Communities Dominate Brands

Not 'One of the Best' but Undeniably THE Best Ever, that is what Steve Jobs was as CEO

(I am still on summer vacation, but I definitely wanted to write my tribute to Steve Jobs.) 

Lots of news stories are covering Steve Jobs now that he has announced he is stepping down from the post of CEO of Apple for health reasons, but will still continue as Chairman. I know I don't know Apple or Steve Jobs's careeer, or the PC industry or the movie industry or the music industry well enough to do full justice to the man. But I do see the stories about him on Bloomberg and CNBC and CNN etc, and I feel Jobs is being slighted, when called one of the great executives. One?

There are many measures of greatness in a business executive. If you join a giant corporation and run it well, like say Jack Welch of General Electric or Henry Ford II with Ford Motor Company or Thomas Watson Jr at IBM, and achieve great success, that is one type of excellence. If you are able to grow your company to be the biggest of your industry, you are certainly one of the greats. But there are hundreds of industries. Just that you beat your rival big corporations does not make you one of the all-time greats. That takes more.

If you are able to produce the world's biggest profits at some point, then yes, you must be considered one of the greats of management. And the real purpose of any CEO of a corporation, ie a publically owned company, is to increase shareholder wealth - if you make your company so good, it becomes the most valuable company on the planet by market capitalization - you are a rare breed, but even so, there will always be one CEO at any one time who can claim that title. And looking through recent history, we will have several great managers in that style of greatness in any one generation.

However, where its relatively easy to come into a well-run company, take it over and run it well, there is a far greater test of management skill. If you come in to rescue a dying company and turn it into a profitable one, that is a particular type of management heroics, such as Lou Gerstner did at IBM or Howard Stringer at Sony (opposite of say what Stephen Elop did at Nokia who was making healthy profits and Elop plunged it into making losses, or say like how Nobuyuki Idei did at Sony or John Akers at IBM). The easier way out when your company is making losses, is to sell your company to a rival like say Sanjay Jha did at Motorola Mobility (or like Stephen Elop did earlier in his career as CEO of Macromedia selling it to Adobe). The hard slog is to turn a loss-maker into a profit maker, the easier road is to sell the company.

But even more challenging than that, I would say, is to found a company and get it to the giants. It takes far more excellence to found a company into an industry of rivals, and overtake those, and bring your company into the Fortune 500 largest corporations of the planet. That is far more depth in management excellence all the way from a start-up to a giant industrial corporation. This is something in the style of say Henry Ford with the Ford Motor Company or Bill Gates with Microsoft or Thomas Watson Sr with IBM or Akio Morita of Sony. These come along rarely, maybe one or two in a generation.

There is management by acquisition, a particular skill certainly and can get you from a small company to a huge one, if you are really good at it - take for example the world's richest man right now, Carlos Slim. He certainly has grown his company America Movil, but much of that growth was from acquisitions of existing telecoms operators abroad, not organic growth from within. Yes, Apple has done its share of corporate acquisitions, but far less than most in tech. Apple grew big 'the hard way' by mostly internal growth, not buying up rivals. This takes longer, but to me, is a sign of far greater leadership.

What most successful managers do at the top, is repeat their success from the past, and most large corporations often find themselves incapable of changing to the new fast enough - witness IBM or AT&T for example. The difficulty in the strategic management by CEO is to foresee a future for the corporation which is different from the current, and to anticipate and prepare for that future. If a company sees its own current business in dramatic change, and a new opportunity emerge, this requires particular type of vision and truly bold leadership, to bravely change the company to face the new opportunities. We saw that for example with multi-conglomerate Nokia when led by Jorma Ollila (making anything from rubber tyres for cars and toilet paper, to home electronics and telecoms) when it shed its other businesses and picked one of its smaller divisions as its sole business - telecoms. We saw it in IBM with Gerstner when it decided the PC hardware business was not where the money was, and sold that unit to Lenovo and shifted to services. This type of leadership vision is rare, it is always a risk, and there is the danger that the new CEO actually implements what he or she knew from the past, shifting the current successful business into something totally different but one that the CEO thinks he/she knows better even if the organization is not suited for that change - a criticism of say Nokia current CEO Stephen Elop or Hewlett-Packard's Leo Apotheker.

To see a new business opportunity in some other industry is far easier for a successful company than to discover the opportunity to disrupt one's own industry. This almost always comes from small rivals who sense the new opportunity and use it to enter the market. IBM wasnt the company to launch the first PC. Sony was not the first company to launch the MP3 player. Toyota wasn't the first to sell an electric car, etc. A 'paradigm shift' of an industry is mostly done by small hungry companies, not the strongest biggest incumbents. For a CEO to correctly see the future where a new technology will cannibalize the current business, and to be the first company then to deploy that, this is almost unheard-of.

But most of all, if you want to consider management excellence, the most difficult management skill of all, is to find world-winning level of success across multiple industries. That is very very rare. Take Henry Ford. He did use his manufacturing and marketing genius to turn Ford Motor Company into the world's biggest car-maker (at one point more than half of all cars sold were Ford Model T cars). Then Ford saw the new airplane contraption coming along, and decided to diversify into airplanes. And in the years between the two World Wars there was a successful Ford airliner, called the Ford Tri-Motor, for a short time the world's most advanced civilian airplane. But very soon it was eclipsed by more advanced models from Douglas and Junkers and Boeing. Henry Ford was not going to be the biggest airplane maker for all his genius in management.

To be able to master more than one industry is extremely rare. And when that happens, it tends to be sequentially - a manager of a giant corporation in one industry, becomes CEO of a company in a very different industry and manages to achieve success there as well. It is most rare, I can't think of examples, where a CEO in a leadership position of one industry has shifted his company to enter other industries and during his tenure managed to simultaneously dominate two or three distinct industries. Again, if we look at a GE or Samsung or Sony, they were multi-industry conglomerates so that they now are major players in several industries is not a great sign of their current management. What I'm looking for is for a company that didn't compete in one industry, to enter it, and to come to dominate that new business, while still dominating its original business. That is most rare.

STEVE JOBS IS THE GREATEST

But Steve Jobs was the renaissance man in management. He launched Apple Computer with Stephen Wozniak into the fledgeling garage-industry of personal computers. He did not invent the PC, but he honestly built Apple from the ground up. In less than ten years Apple was the world's biggest computer manufacturer by units of computers sold (this was the Apple II). And Steve Jobs set the world record for fastest company to go from start-up to joining the Fortune 500 (his record was later to be broken by Google).

This alone is reason to consider Steve Jobs one of the greatest managers ever. A world record in speed of growing your company - and essentially all of that growth was, yes, organic growth, not by acquisitions.

TO REVOLUTIONIZE YOUR OWN INDUSTRY

Then we see the total paradigm shift for the computer. The birth of the modern era of computing. The new type of personal computer, so easy to use, so 'intuitive' that for the first time ever, you did not have to go to take PC courses to operate a PC. The modern computer we know today as one that has 'windows' and uses a pointing device like a mouse - while that was invented by Xerox, Xerox didn't think of launching it commercially. That was Steve Jobs. He put the radical new user interface into his new computer called the Lisa, and then in an even more evolved version into his revolutionary Macitosh, and the world was forever changed.

This was not the case that some rival like Dell or HP or Toshiba launched the windowing computers with mouses, and Apple then would copy it to its success. No. Apple - and Steve Jobs specifically - saw the future of computing, and even as Apple as the big maker of PCs, he went onto launch a new era. We do count the PC age in two eras, the era of the geeks who had to 'study' DOS and 'study' WordStar and 'study' WorldPerfect and 'study' visicalc and 'study' Lotus 1-2-3 etc - suddenly on a Mac, all you needed was to point, and it all worked. First time, every time.

This is one of those very very rare instances where the big paradigm shift of an industry was instituted by one of its biggest players at the time. This is visionary leadership.

While Apple did not end up dominating the Windows era, the Macintosh would only have something between 10% and 12% market share at its peak while Microsoft's copy of the Macintosh OS (Windows) would have 80% - Apple was not done and would have its revenge still to come also in the computing industry.

Steve Jobs had his fall-out with the Board of Apple and was ousted. Apple itself went into troubled times and was near bankruptcy by the time Steve Jobs would return.

In the interim, Jobs went back to his roots in computers and started another computer company Next Computer (which would not make profits and was eventually bought by Apple when Jobs was brought back). But then we see the first sign of Jobs's renaissance man capabilities - he bought Pixar and Pixar produced the first chart-topping hot Hollywood movie done with animation: Toy Story. Toy Story was not just a global hit movie, it was the best-selling movie of that year! Jobs had played in a completely different type of industry from computer equipment - the story-telling of Hollywood in the motion picture industry, and achieved huge success there. The bestselling movie of the year!

But we could say, that was 'sequential' excellence, at that time his Next Computer company was not a major player and it was making big losses. So yes, Jobs was able to dominate the PC industry at one point in time, and dominate the movie industry at another time.

RETURN TO APPLE

Lets move on, Jobs returned to Apple. And the company was months or some say weeks from bankruptcy. Yet Jobs turned it around. In a year Apple was back to making profits and then with Steve Jobs in charge, Apple launched the radically designed iMac, which at one point was the world's bestselling PC model. Apple was not yet back to being the world's biggest computer maker, but it had the single bestselling PC model. For a company on the brink of extinction, Jobs was proving a master also at the come-back.

Then came his first proof of exceptional excellence. Sony was the undisputed king of portable music - having invented the Walkman and dominated the portable cassette and other portable media player market from gadgets like the portable CD player to the Watchman pocketable TV sets. And a nerdy PC maker would take on the Japanese consumer electronics giant - at its game - and win. Steve Jobs launched the iPod, a radical new way of consuming music on the go, with the ability for us to have all of our music with us. Sony was trying to sell the world on the idea of recordable digital media in minidisks but Apple's iPod was so much better, it killed off the other digital music player types, and today most portable music players are MP3 players. In a matter of a few years from entering the consumer electronics industry, Apple became the world's biggest portable music player brand. This while growing its sales in the PC industry. Jobs was proving a master at multiple industries, simultaneously - and profitably. And its not just that Apple was able to enter a totally different type of industry and dominate it - Steve Jobs was able to revolutionize that while entering it.

