the China quarter - Nokia sales up about 5% to 10%, market share UP first time in more than a year, to over 30% - and average sales prices into the 220 - 230 dollar range and profit margins over 15%. That was the trajectory by Feb 10. He saw the numbers from China in January. And I am sure after the Q4 results, he was looking at Nokia internal numbers daily. And he did his math, and knew, Symbian had to be stopped now, else Elop would not have his Microsoft Moment and no matter what was in his contract, the Board would not approve his decision to switch away from Symbian into Microsoft.

That is the only reason that explains the boneheaded move to announce Microsoft on February 11. Elop was freaked out by how well Symbian was doing. I have done the math using Nokia Q4, Q1 and Q2 numbers and the new profitabilty breakdowns, and its consistent with a huge surge out of China, that then was cut short in Q1 results as Nokia ended the quarter with the Osborne effect and the market share was down very dramatically by then..

I am hopeful that the Finnish, EU and honestly, Wall Street too, will be launching investigations into the wrongdoings of Elop very soon. I am so disappointed this matter is not getting major attention. But I am doing my bit and I am not yet finished haha. I think you can see the pattern emerging, that I am building to something haha. My last posting in this series will be one that will cause Elop the worst day he has had in his life, I am sure.. But yes, I am really disappointed especially in the Finnish press. Why the (relative) silence about this. Considering the scale of the disaster, when the Finnish telecoms operator was making management mistakes in buying some spectrum in Germany and wasting tons of money on it, the Finnish media was all over the story. But they seem very silent about the Elop fiasco happening now. I am disappointed at that. But even there, I have some... plans... haha. Stay tuned my friend, stay tuned. And keep the faith :-)

Tomi Ahonen :-)

[Arild]

Ummm.. OK, I think a line has been crossed here between blog/analysis and a a pretty messed up and obsessive discussion about Elop. You are comparing Nokia switching operating system for their smartphones to almost 3,000 innocent people being killed by terrorists? And claiming that Nokia's case is worse? Seriously, get a grip, this is pretty offensive, it is just a tech company who is now selling less phones than other tech companies, no-one died! Talk about losing your perspective.

[MIP]

Everyone assumes that MS would buy Nokia, but no one is mentioning all the questions and surely investigations such a purchase would raise regarding Elop and MS. I have a hard time seeing how such a purchase would be approved by regulators (though worse/more spectacular things have happened!).

[SVE]

Add this to Nokia's problems: in China (an important market for Nokia) Alibaba has just introduced its own Linux-based smartphone using its own mobile OS Aliyun (bit.ly/nLoCZF). It ships in China at the end of this month with a tablet before the end of the year. Where does Nokia-WP7 fit now in this list of iOS, Android, Bada, WebOS, QNX, MeeGo, and now Aliyun?

As should be plain to see by now, the assets of a phone company are just its software, not its production capacity. In this light, Nokia is already dead.