Then came iTunes. Imagine how unlikely that is. Imagine Dell today launching a movie rental service online or HP offering us a paid cable TV/video service. But that is what Apple did almost ten years ago, a PC maker with no history of music or any content industry, launching an online music store to sell single songs at 99 cents a piece. It is too easy to forget, the iTunes store launched into a music industry on the brink of collapse due to sudden global phenomenon of illegal file-sharing on Napster and Kazaa and other file-sharing sites. Who in their right mind goes into an industry in such peril, and worse, launches an on-line service that is paid music, when free music sharing services had taken the world by storm? Steve Jobs, thats who. Believing passionately that he will make it better, and that people will be willing to pay if its good enough. Today where all other formats of music see a decline, only digital online sales are growing. We liked the iTunes story so much as an example of 'creating new market space' that we made it a case study in the signature book to this blog, Communities Dominate Brands. And yes, today the world's biggest online music store is iTunes. This while his music player electronics gadget sales, and his PC sales were growing. Jobs is a master of three industries.

THEN THE MASTERPIECE: THE iPHONE

And he's not done, then came the iPhone. Apple did not invent the smartphone. Nokia invented the smartphone ten years prior to Apple's first iPhone. But just like Jobs looked at the PC industry, music player industry and the music sales business and invented new and better ways of doing any of those, he then set his eyes on the mobile phone handset industry, the most widely used technology on the planet. And the smartphone of 2006 was a cumbersome beast indeed. And more than that, there had been handset makers who had tried to do touch-screen smartphones, including Nokia, who found that concept not viable. Yet Apple came along, re-invented the smartphone, and created such a radically different, easier and more intuitive device, that we count time in smartphones in two eras, just like we do in the PC world and the music player world. In smartphones, it truly is the time before the iPhone and after the iPhone. No wonder my blog which was first to make that bold prediction in 2007 was the source of the term 'jesusphone'.

The iPhone changed just about everything in mobile. Not just how handsets should be, the iPhone would change our concepts of how internet and mobile content are consumed on a phone - Angry Birds, anyone? The iPhone ushered a modern era for media and advertising, where the modern smartphone was seen as mature enough to handle modern digital content. The iPhone became the ultimate fashion accessory and gadget, taking the role of an expensive watch or jewelry. And then there was the closed, rigidly controlled and expensive ecosystem of most carriers/mobile operators in most countries.

Apple did not invent the app store for smartphone applications. But Apple made it so much better, it became for the first time a viable sales channel for 'garage' programmers, for students, little start-up companies. Previously the approval process to get onto a carrier's ecosystem was cumbersome and costly and time-consuming. Apple's iPhone App Store made it easy (while still maintaining Apple's peculiarities about content approval etc) and Apple brought the 70:30 revenue sharing model, which in most countries was better than what carriers/mobile operators would provide. With Steve Jobs, Apple once again reinvented yet another industry, the mobile data and content and applications industry and still today towers over all other app stores in terms of total downloads and total titles offered.

With the smartphone market, Steve Jobs proved his mettle in probably the most competitive industry ever, if measured by giant global corporations competing in it. I counted that in the year 2006, just before the iPhone, out of the Fortune Global 500 corporations, only 7 were smartphone makers. By year 2010 the number had grown more than 3-fold to 23. I believe this is the biggest number of giant corporations to compete against each other in the same industry, on a global scale. Yes, there are more banks or oil companies but most of those are only local or regional with only a handful of global banks (Citibank, HSBC and a few others) or global oil companies (ExxonMobile, Shell, BP and a few others). But after Jobs brought Apple to smartphones, he would end up fighting against 23 giant global rivals including many far larger companies than Apple, such as Vodafone, HP and Samsung to name but three.

And just like Apple found it easy to capture the musicplayer market from the inventor of the personal portable music player and undisputed king of the category, Sony, so too Apple found it child's play to wipe out Nokia, the inventor of smartphones that utterly dominated that space until Apple's arrival. In exactly four years from launch, the iPhone had become the world's bestselling smartphone brand toppling Nokia. It was like taking candy from a baby. In the previous ten years, Nokia had successfully brushed away any attempts in smartphones from new hungry start-ups like RIM and HTC and Palm, to giant global electronics and tech rivals like Sony, Samsung, HP, Microsoft, LG etc as well as traditional handset maker rivals like Motorola, Ericsson, Samsung, LG and Siemens. When Apple entered smartphones, Nokia sold nearly half of all smartphones on the planet. Yet in only four years, Steve Jobs steered his company right past Nokia and all other pretenders.

And his last triumph which brought the icing onto the iCake was iPad. Again, many tech pundits said tablet PCs were not going to succeed in the market. Apple looked at tablets, reinvented the space, and today sells 75% of all tablet PCs made. Now, tablets are but a small part of portable PCs which themselves are only part of all personal computers, which are no longer even the biggest sector of the computer industry (smartphones now sell more than all types of PCs combined) but the iPad sealed a particular come-back for Apple.

In 2010 Apple returned to be the world's biggest computer manufacturer on the planet, when counting PCs including desktops, laptops, netbooks and tablets; as well as smartphones and PDA-like pocket computers like the iPod Touch.

At the same time Apple was the world's biggest computer maker, the world's biggest portable media player maker, the world's most used online music store, the world's bestselling smartphone and the world's most used application store. Only one of those industries had Apple as a participant before Steve Jobs returned to the company: computers. In about a ten year period, he not only turned loss-making Apple into a profitable giant to dominate the computer industry, he simultaneously entered four other industries and not just completely reinvented each of those, he would also see Apple dominating each of them too!

And it doesn't really matter even how you count it. If you count by units sold, today Apple is biggest computer maker, biggest (stand-alone) portable music player/media player maker, biggest smartphone maker, fifth-biggest mobile phone handset (including dumbphones) maker, biggest app store and biggest music store.

If you count by revenues, Apple is second biggest computer maker, biggest music/media player maker, biggest smartphone maker, biggest handset maker including dumbphones, biggest app store and biggest music store.

If you count by profits, Apple is biggest computer maker, biggest music/media player maker, biggest smartphone maker, biggest handset maker, biggest app store and biggest music store. Wow...

This is a renaissance man! This is a management genius, there is no other word for it. Compare to Sony. Sony was once the world's biggest TV maker (lost that to Samsung). It was once the biggest music player maker (lost that to Apple) and is now the world's biggest videogaming console provider (counting both PS3 and PSP). But Sony was not able to dominate those industries simultaneously.

NOT JUST BIGGEST BUT MOST PROFITABLE

And we come to the profits.. In less than 15 years, Steve Jobs turned loss-making Apple into the company with the biggest profits. This is a world record. Yes, Steve Jobs has owned two world records in running a giant corporation! That puts him in a very rare class.

And then what of his businesses? The conventional wisdom said that in the PC industry its the software makers, like Microsoft, who made most of the profits while the hardware manufacturers like Dell for example, would have modest profits. While Apple did make its own operating system, Apple did not sell that to others. That Apple managed far bigger profits out of its computer business by selling primarily the hardware makes his achievement all the more impressive. Understand how unlikely this is. Most of the profits have traditionally been earned in the computer industry on the software side. That is Microsoft's domain. That is why IBM sold its PC business (and why HP's Apotheker now wants to end HP's hardware business). But Jobs makes the biggest profits of any computer industry company now, through selling hardware. Wow.

Same is true of the mobile industry. The handset vendors can make profits but many do not and most of the profits in the mobile telecoms industry are with the mobile operators/carriers. Yet Apple has been producing more than half of the total industry profits for all handset makers recently. I honestly don't know about home electronics, but my gut says it is not typically a high profit industry, at least has not been recently. Not compared to say the petroleum industry. Yet Apple making its money out of (low-profit) PC business, modest profit mobile handset business, modest profit home electronics business, and the new businesses of selling music (a relatively modest sized industry) and smartphone applications (a fledgeling industry) - Apple is now on target to produce more profits than any other company on the planet including those giant oil companies.

And what of the ultimate job of the CEO? It is to increase shareholder value. I just saw on one of the Steve Jobs tributes on 24 hour news, that Apple share value has increased over 7,000 percent since Jobs took over. It is by far the biggest increase in shareholder value in this period of time. I do not know if that is another world record for a similar period in time for any corporation of Fortune 500 size, but I would not be surprised if it is.

Steve Jobs proved himself a great salesman when teamed with Steve Wozniak to launch Apple Computer. He grew that company into a Fortune 500 giant - very few entrepreneurs get to see that in their careers and it puts Jobs not only in a class of great leaders but great entrepreneurs too.

He conquerred his industry making Apple the biggest PC maker once in the 1980s, but far more than that, he reinvented the PC industry and ushered the modern era in PCs. Had he been allowed to pursue his passions with the Lisa and early Macitosh PC, he probably would have achieved his success earlier, but nonetheless, in this new era of computers, upon his return, he also came to dominate the computer industry again, now for the year 2010. That makes him the greatest computer industry tycoon no doubt.

But when we add Pixar, when we add the iPod, when we add iTunes, when we add the iPhone and the App Store, here is a man who went into other industries and led those, dramatically altered them and achieved supreme business success in each of those other five industries as well. Excepting for Pixar and the motion picture industry, the other five industries where he has led - computers, music players, music sales, smartphones and app sales - he achieved leadership in those five simultaneously. This is truly the renaissance man, the manager-extraordinaire, the best business executive of all time. To find another businessman to master so many different industries and lead them and change them, we have to go back in history to Isambard Kingdom Brunel (the great engineer who in the early 19th century changed tunnels, trains, buildings, bridges and ships) to find another who mastered commercially of so many different industries.

LEGEND OF THE BIRTH OF THE iPHONE

So let me tell you a little anecdote about Steve Jobs. I have never met the man, I was not personally involved with this story, but I have heard from a couple of people who were personally involved and I trust they have told me the truth. But I cannot verify this to be true but it certainly sounds like the man, and it fits with the period and what was happening. So rather than claiming this as factual history, lets call this the legend of the birth of the iPhone. But I think it tells very well the particular obsession Steve Jobs had with his vision of exceptionalism and excellence for the Apple brand.

First we go back to about year 2003-2004 and the iPod. Apple had just come back as a force in the tech industry and the iPod was also driving increasing demand for the Macintosh line of PCs which helped Apple's profitability. And Apple could see the early musicplaying phones coming out of South Korea and Apple knew the iPod would eventually see a challenge from "musicphones". So Apple was meeting all the major handset makers to try to partner to make an 'iPod phone'. I know from my Nokia contacts that these discussions were had with Nokia but we also know the final deal went to Motorola. So we saw the hot Razr taking the mobile handset industry by storm from Christmas of 2004, and then for Motorola's encore for the 2005 Christmas season, the world was offered Motorola's amazing musicphone developed with Apple: the truly underwhelming Rokr.

 

We know since the Rokr was sold in the Autumn of 2005, the development will have started in early 2004 (typically a totally new mobile phone development would take about 18 months). So Apple has been in mobile phone handsets since early 2004. In 2005 we see the Motorola output of the 'partnership' with Apple: the Rokr. What would Apple do out of the partnership? Apple took the lessons but also aimed to do something radically better. Two years after the Rokr, Apple give us the iPhone! Yes, the same partnership and collaboration that one giant tech company could turn into the iPhone, another giant tech company release as the Rokr. That tells you something. But lets dig into how the iPhone then was born.

Apple did launch its own phone project in 2005, as they saw that the Rokr would not be in any way satisfactory to Apple's (read: Steve Jobs's) expectations. I remember the early gossip expected co-branding with the Rokr but by the time the phone came out, it was not allowed to mention Apple or iPod or iTunes. If we count from 2005 for Apple's own phone project (from the time they saw early Motorola prototypes of the Rokr) then an Apple early iPod-phone would be in prototype form around the summer of 2006, ready for Christmas sales for 2006. Several sources have verified there was an internal Apple mobile phone project at the time, predating the iPhone and confirming that the iPhone took much longer than 'usual' in the phones business.

I find the timing also interesting, as we heard from Tim Cook then CFO of Apple, that Apple's mobile phone was developed expressly because Apple had seen the growth of musicphones, led by SonyEricsson's Walkman branded phones, and that Apple projected musicphone sales would exceed iPod sales by end of 2006.. This was what I blogged here on this blog back in October of 2006 (and I was crucified by Apple loyalists), when I argued Apple has to enter the phone market to save the iPod market share.

Meanwhile, now to my sources and the more 'gossipy' part to this legend. As I understand, Steve Jobs was shown an internal prototype of the Apple iPod-phone in the summer of 2006. It was ready to be manufactured and sold for the Christmas season of 2006. The phone apparently was quite conventional in its look and feel, but was "Apple white" and had family cues to the iPod. It was a musicphone, in candybar form factor (not a flip phoen like the Razr). It had a modest-sized screen.. and it had a T9 keypad. So it looked very conventional. It was a musicphone that by its outwardly appearance, could have been made by Nokia or SonyEricsson or even Motorola. But it was not amazing. So Steve Jobs killed that phone project, and sent the team back to the drawing board.

Understand how brave that decision was. Steve Jobs knew that musicphones by SonyEricsson and other handset makers were already cannibalizing the market for the iPod. And in the internal Apple project, surely Apple engineers had designed a phone far superior to the contemporaries, at least as a music and media playing phone. And this Apple iPod-phone was ready for production, it could be sold that Christmas 2006. Yet Steve Jobs knew it was not to the expectation level of Apple fans. They would not be amazed by that phone. So it would be better to wait, make sure they had the definitive new type of phone, go back and redesign, and wait until they had.. the iPhone. Almost any other CEO would have taken the first prototype iPod-phone and sold it in 2006 - no doubt to good success - and then issued what we know as the iPhone as the next year's model. Not Steve Jobs. Its either perfection, or its not done!

So the design team was sent back to the drawing board to redesign it - and told to hurry. So the Apple designers took what they had in some parts, not strictly starting from scrach. and then went ballistic with the cool space-age stuff. They went one-button touch screen (like a design from 2006 from South Korea from LG, which won international design awards for LG that were handed out in late 2006). They sourced the biggest screen conceivable at the time - 3.5 inches - remember how massive the first iPhone screens felt - and used the new capacitive touch screen technology. They didn't bother to make the original iPhone very cutting-edge tech wise in terms of 'traditional' handset design. The original iPhone was not 3G, it was not a proper 'smartphone' and came with a puny camera resolution even for its time (2 megapixels with no flash).

I think these tell the story that this was a rush job, a 2G, featurephone with 2MP camera would have been quite strong contender in 2006 but not by 2007 when Nokia had given the world its first 5MP smartphone (with flash, 3G and GPS) in the N95. But by January 2007 Steve Jobs was able to show the world the iPhone. And then it didn't really matter that this was not even a smartphone, and only did 2G. It was truly amazing. It was an instant hit, iconic design and incredibly desirable. All Apple needed to do, was to do occasional updates to the model and keep the price high, and they'd soon own the premium end of the mobile handset world. Nokia and SonyEricsson and the others didn't stand a chance.

Over the past 34 years we have witnessed a legendary CEO perform at his peak, setting world records in giant corporation management and mastering multiple industries. Our lives have become the better because of Apple and Steve Jobs. More than any other company, the one who turned the micro processor revolution that gave us the PC and the microchip, sparked by the Apollo program by the USA to go to the moon, was Apple - and only those years of Apple when led by Steve Jobs. Grandparents would not be comfortable using a PC today to go to YouTube or Facebook if it were not for Apple's Mac (and Lisa). There is no way an evolution of Microsoft's DOS and the ever more complex and cumbersome software of the 1980s would be where we are today, were it not for Steve Jobs's vision of user-friendly computing. And those same grandparents would not be using a smartphone today, were it not for the iPhone. A game like Angry Birds would not be a global hit played by preschool age kids against their grandparents on some iPhone or Android smartphone today, were it not for the App Store. And the music industry? It might have collapsed were it not for single-track digital music sales, invented by.. Apple.

There are many great business leaders. There have been many generous articles writing about Steve Jobs. But I want to make it very clear, if we look at Steve Jobs objectively, against the best metrics and measures of greatness in business management, his list of accomplishments at the top stands unparalleled. Not only in tech. Not only in the modern era. Of all time! Even Isambard Kindom Brunel was not able to turn all of his technically brilliant ventures into commercial successes (the biggest of his, The Great Eastern steamship was also the biggest commercial failure of all time up to that point, and inflation-adjusted is likely to be the biggest commercial failure of all time). Steve Jobs was simply the best. We had the privilege to witness the greatest business executive of all time. Congratulations Steve Jobs and here's to hoping you'll still live a very long and rewarding life as you transition to a less intense role at Apple and beyond. Thank you for the excellence and the new benchmarks for ultimate excellence. And to all at Apple - keep the Steve Jobs spirit alive, make products that will amaze your customers and you will continue his legacy. Don't care what we pundits write about, don't succumb to mediocrity. Pursue that excellence and you will be fine. The world loves you and your products. As long as you continue to delight and amaze your customers, they will come back and buy anything you choose to make.

Why Europe Is So Critical to Nokia in Smartphones: The Symbian S^3 Sales Pattern in Q4

IDC just reported yesterday that Nokia had fallen from 39% market share in Europe to 11% in smartphones, lost literally three out of every four customers they had in Europe just six months ago. The biggest in Europe in smartphones is now Samsung at 22%, with iPhone number 2 at 21%, third is HTC at 14%, fourth is RIM also at 14% and down in fifth place lingers Nokia smartphones at 11%. I suggested Nokia would fall globally to about a quarter of its market but that would take a year. They are failing much faster under Stephen Elop's misguided mismanagement and in their biggest and most profitable market they have lost in less than six months three quarters of their market already. The situation at Nokia is far worse than any of us could predict.

To give some more understanding of Nokia smartphones, I did a bit of very complex and time-consuming multi-dimensional optimization modelling on their quarterly results data and some other data points we have received. We can now paint a very accurate picture of what Nokia was like in Q4 of 2010, the last quarter before the Elop Effect happened on Feb 11 and destroyed Nokia's value.

This type of analysis was not possible until Nokia released its profitability information by division this July, but now we can calculate the actual contribution of not just overall Symbian handsets to all handsets of Nokia (previously some Nokia smartphones vs dumbphones info was only aggregated into one handsets unit). And why I can only do it for Q4, is that in the Q4 2010 quarterly results investor call, CEO Stephen Elop confirmed the sales number of 5 million Symbian S^3 handsets sold in Q4. If we had that official number for Q1 or Q2, I could do similar analysis for newer quarters too. But here is the full picture of Nokia smartphone and dumbphone sales.

So to be clear, we know as certain numbers the unit sales, average sales prices, sales revenues, and profitability of the dumbphones/featurephones (ie non-smartphones) and separately the smartphones. The smartphones side includes both older 'uncompetitive' Symbian S60 based smartphones, and the new, initially VERY competitive and user-friendly Symbian S^3 smartphones that were selling like hot cakes until the Elop Effect killed the success of all Nokia phones, not just Symbian S60 but S^3 and even Nokia branded dumbphones.

What we did not know is the split of Symbian S^3 vs older Symbian S60 in units sold, revenues, average prices or profits. We furthermore did not know the regional split of all the phone types dumbphones, and the two types of smartphones. But some patient multidimensional modelling will get the numbers as we have some critical data points added, the 5 million S^3 sales number and now the profits by divisions.

This is Nokia Q4 of 2010, the quarter when Symbian's new S^3 was released (led by the N8):

Type . . . . . . . . . . . . Units  . . . . . . ASP . . . . . . Revenues . . . . Profitability . . . . Operating Profit
Dumbphones . . . . . . 95.4 Million . . 43 Euro  . . . 4.1B Euro . . . . 11.5%  . . . . . . .    470M Euro
Symbian S60 . . . . . . 23.3 Million . . 128 Euro . . .3.0B Euro . . . .   9.3% . . . . . . . .   276M Euro
Symbian S^3 . . . . . .   5.0 Million . . 284 Euro . .  1.4B Euro . . . . 19.1% . . . . . . . .    277M Euro

All smartphones  . . . 28.3 Million . . 155 Euro . . . 4.4B Euro . . . . 12.5%  . . . . . . .    548M Euro
All Nokia phones . . 123.7 Million . .   69 Euro . . . 8.5B Euro . . . . 12.0%  . . . . . . . 1,1B Euro

So, how did the so-called 'failing' Symbian S^3 do then? It sold 5 million copies in one quarter - thats second only to Apple's iPhone 4 and far better than any other new OS version release, or new OS launch or new smartphone model line launched ever - including more sold than Samsung's latest Galaxy.

How did it contribute to Nokia? It jumped Nokia's smartphone average sales price so much, that Symbian S^3 smartphones earned on average 2.2 times more than other Symbian based smartphones. Nokia's new S^3 average sales price gets it in the price range of HTC and Blackberry (while still obviously half that of Apple's iPhone). Just as a note, Microsoft's head of Windows Mobile, Andy Lees, said in July to Microsoft developers that the average sales price of Windows Mobile based smarpthones is only 200 dollars (vs 284 Euros for Nokia's Symbian S^3 which is about 411 US dollars) and that would be down to between $100 and $150 next year. So Nokia had a huge growth engine in Symbian's latest S^3, which it swaps for an undesirable OS whose boss says their prices are being nearly halved in the next year. But I digress.

The profitability of Nokia's new Symbian S^3 is the most interesting tidbit - double the profitabilty compared to older Symbian S60. So Nokia profitability for S^3 was 19.5% in Q4 of 2011. And now a few comparisons: Of their Fortune Global 500 ranking in 2011 (which reflects their latest full annual results in 2010) we find Samsung corporation (includes much more than phones, obviously from televisions to microchips) was 10%. LG (similarly multi-business conglomerate) had profitability of 2%. RIM the Blackberry maker had a profitability of 17%. Nokia Corporation (including all types of handsets and its networking and Navteq units) earned a measily 4% profit. But CEO Stephen Elop discovered a true jewel in his crown, in Symbian S^3, that produced highly desirable Nokia Symbian smartphones on a 19.5% profitability! This is pure gold. And in just the first roll-out quarter, Nokia migrated 17.7% of its total smartphone production to this new hot profit engine. No wonder the smartphone unit profits surged 64% - yes, 64% in just one quarter.

I have explained here earlier, that if you manage to grow sales, grow average sales prices and grow profits in the same quarter, that is absolute proof that you are onto a hit product. Normally to get increase in sales you do it with either an decrease in price or with added marketing expenses (which reduces profitability) but with Nokia Q4, they had the very rare trifecta, increased unit sales, increased average prices and increased sales. So undeniably Nokia found itself with a big global hit in the N8 and its siblings that ran the latest version of Symbian S^3. And anyone who claims Symbian was not competitive with Android or Windows (either version) or RIM/Blackberry or the iPhone or bada or Palm/WebOS etc, is simply not dealing with facts. The OLD version of Symbian ie S60 was not competing well, it was struggling in the market and seeing declining sales and declining average prices (and declining profits). But Nokia's latest OS version and smartphones running on it, were definitely a hit globally. Now lets see where those phones were sold:

Nokia Handset Units Sold by Type:
Region . . . S^3 units . . . S60 units  . . dumbphones . . Total
Europe . . . 3.7 Million . . 8.9 Million . . 20.9 Million . . . 33.5 Million
MEA . . . .  0.4 Million . . 1.5 Million . . 20.3 Million . . . 22.2 Million
China . . . . 0.3 Million . . 7.8 Million . . 13.8 Million . . . 21.9 Million
APAC . . .  0.2 Million . . 2.6 Million . . 28.5 Million . . . 31.3 Million
N Am . . . . 0.2 Million . . 0.8 Millon . .   1.6 Million . . .   2.6 Million
LatAm . . . 0.2 Million . . 1.5 Million . . 10.4 Million . . . 12.2 Million
TOTAL . .  5.0 Million .  23.1 Million . . 95.5 Million . . 123.7 Million

(Note all totals match almost exactly with Nokia Q4 2010 results). A few definitions just to be clear, we use Nokia official classification so MEA is Middle East and Africa. APAC is Asia Pacific which includes Australia/Oceania. Then when we take the above numbers, and multiply them by the average sales prices as per the above, we get the following split of revenues:

Nokia Handset Revenues By Type:
Region . . . S^3 revenues . . . S60 revenues  . . dumbphones . . . Total revenues
Europe . . . 1.0B Euro . . . . . 1.1B Euro . . . . .    900 M Euro . . . 3.1B Euro
MEA . . . .     113 M Euro . . .   193 M Euro . .    873 M Euro . . . 1.2B Euro
China . . . .     93 M Euro . . . 1.0B Euro . . . . .   591 M Euro . . . 1.7B Euro
APAC . . .      44 M Euro . . .    333 M Euro . . 1.2B Euro . . . . .  1.6B Euro
N Am . . . .    66 M Euro . . .       98 M Euro . .     69 M Euro . . .    233 M Euro
LatAm . . .     69 M Euro . . .     198 M Euro . .    447 M Euro . . .   715 M Euro
TOTAL . .  1.4 B Euro . . . . . 3.0B Euro . . . . .  4.1B Euro . . . . . 8.5B Euro

(note again, all totals match very closely the Q4 results for 2010). And now lets add in the profitability of the three units to get total profits by each region:

Nokia Handset Profits By Type:
Region . . . S^3 profits . . . S60 profits  . . dumbphones . . Total profits
Europe . . . 200 M Euro . . 106 M Euro . . 104 M Euro . . . 409 M Euro
MEA . . . .    22 M Euro . .  18 M Euro . .  100 M Euro . . . 140 M Euro
China . . . .   18 M Euro . .  93 M Euro . . .  68 M Euro . . . 179 M Euro
APAC . . .      8 M Euro . .  31 M Euro . . .141 M Euro . . . 181 M Euro
N Am . . . .   13 M Euro . .    9 M Euro . . .   8 M Euro . . .   30 M Euro
LatAm . . .    13 M Euro . .  18 M Euro . . . 51 M Euro . . .   83 M Euro
TOTAL . . . 274 M Euro . . 275 M Euro . .  472 M Euro . . . 1.02B Euro

(once again the totals match very closely with those in the Q4 quarterly results). So, we can see now that the new Symbian S^3 was sold primarily in Europe, where 29% of all Nokia branded smartphones were Symbian S^3 phones. This is also by far Nokia's biggest market for total sales and biggest for Nokia handset revenues and profits. In it, the S^3 alone generated half of Nokia's total profit generated in Europe, while reflecting only 11% of all Nokia branded handsets sold in Europe. And this market we learn from IDC has utterly crashed due to the Elop Effect, and worse - this is precisely the market where Nokia's new N9 and other MeeGo handsets would be most welcomed and Elop refuses to sell them there. Total madness indeed. Europe was 40% of Nokia's total handset sales profits, and Symbian S^3 generated half of that in Q4. The Europeans love Nokia style, Nokia brand smartphones and were buying them madly before the Elop Effect. As the Elop Effect only affects Symbian phones, Nokia could avoid the reseller boycott by releasing the MeeGo based N9 and its siblings now, and recover much of that lost sales. The S^3 units in Q4 alone delivered 200 Million Euros of profits. If Nokia were only to recover that sales in Europe with the N9 (which costs more than 284 Euros) by releasing it widely in Germany, France, Britain, Italy, Spain etc (yes, Elop refuses to sell the N9 in any of those big European markets) the profits generated by the premium phone would nearly eliminate the losses generated by Nokia in Q2 !!!! This would be Europe alone, not to mention all the other regions that should get the N9, not just exotic tiny Nokia markets like haha, Kazakhstan (who are one of those 29 launch countries for the N9. How mad is Elop?)

But a few interesting observations from the above tables. In addion to Europe, the Symbian S^3 had captured 21% of Nokia smartphone sales in the Middle East and Africa region, the third best migration region for Symbian S^3, but quite surprising is the second best migration region - North America, where Symbian S^3 had taken 23% of all Nokia branded smartphone sales in Q4. Yes, obviously this is by far the smallest market, but even in North America the S^3 was driving a Nokia recovery. And we know the China region took to S^3 in a big way in Q1 but we do not have the data to calculate the exact contributions by region for Q1 unfortunately.

Two thirds of Nokia Symbian S60 sales were from Europe and the China region. So why not release the N9 in China then? We hear now that Nokia franchise stores - Nokia flagship stores in China - are suffering from the collapse of Nokia Symbian sales so badly, that they now have resorted to selling rival branded phones! Imagine MacDonald's selling Burger King branded burgers under the Yellow Arches? Thats how bad the Elop Effect has hit China. Why not release the N9 now, immediately, widely, globally?

And smarptohnes in Europe? Of Nokia's total corporate profits earned in any business in any market by any type of product, the smartphones business out of Europe generated 30% of Nokia's total profits in Q4 of 2010 - and out of that, the new Symbian S^3 generated two thirds of that profit out of Europe's smartphones. When we add China's smarpthones - these two regions, Europe and China, and their smarpthone business, not dumbphone business - generated 43% of Nokia's total profits in Q4. This is the 'Pareto Rule' ie the 80:20 rule, so as long as Nokia is doing well in Europe and China (and specifically smartphones there) - all of Nokia is fine, no matter how well Nokia does in any other part of its business, networks, dumbpohnes or Navteq, and in any other regions - North America, Latin America, Africa, rest of Asia, Oceania - it matters nothing if the smartphones business in Europe and China is crashing. Very illuminating indeed. It also gives clues to how quickly Nokia could be turned around if some idiot CEO stopped sabotaging his own sales in Europe and China.

And back to the S^3 premium smartphones. Using the current IDC numbers, Nokia's new S^3 had created a surge not just globally, but specifically in Europe. And ignoring all other Symbian S60 sales - the S^3 handsets alone had taken almost 15% of Europe - and thus S^3 alone would have been bigger than RIM or HTC or any other smarpthone brands in Europe except Apple and Samsung. And Nokia total Symbian sales towered over Apple and Samsung as recently as Q4, when in Nokia's biggest market - and the world's biggest smarpthone sales region then and now (Europe still sells more smarpthones than North America even now in Q2 although the gap is closing) - Nokia Symbian sales were far bigger than Apple AND Samsung - combined!

So now we know. Symbian was not dead. It had a strong Phoenix moment of recovery in Q4, when Symbian S^3 established a Nokia record for most sales of a new handset and new OS version, when three Nokia S^3 handsets (only one, N8, sold for the full quarter) produced a jump of 7% in Nokia branded smartphone sales, reversed a Nokia-pattern quarterly decline of 7% in average prices that had held true for as far as one can remember but rather produced a 14% jump in ASP (thus creating a 21% jump in average prices over where they should have been without S^3); and this in turn produced what must be a Nokia record (we do not have historical data to know for sure) of 64% jump in profits for the smartphone unit. And while Phoenix died flying too close to the sun, the Nokia Symbian S^3 was not dying, it was killed - by its master, the new CEO.

So what was Nokia S^3 for the corporation and brand new CEO Stephen Elop in his first quarter when he was in charge? Symbian's brand new OS version was in only 4% of all phones sold by Nokia. They were an instant hit and generated 12% of total Nokia handset revenues in their first quarter during which only 3 models had the software and only one of the three handsets was sold for the full quarter. And of Nokia total profits in the quarter? A massive 22% of Nokia's total profits came out of those mere 4% of total Nokia branded phones sold that had the S^3 operating system from Symbian. This is genuinely a 'Goose that lays Golden Eggs' It is not just a new cash cow, it is your profit engine right there. 4% of devices produce 22% of your total profits. This brand new OS and its brand new phones are the heroes of Nokia that the brand new CEO inherited. Any other reasonably intelligent CEO would have celebrated this team and its amazing new software and the brand new phones, and rushed to promote and celebrate their success, to quickly spread S^3 to all Nokia smartphones - not to fire the programmers and put an end their successful operating system.

Of course if the new CEO is not interested in Nokia's best interest, and wants to kill Symbian no matter what kind of success it can generate, and wants to replace the world's bestselling OS with the best ecosystem with the world's least-selling smartphone OS with the weakest ecosystem to be adopted by Nokia instead, then that CEO would release memos and decisions causing an Elop Effect to destroy his own products and their success. That CEO would have to be a delusional psycopath and he would not be working in Nokia's best interests but rather, in the best interests of say, Microsoft. But such a lunatic CEO would only be possible in a Hollywood movie of an alternate universe. If you look at the above numbers - and Nokia's CEO and CFO had these numbers in February when he made those fatal Elop Effect decisions - you will see that you are sitting on a pile of gold in Symbian S^3 - if normally Symbian is able to sell at prices only roughly in the price of an SonyEricsson featurephone, and suddenly you have a hit phone series selling in the prices of far more expensvie smartphones of the HTC and Samsung and other Android phones - and the Blackberry - and you have such a highly desirable new product range which jumps your profits by 68% - that is success by any measure.

What you do, is spread it to the max, not kill it. You reward and promote the engineers who managed that turn-around, you don't go firing them! No wonder morale plummetted totally after Elop's February madness. But thats another story. I wanted to share the numbers as this is the kind of stuff I do on my vacation haha.. A good multidimensional statistical problem haha, I love that, its relaxation for me. Feel free to share the above numbers and please quote TomiAhonen Consulting as the source for those numbers which are not directly from Nokia quarterly results.

Did I Miss A Memo? What Changed? Why would HP quit the Smartphone Biz after buying Palm last year?

Did I miss the memo? Did the world change somehow?

Last I heard, the main business for Hewlett-Packard was making computers, in fact last I heard, HP was clearly the biggest PC maker in the world.

There was the trend of the shrinking computer from mainframes to desktops to laptops to tablets to smartphones. You know, like say, Apple? Did I miss something?

There was also the trend of the increased mobility of computers, from desktops to laptops and tablets, to smartphones. You know, also like say, Apple? Wasn't this happening anymore?

Oh, and I also was under the impression that the computer industry was on a trend to easier use of computers? Started that you had to have a Ph D just to operate one. Then you had to go to specialized classes and courses. Even the original Mac, while so easy you didn't need to take a course, you still needed a full-sized 101 key computer keyboard and a mouse to operate it. By the time smartphones came along, Nokia shrunk the keyboard to one that fit in your palm and dispensed with the mouse. Then Apple came along and gave us the first practical touch-screen interface, what is now considered cutting edge. And yeah, most smartphone makers are still struggling with that transition - at Nokia it was so costly and time-consuming, that new CEO Stephen Elop decided to end the migration project to a touch-based OS. Microsoft found it so hard, they abandoned their established Windows Mobile and started from scratch with Windows Phone. And Blackberry, poor Blackberry, is still struggling to even roll out a user-friendly touch interface. But HP has it! HP 'owns' the future with Palm WebOS. So they have gone through the pain and it should be smooth sailing from here - made ever the more sweet where most rivals have to still go through a lot of the pain just to catch up to where Palm and HP are now (on this trend).

Then I seem to remember that the software OS guys made more money than the hardware guys, say like how much more profits Microsoft earns than HP? And partly why say Apple guards jealously its right to make its own OS.

Then I also kind of recall that in the computer business, the smartphone was the huge growth opportunity as well as the tablet PC? Just like say.. Apple? I mean, smartphones did grow 71% last year. Last YEAR. Grew 71% in one year! And the total global smartphone market is today bigger in units sold, than the total PC market including desktops, laptops, tablet PCs etc. And yes, all analysts agree that smartphones will have another monster year, the smallest forecast for growth this year is about 40% and some think the market will nearly double again. This is THE hottest market! Of ANY technology. Did I miss some memo?

And to win in this space, if you think of Apple as a 'winner' (maybe at HP Headquarters they know better about how to define a winner, who knows) - then Apple's rapid capture of the smartphone space in only four years, is usually attributed to the following factors: iconic design, ultimate ease-of-use, and a strong ecosystem. Well. Many say Palm last year when HP bought it, was the 'next best thing to the iPhone' - some actually said the newest version of the Palm OS was better than that on the iPhone (I am not competent to judge on that) but at least most who know these things, said Palm's phones and user interface and operating system were definitely at least second-best (last year when HP bought Palm for 1.2 Billion dollars). And Palm also had a significant ecosystem with a sizeable portfolio of apps while obviously nothing the size of that of Apple.

If the world's biggest tech company, twice the size of Apple, cannot take the world's second-best smartphone and OS and a good start of its ecosystem (which struggled mostly because of dire lack of funds as Palm had been unprofitable for years), and cannot turn that into a strong contender in a year - what makes you think HP could make the far bigger change from a PC manufacturer to a pure software and services company in the cloud? At least a smartphone is - it really is - a computer, so HP's computer design, manufacturing, sales and after-care would all be relatively easy to adjust to marketing this smaller computer.

And the switch to smartphones did not happen last year - HP has made smartphones (in modest numbers) for much of the past decade and made successful PDA's before it, as did Compaq, a rival that HP bought a few years ago. And now buying the nearest thing to Apple in smarpthones - HP finds that impossible to do - but somehow the HP management then thinks they can execute a far more comprehensive shift away from being a tech manufacturer. Something does not compute in my mind. Maybe its just me..

I mean, come on, Samsung launched a totally new smartphone OS that less than a year from launch is now at 5% market share. Samsung! And nobody dares suggest the Samsung bada OS is nearly as good as Palm's. How can Samsung go from zero to 5% now, in less than a year, but HP somehow - with a history of smartphones already and a far better OS - cannot grow from 1% to something like 3% by now? What memo did I miss?

Is there some strange North American phenomenon to the smarpthone business, that unless your company is run by Steve Jobs, if you are North American and in smarphones, you will fail miserably (I don't know if this could be called a pattern, but look at a few North America based smartphone makers like Palm, Motorola, Danger, HP, RIM, Microsoft - its Kin - Google - its Nexus One - plus who did I forget, oh yeah: Compaq and Dell).

I mean, Apple Computer was a near-bankrupt computer-maker company less than two decades ago. It returned to nice healthy conditions with Steve Jobs back in charge, but its huge sales and profit growth didn't appear until the iPhone. So relevant to Apple in fact, that Apple Computer changed its name to just Apple, and now calls itself a 'mobile' company. Today Apple makes the biggest profits in the world (I am talking this quarter Q3, judging by the trend of Q2, Apple should pass ExxonMobile just about now)

Then there is HP, who makes nearly twice as big revenues out of the computer business, but almost half the profits of Apple. So after 'Apple Computer' switched to focus on smartphones, they have become a company which has nearly four times better profitability than HP, the world's biggest PC maker..

Even in the latest global comparison of the biggest corporations, Fortune Global 500 issue for 2011 - HP has a profitability of 7%, while rival tech companies who have shifted from other businesses to smartphones, RIM (past texting pager-maker) has 17% profitability and Apple (past PC maker) has 21% (that is the last annual results, so today Apple's results are even far better). Both of these make their own smartphone OS and smartphones are their only phone business (compared to Nokia who make most of their business from far less profitable 'dumbphones').

I can understand that a hardware maker might look at diminishing profit margins of the 'box mover' business currently looking at 7% profitability and fear the fate of some of the rivals, like say, Dell making 4% profits or Acer making 2%. I can understand that the new CEO, Leo Apotheker, who came from SAP, is a software guy and believes that in software you can make better profits. Nothing wrong with that. And IBM did it quite successfully after selling their PC business to Lenovo. But compare biggest software maker Microsoft and biggest smartphone maker Apple - no contest.

HP had acquired the best possible tools to 'do an Apple' in smartphones today, and HP's main businesses are far more like those of Apple - in fact, compared to any other rival smartphone maker, HP was THE MOST LIKE APPLE as a company by its types of businesses. Apple makes desktop PCs. So does HP. But Nokia doesn't. RIM doesn't. HTC doesn't. Yes, Samsung does, but Samsung makes so many other things in far bigger volumes that HP doesn't - from plasma screen TVs to microchips - that you can't say HP and Samsung compete in mostly the same businesses. What else does HP make? Laptop computers. So does Apple (neither does Nokia, RIM, HTC, Motorola, SonyEricsson, etc etc etc). What else is there where their businesses overlap? the iPad! Yes, both make tablets. And yes, both make now a smartphone and its operating system.

They are not exactly alike, Apple also makes its own PC operating system, which HP doesn't. And Apple does make a media player (the iPod) which is a business where HP does not compete. But look at the other big PC makers, Dell, Lenovo, Acer and Toshiba. None have a smartphone operating system and only Lenovo and Toshiba have any significant history or presence in smartphones. Of all giant computer makers, HP is the nearest thing to Apple.

And yes, Microsoft. It does make both PC and smartphone operating systems and (used to make) the Zune media player. But Microsoft's other businesses are again big that do not compete with Apple directly, like the Office Suite software and the Xbox. And Microsoft doesn't make desktops, laptops, tablets nor smartphones. Google? Yes, makes its smartphone OS and now as owner of Motorola, is also a smartphone maker, but Google's primary business is in the internet search, services and advertising. Google doesn't make desktops, laptops, tablets nor MP3 players. And while it makes a smartphone OS, it doesn't make an OS for desktop PCs.

No. HP was the company most modelled like Apple in its major focus areas of business. And it clearly was losing to Apple for several years already in the profitability race, as Apple got more involved in smartphones. That is why it seemed the perfect fit for HP last year, to buy Palm and turn the promise into a big hit.

When HP bought Palm, Palm had about 1% market share in smarpthones, and HP's own smartphones a small fraction of that. Together they were a bit bigger than 1%. Apple had about 1% market share three years ago. HP could have put some serious effort to 'do an Apple'. If Apple can get to 18% in three years from that with the most desirable smartphone out there, then surely HP should be able to do at least half that, and get to about 9% in three years - as HP is that much bigger than Apple, that with a good product, they could simply swamp the market and use their size to muscle in. What Microsoft would do, haha..

But no. HP said sayonara to smartphones. Dumb move! This will be seen as one of those strategic moments in time, where a company faced a fork in the road, and selected the wrong path. Just like say AT&T in the USA, who foolishly sold its mobile telecoms arm or BT British Telecom who did the same in the UK. Or like how Vodafone foolishly entered from the highly profitable mobile telecoms traffic business into the lowly profitable fixed landline business (and then a year later was 'surprised' that their profits were shrinking). I said of each of those that they were strategic blunders and was proven right in time. I am saying now, this move by HP is a strategic blunder. They could have sold the PC business (like IBM did) but to abandon the smarpthone business now, in year 2011, by the company who owned Palm's magnificent OS, that is sheer management stupidity.

Yes, I can understand that a 'brave' and 'bold' and 'decisive' and 'visionary' CEO would take a big gamble against the conventional wisdom and all major analysts of the industry - on ONE trend. Not on several concurrent trends going against them all. That is action for the sake of action, and foolhardishness. Sorry, Leo Apotheker (who I do not know and never have met even in his SAP times) that is a big mistake. And or all who worked at Palm, that is cruel irony for all the excellence in the technology, and in the saving angle, that it seemed last year, when HP came in as a white knight to rescue your suffering company. I salute you for your work and now only hope that there can somehow be a second coming for Palm through some divestitures and/or acquisitions.

In my humble opinion. (and for the sake of open disclosure, yes HP is also one of my reference customers ie they have themselves admitted in public that they have bought consulting services from me. So too are other reference customers of mine, mentioned in this blog: BT, Google, IBM, Motorola, Nokia, RIM, SonyEricsson and Vodafone)

WOW! Did not see this coming. HP ends Palm/WebOS based smartphones

This is a placeholder blog posting just as acknowledgement now. I just heard HP announced they will end the Palm/WebOS based smartphone production and sales. I did not see this coming. I thought HP was smart to buy Palm, the right owner for Palm to help turn it into 'big' success and that HP should have seen ever more evidence that the Palm acquistion was indeed the right one. Now they threw it all away. I think this will be judged a mistake half-way into the decade, but yeah. I'll return with my analysis later (on this same blog topic). But I did want to post the news - another death in the Bloodbath - and to let my readers know that I think this is not a smart move by usually very smart HP.

Update 21 Aug: I have now posted the analysis blog on HP abandoning smartphones. You may want to read 'Did I miss a memo?'

Why Microsoft Cannot Afford to Let Nokia Fall Into Hands of Any Rival

Ok, now that Google bought struggling Motorola Mobility and its thick patents portofolio, the really big prize waiting to be picked is Nokia, badly undervalued due to horrendous management mistakes (see Elop Effect). So I speculated a day ago about who might want to buy Nokia, and also illustrated that due to its rather diverse interests in mobile hardware and software, whoever would buy Nokia would probably immediately divest some parts of it.

MICROSOFT SAW IT COMING

Well, the front runner in the race is no doubt Microsoft. And let me say a few words about Microsoft in mobile. Apple saw the shrinking computer, launched its 'Newton' what many call the first modern PDA (and while technically brilliant and loved by its users, the Newton was far ahead of its time and ended up a rare Apple commercial failure). But perhaps due to this failure, Apple was not too keen to get into the PDA-sibling category of smartphones, and when many of its rivals like Compaq, HP, Danger, Palm and Sharp went to smartphones, Apple rather went to re-invent the portable musicplayer market, with the iPod. Apple was a very late convert to the smartphones space, entering it in 2007.

How about Microsoft then? Microsoft had powered early PDAs and pocket PCs from an early 'palmtop PC' reduced version of its MS-DOS operating system more than two decades ago - used for example in the classic Hewlett-Packard LX100 palmtop PC. That OS then evolved to be a Windows PDA version and yes, now a decade ago, Microsoft entered the smartphone space, so Microsoft has been here for more than twice as long as Apple.

A DECADE OF.. FAILURE

Microsoft launched its smartphone operating system, that soon became known as Windows Mobile with HTC out of Taiwan (after ditching its first partner, UK based Sendo in a messy dispute that ended in a lengthy court battle that destroyed Sendo). Then Microsoft collected major handset makers to join the Microsoft family, and at one point Microsoft had four of the five biggest handset makers producing Microsoft Windows Mobile based smartphones - Samsung, Motorola, SonyEricsson and LG. Unfortunately for Microsoft, those four also made smartphones on other platforms and all of them made far more smartphones on Nokia's Symbian platform.

While the Windows Mobile based smartphones did record some success in the North American market, globally Microsoft was always only a bit-player. It was very briefly the worlds' second biggest smartphone OS, as Palm was losing market share and just before RIM took over from Microsoft. That moment of success did not last twelve months even. And how big was Microsoft's peak market share in smartphones? A measily 12%. This moment of glory was just prior to Apple launching the iPhone, and even at this time Nokia's Symbian outsold Windows Mobile by 4 to 1.

Then Apple came and changed everything. And the first casualty of the iPhone was not Nokia (nor the Blackberry) it was Palm. The second smartphone OS that started a rapid terminal decline after the iPhone came along was... Windows Mobile. It lost a third of its customers in less than two years, to the iPhone (this while Blackberry actually grew market share and Nokia only lost less than one in ten customers). The widely-held myth says that the iPhone killed Nokia's smartphones. That is a nice story but doesn't square with the facts. Nokia and Symbian didn't experience any greater loss than what was the normal gradual decline of its market share (Nokia invented the smartphone and started from 100%, so it was only going to go down) but it was not until Android came along, that Nokia and Symbian were severely hurt. And Android stalled Apple's growth as well. Did you notice that while the iPhone gobbled up market share on average more than two points of market share per quarter (on average) for the first two years, eight quarters - then in the next two years from Q3 of 2009 to Q2 of 2011, Apple has only managed to add 1.4 points of market share cumulatively in the past eight months. Apple's iPhone market share has been essentially flat. The dramatic growth by Apple was cut indeed by Android. It was not the iPhone that was killing Blackberry either - in the strong Apple growth period from 2007 to 2009 - the market share of RIM's Blackberry actually grew! Yes. It was not until Android came along, that Blackberry was damaged.

But yes, we don't deal with myths here, we deal with the facts. So lets return to Microsoft. Microsoft had 8% market share in smarphones in mid 2009 (with Nokia's Symbian now outselling Microsoft by 5 to 1). And then Microsoft did one of those 'only Steve Ballmer would do something this dickish' move. He decided to screw his smartphone maker partners all, and the whole Windows Mobile application developer community. After version after version of Windows Mobile updates and revisions, suddenly Microsoft announced that for the next version (to be called Windows Phone), there would be no migration path.

SUDDENLY: NO MIGRATION PATH

Most recent MBA graduates would be able to say that it is a bad move, especially if you try to build a platform, an ecosystem, or run an operating system across many brands of manufacturers. In fact Microsoft should have known better - it was the genious of the migration path from DOS to Windows, that allowed Microsoft to hold onto its world-leading OS market share from the early days of the PC, to the modern era that was ushered in by Apple's Macintosh. Windows was Microsoft's clone of the Mac OS, but the genious of the migration path (which at times was technically quite clumsy and took about a decade to complete) helped expand Microsoft's lead in PCs from one decade to three. And still today, we just heard from Canalys a few days ago, that Microsoft's Windows OS on the PC side delivers half of Microsoft's total profits and has a profit margin of over 70%. That is what you get if you bother to build a migration path from the world's leading platform.

Ah, but that was from the time of Bill Gates. It seems Steve Ballmer is far more interested in screwing everybody than doing whats right. No wonder Microsoft is called the Evil Empire. (and as a side-note, yes, Nokia had learned from the DOS-Windows transition, why do you think Nokia built a 'migration path' - yes - from the outgoing Symbian OS to the brand-spanking-new and hot MeeGo, the world's newest smartphone OS powering Nokia's N9, that now is the rage among tech enthusiasts)

How did the Microsoft announcement of no migration path go down with the handset providers? Not very well. Motorola was so disgusted, they left the Microsoft partnership totally, doing only Android. LG, which had only months earlier committed to 'strategic focus' of Microsoft Windows Mobile rather than Android - reversed its decision and now does more than 90% of its smartphones on Google's OS. HTC, Microsoft's launch customer and the smartphone maker that had always produced the most Microsoft based smarpthones was so upset they said they would not even release smartphones on the next edition of Windows Mobile (but would do some Windows Phone based smarpthones at some point in the future). And Samsung was not exactly wholeheartedly in the Microsoft camp, but they fast-forwarded their own bada OS which they launched a few months before Windows Phone.

So Microsoft had held 8% market share, then it announced it didn't bother with the migration path anymore and what happened? In less than a year, they lost five out of every eight customers they had. Their market share dived to 3%, by the time the first Windows Phone OS smartphones were ready to ship. (And Nokia's Symbian was now outselling Microsoft by 12 to 1).

Obviously we can see here, that Microsoft was never big in smartphones and where it had some success in sight, they then utterly messed up their chances. But maybe there is a silver lining with the brand new OS, Windows Phone, which is technically quite good, its users do like it and there are plenty of developers, apps etc. Maybe Microsoft could get back its market share with this new OS that has been sold for almost a year now. Surely the world's biggest OS maker could use some Microsoft magic, all that synergy across its platforms like PC Windows and Xbox etc, and use its deep pockets for marketing and promotion and create a comeback.

Not. Steve Ballmer said it himself, that a year ago Windows Phone OS had a market share which was 'tiny' and its current market share is still 'tiny'. How tiny is tiny? Five percent? Four percent? Three percent, the same as Windows Mobile had? Two percent? Cannot be, can it, one percent? Yes. Microsoft Windows Phone today, almost a year from launch, has been such an underwhelming market success, it has 1.1% market share of the global smartphone unit sales in Q2 of 2011. It is doing so badly, Microsoft's Windows Phone sales are not growing, they are declining! While the global smartphone market is exploding.

We can understand that Nokia's market share is tanking because of the Elop Effect. But Microsoft has been trying every trick in the book to boost Windows Phone success, from trying to convince the media that Microsoft (with Nokia) will be the third ecosystem (in fact they are now no better than 6th) to giving away new Microsoft Windows Phone based smartphones sold for a dollar this spring. Yet there were no takers.

Oh, and even after Burning Platfoms and all, the supposedly obsolete undesirable failing Nokia Symbian still manages to outsell all Windows Phone smartphones now, in the latest quarter by a ratio of 14 to 1. Even if we add the older Windows Mobile smartphones, the total 'Microsoft' market share of the two incompatible operating systems, has less than 2% of total smarpthone sales worldwide. Only one out of every 50 smartphones sold worldwide runs on any type of Microsoft software. After a decade if thats all you can do, that is failure pure and simple.

IF YOU CAN'T DEFEAT THEM..

So, Microsoft are smart people. If they answered honestly, they would have said that Nokia is by far the strongest smartphone maker - not the most desirable premium smartphone, that is obviously Apple, but worldwide, remember, just as recently as half a year ago, Nokia alone sold more smartphones than Apple and Samsung added together. Microsoft would have admitted that Symbian (and its migration path to MeeGo) is the (or now with Android, 'a') dominant platform and that no matter what Microsoft does, it is no match for it. But no CEO would be that stupid to admit their own systems are worse than rivals (except if your name is Stephen Elop)

I know there will be many who will yell that this is patently false. Again. I don't deal with myths here, I deal with facts. Microsoft's Windows Phone was launched at the start of Q4 of 2010. It is an all-new, from ground up fresh, modern smartphone OS that is optimized for smartphones and it was designed for touch-screen operation. It is supported by five of the ten biggest smarpthone makers and seven of the ten biggest 'dumbphone' makers.

Symbian released its (then) newest version called S^3 at the exact same time, at the start of Q4 of 2010. Symbian is a creaky old OS, it was created when there were no color screens on phones, far less touch screens. The system has gone through tedious costly time-consuming modifications to try to get it modernized and now the S^3 is finally touch-screen based. How many of Nokia's smartphones used it? Only three models, and only one of them the N8, was sold for the full three months of the quarter. This is the same Symbian that so many say is obsolete, undesirable, outdated, unwanted, hated by users etc. How did it do? Symbian S^3 sold 5 million copies in that quarter (which was only one sixth of Nokia's total smartphones that quarter).

And how long did it take Microsoft's army of HTC and LG and Samsung and SonyEricsson and ZTE and Huawei and all the others to sell 5 million units of Windows Phone smartphones? They did not do it in less time than Symbian S^3 - if they had, you could legitimately call Microsoft's OS the more successful one, right? Maybe the same amount of time? No. Maybe a month more time to sell 5 million units? No. How about one quarter longer? No. How about two quarters longer? No. Up to today, from the start of October to now, August 17, 2011, Microsoft has still not managed to sell 5 million cumulative units of Windows Phone based smarpthones! Nokia did it in 3 months, 92 days on only three handsets of which only one sold for the full thee months. By current trends it won't be until September of this year, that Microsoft finally sells its 5 millionths Windows Phone smartphone and matches the performance of that 'obsolete' Symbian update version. Makes you think, doesn't it?

Oh, you say Symbian S^3 not desirable? Nokia grew unit sales of smarpthones - yes - grew unit sales in Q4 - and this with price cuts? No. With a Nokia-record jump in average sales prices - Nokia was able to charge more for its smarpthones with this new OS. So Nokia did it with price cuts and marketing gimmicks? No, Nokia profitability of the smartphone unit exploded growing by 64% from the previous quarter. No marketing gimmicks, no handset discounts created the growth. The N8, with Symbian S^3 and the various other new smartphones were truly a hit phone (until the CEO decided to put an end to the success with the Elop Effect).

So, what can we learn from this? First, that Microsoft was smart enough to see the smartphone opportunity coming (arguably more smart than Apple at it). And Microsoft planted its seeds early, and recruited a big army to support its OS. Then Microsoft went about its business of being the Evil Empire that it is, and managed to upset and annoy just about every partner it ever had bankrupting some and just angering others. I should say for those who are not familiar with the details, that Microsoft's Windows Mobile and Windows Phone operating systems are traditional type of 'paid' licenses, so any manufacturer has to pay a license for every copy sold in any smartphone. But for example Nokia's Symbian is an open source foundation, it is free; Google's Android is also open source and free; Intel's (and until recently Nokia's migration path OS) MeeGo is also open source and free. And yes, Microsoft's operating systems are not open source of course, they are tightly controlled by Microsoft alone. So not only is Microsoft behaving like the bully it is, Microsoft fully expect you to pay them a nice licence fee for every copy of its OS, while all other major rival OS systems are royalty-free.

Then we can see, that even when the smartphone market was still relatively calm, before the current level of hypergrowth and hypercompetition (I counted back before the iPhone that only 7 of the Fortune Global 500 corporations were smarpthone makers; by 2009 it had exploded to 23 of the biggest companies on the planet - I doubt there has ever been any industry where 23 of the Fortune Global 500 have been involved in competition in the same industry, globally, and certainly no industry has expanded giant corporate rivals so rapidly in a two-year period) - even in the 'good old days' Microsoft was never able to exceed 12% market share and after the iPhone and Android came along, its been in low single digits at best.

So if you can't beat them, join them. There is one more way for Microsoft to get back into the game in smartphones. It wants to get those royalties from the licenses. It is not an advertising company like Google who can afford to give away software (or services like search, email etc) for free, but make it back with the advertising. And Microsoft is not a handset maker like Apple, RIM or Nokia, who could bundle the OS as part of their handset and make the money on the package. No, for Microsoft to have a significant business presense in smartphones, it has to have some handset vendor(s) willing to pay the license fees, who can also generate big unit sales numbers.

Some will say Stephen Elop was a mole, a Microsoft agent who came in and rigged the game, so Nokia would of course select Microsoft rather than Android or its own MeeGo OS. But it is possible, that the decision was made on facts and on merit and on the best available info at the time, and perhaps by a very slim margin, Microsoft's Windows Phone - as it seemed at the time when all looked peachy, and nobody knew yet how badly it was performing in the market - emerged as the winner in early February when the final decision was made. One could be cynical and say, that Elop did know, both how incredibly well Symbian's S^3 was doing, and how badly Windows Phone was failing, and he'd need to rush the decision before the facts came out (and further if you like conspiracy theories, that Elop also know MeeGo would defeat Windows Phone coming and going, so Elop had to rush his Burning Platfoms memo and delay MeeGo etc just to give Windows Phone some chance).

But we know that Microsoft has tried with every other player willing to dance with it and has failed. It now has Nokia under contract. To make sure Nokia cannot wiggle away, Steve Ballmer even paid Nokia 'billions' in marketing support funds - this angered the remaining Microsoft Windows Phone partners, many of whom struggle with losses, why would profit-generating Nokia be given money for joining Microsoft. But now the big billions paid or promised are a strong hook to keep Nokia in line with Microsoft.

WORLD RECORD MARKET SHARE COLLAPSE

So now we had the Elop Effect from February 11. Nokia was by a huge margin the world's biggest smartphone manufacturer at the time with 29% market share, literally more than 70% bigger than its nearest rival, Apple. Nokia was growing smartphone sales (but not as fast as the industry, so Nokia was gradually giving away some market share). Nokia was not in decline. Nokia was GROWING smartphone sales. Its average sales prices just jumped more than in any single quarter. Nokia's smarpthone revenues were growing strongly and its profits exploded by 64%. This very desirable successful smartphone maker giant dominated over its rivals far more than what Toyota does in cars, or Airbus in airplanes or Hewlett-Packard in personal computers etc.

Microsoft thought it was going to get "that" Nokia. That all it would take, is to switch the operating system and release those same spec cool Nokia phones with the new Microsoft Windows Phone software (this transition would take more than a year, technically as Microsoft needs different components from Qualcomm rather than Texas Instruments etc) and Microsoft would suddenly have one partner who alone made almost 3 out of every 10 smartphones sold worldwide. So even if most of Microsoft's other handset partners were 'miffed' by Microsoft's new love, they'd also chip in with a couple of million smarpthone sales, and Microsoft should have gained about a third of the market. Roughly what Android had at the time.

This would be similar to what Microsoft had with the Xbox. Its a far cry from the PC based Windows with over 80% market share but one third would be very good in the smartphone market, where Microsoft's own initiatives had netted low single digits by now. And if Microsoft held one third of the market in year 2012, then it would certainly motivate all of its staff to fight for every slice of the market to grab more by every means possible including lawsuits and penalty payments of patents etc.

Microsoft knows it made its fortunes riding the operating system for the personal computer, and for three decades, theirs was the bestselling OS in the PC market. Now the PC is migrating to smartphones, and the only way Microsoft can remain viable, is if they can have a (paid) slice of that. And they had Nokia's signature on the contract.

But then we have the Elop Effect. Nokia's market share in smartphones collapsed. In Q1, with only part of the period under the Elop Effect, Nokia's market share tumbled to 24%. But the very same rate continued and now in Q2, Nokia's market share has fallen to 15%. In a matter of less than five months, Nokia had taken its massive market share lead, and abandoned it to its rivals, falling so badly, two of its rivals have already passed it (Apple and Samsung) with Nokia in third place. In a very literal sense Nokia has lost almost half of its customer in less than two quarters. No market-leading brand has ever collapsed so totally. I am not talking only of technology brands here, so this is far worse than Palm or Motorola or Siemens for example in mobile phones - but any market share disaster ever - the launch of New Coke, the autombile brakes failures of Toyota, BP's image disaster with the Gulf Oil Spill last year, etc.

But its not over. Nokia has already warned that they are suffering even more. Right at the start of this quarter, Nokia announced across-the-board price cuts to its lines of phones. In the Quarterly Results, Nokia admitted that its reseller channel is 'reducing inventories' which is the marketing spin on what is openly said in many press stories that Nokia is in a reseller boycott (which is due to the Elop Effect). We heard just today from Investor's Business Daily, reporting from China, that Nokia franchise stores are struggling so much in making any business selling Nokia branded phones, that they have started to sell competitor branded phones! In Nokia stores! This is like going to a McDonald's restaurant and because nobody is willing to buy their Big Macs and Fries, they have started to stock Burger King hamburgers and Fries! This is surely the end of a once-proud brand - China is by far the world's biggest mobile phone market and Nokia was by far its bestselling phone and its bestselling smartphone. When the reseller boycott is so severe, that your own branded, franchise stores stop selling your goods and start to sell rival brands, that is total retail collapse!

So the trend is inevitable. Even Nokia itself admits their sales are falling. The Nokia market share will continue to plummet, it will be near 11% by the end of Q3 and down to about 7% by the end of this year. By then Nokia will have abandoned three quarters of its market to its rivals, due to self-inflicted wounds. Never in the history of business, has any leading global brand collapsed as comprehensively as Nokia is now doing. This is history in the making, pay attention. This is a story that will be studied in MBA classes for the rest of this century as one of the great massacres, or indeed, suicides of a brand.

But in a perfect world, that should be the worst of it, from Microsoft's point of view. They had hoped to get Nokia at near 30% market share. Now if Nokia bottoms out at around 7% it is obviously far less than they had hoped, but then the new Microsoft based Windows Phone smartphones would start to ship and sell, and from Q1 of next year, the recovery should start. And in any case, even if Nokia only limps in at 7% at the end of 2011, that is still seven times better than what Microsoft is able to do by itself.

Without Nokia, there is no path left for Microsoft. They are now on life-support, the only thing keeping Windows Phone alive, is that promise of those first 'Nokia' branded (but actually Compal-manufactured Taiwanese clone) smartphones that start to ship and sell in modest numbers before Christmas. But if you give Steve Ballmer a sick Nokia with 7% market share, and use the Nokia brand and carrier relationships and ecosystem support etc, with full Microsoft marketing and sales support, some recovery 'has' to happen. Will it grow to 8% or 10% or 12%, depends on what color glasses you wear, but yes, Microsoft can fairly expect some recovery and they might even under extremely rosy scenarios recover to what Microsoft had at the peak of Windows Mobile, maybe. 12% on the very rosy upside scenario. Maybe. And its clear that this smartphone market is too hot now, weak players will be exiting, like Motorola and Palm gone, Nokia now on the ropes and RIM quite possibly next, it will be also a game of attrition. And Microsoft has extremely deep pockets to remain in that fight for months, quarters, years, even decades probably.

What Microsoft needs is to remain in the game now. Now.

ELOP WOULD BE FIRED

So, the key to Microsoft and its Nokia fantasy, is for Nokia to 'stay the course'. To not give up on Microsoft. For Elop to keep steering that ship now towards the 'inevitable' Windows Phone.

And all would be well, if Nokia was reasonably healthy. But the Elop Effect was far bigger than certainly Stephen Elop himself expected (he admits that). And an unanticipated side-effect is that Nokia's featurephones unit also is losing sales and went from making profits to generating a loss. While they were not directly 'impacted' by the Microsoft announcement (the featurephones are not powerful enough to run the Microsoft operating system) and the Burning Platforms memo also did not really touch much on Nokia's featurephones, still the brand was severly damaged, sales fell severely, and now the featurephones unit is also generating a loss. And the networks unit, NokiaSiemens Networks, is also generating a loss. So while Elop bravely promised profits for Q2 in the single digits, he then had to come back with a profit warning only weeks later. And yes, in Q2, Nokia reported a big loss. But again Elop in Q2 results promised near zero profits/losses. That won't happen. And now they've slashed prices for Q3, to me that means bigger losses coming in Q3. Expect another profit warning any day now. And the stock market is punishing this performance severely.

The first five months of Stephen Elop's stewardship were received very warmly by Nokia shareholders. The Nokia share price climbed 11% from the day Elop took office to February 10. But after the Elop Effect, to the bottom last week, Nokia share price had then fallen more than 59%. (Now Nokia share price is wildly climbing due to take-over speculation).

I did my analysis of what kind of assets Nokia has and what kind of rivals might want to buy parts of Nokia. The big catalyst was the Google purchase of Motorola, especially for Motorola's big patent portfolio in mobile. Nokia's patent portfolio is even bigger, and its other assets are far more valuable but Nokia was valued on market cap only about 22 Billion dollars when Motorola was sold for 12.5 Billion. Many analysts said Nokia was a far better bargain, albeit a complex one where the new owner would need to sort out the mess of what to keep and what to sell.

And here is the danger to Microsoft. Any other buyer - any other - in fact any sane unbiased person - would look at Elop's recent actions (not the Elop Effect but after it) and look at the choice of Microsoft Windows Phone vs MeeGo, and conclude that Elop has not been acting in Nokia's best interest, in fact Elop the new CEO has made decisions severely damaging to Nokia's value - and will immediately fire Elop. And then, either provide full global launch of all MeeGo handsets in every market while abandoning Microsoft outright; or perhaps in the 'best case' for Microsoft, only launch MeeGo in every market immediately on every possible handset, and reserve the possibility to launch some Microsoft handsets later.

Regardless, if MeeGo is now launched on the hot new N9, not in tiny countries like Luxembourg, New Zealand, UAE and Norway, but in big smartphone markets like the USA, UK, Germany, France, China, India etc - then the newly acquired owner of Nokia will suddenly have on their hands the hottest phone of the planet (until Apple's iPhone 5 launches, obviously). The new buyer of Nokia gains an instant 'Razr Moment' for their new purchase. And as Nokia has several MeeGo handsets already fully designed and ready to roll, including the 'big brother' to the N9, the N950 - then these MeeGo handsets alone will turn Nokia's loss-making smartphones unit into making profits.

Remember, back in Q4 of last year, three handsets using Symbian's S^3 - Symbian - sold 5 million units and jumped Nokia's profits of the smartphone unit by 64%. That was not a hot phone, it was a long-awaited phone that had been hot half a year earlier. And nobody was going gaga over Symbian, not even its S^3 edition last Christmas. But now the tech press love the N9 and MeeGo. If MeeGo is given a fair launch, using Nokia's global reseller channels, in all major markets, with honest Nokia marketing push (and supported wholeheartedly by its CEO) then it will be a success. But even if you doubt that, at least if the CEO finds that the press love the new phone - the CEO cannot say he won't release it in Nokia's biggest markets. That even if the N9 is a success, he will never authorize another MeeGo phone. That is yes, in Microsoft's best interest, but it is not in Nokia's best interest. And Elop has not been acting in Nokia's best interest with MeeGo this summer. That is the primary reason why he will be fired on the day the new owners take over Nokia.

And any new interim CEO of Nokia will manage to turn the hot N9 into a big global success. It is produced in Nokia's own factories, so Nokia can control how many to make. It uses Nokia's standard components and runs on Texas Instruments chips, so no retooling is needed and Nokia gains in any increase in sales, in any bulk supplier discounts etc. This is what American managers call a 'no-brainer'. Of course if the market craves the N9 - and it is going to be manufactured anyway and sold in 29 countries, it launches in September - only a fool CEO would then say, but I wont' sell it in the best and biggest markets.

BIDDING WAR

So, any other prospective buyer of Nokia can approach the possibilty of buying Nokia 'rationally' by the honest real merits. What is the patent portolio worth. What is Navteq worth. What are Nokia's factories worth, what of its global reseller and carrier relationships, etc. But Microsoft cannot. For Microsoft this is the do-or-die issue. They became the biggest software company riding the PC wave which is now coming to an end during this decade. The next wave is smartphones. Already from Q4 of 2010, more smartphones were sold than all PCs of any kind and now the gap is only growing. This decade belongs to the smartphones. If Microsoft intends to be a big player in computer software still at the end of this decade, they have to be in smartphones. They have played all their previous cards and failed. Their last hand is now Nokia, and because of the Elop Effect, suddenly what looked so promising in February is in danger of slipping away.

So Microsoft cannot afford to lose Nokia. If Microsoft were to buy Nokia today, they could dispense with the pretend and just make Elop the President of the Nokia division of Microsoft and take full control of the smartphones and spin off most of the other parts they don't want or need. Forget about other Microsoft partners. Then there would be no suspense and who cares if Nokia's 'Symbian' market share hits zero by Q4. Microsoft would simply say, this is a transition, wait for hte new phones next year, and judge us by that. Nokia was too weak to do it alone, but now with deep Microsoft pockets, the new smartphones will be a big hit (and they'll say, like Xbox, and the skeptical press may add, or like Kin or like Zune). If Microsoft buys Nokia, they simply take over the company fully and then run Nokia smartphones the way Ballmer (and Elop) always wanted. And they write off this year.

But anyone else who would buy Nokia, would see the huge potential of simply MeeGo, which is now. The first N9 phones ship in September. The N950 is ready to ship now as well. If only the hot N9 and N950 did as well as the N8 and Symbian S^3 did last year - only as well - then Nokia's smartphone unit would generate a bonus income of 2.5 Billion dollars (this is income Elop mostly refuses to take in by refusing to sell the N9 and N950) and even if we use the overall smartphone unit profitability from Q4 (the profitabilty of the N8 and S^3 devices was certainly much better) even at that modest profitability level, the current smartphone unit losses would be eliminated! What moron CEO refuses that? Remember, Elop has no Microsoft phones to sell now. Why on earth would he not release MeeGo in every market, as Nokia is bleeding and desperate to find any profits?

Stephen Elop is no dummy. He knows if MeeGo is given a global launch even with only the N9 - an honest true Nokia designed Nokia-manufactured smartphone, it will totally outshine and outsell any Nokia branded Compal-manufactured first, rushed-to-the-market, very likely very buggy Microsoft-phone. And Nokia can't even secure production nor sales commitments from carriers to launch the first Windows phone broadly.

Elop has pursued his Microsoft strategy meticulously. He also knows this calculation. He is personally very aware of the finer points of large corporate takeovers, in his five months as CEO of Macromedia, it was Elop who orchestrated the companys' sale to Adobe.

So Elop knows, if Microsoft buys Nokia, Elop gets to keep his toy (Nokia), he will end up owning the future of Microsoft and unless he messes up - and in Microsoft's eyes so far he has not done anything wrong - he is the front-runner to replace Steve Ballmer as Microsoft's next CEO. 

And Elop also knows, any other buyer to Nokia now, and Elop is fired instantly, withouth mercy. While no doubt he'll have his old job back at Microsoft, he is now so heavily tainted goods, the rest of his life he will be known for the Elop Effect that destroyed Nokia. No matter what heroics he might achieve in his later career, he will be hounded by that reputation as the man who made the biggest management blunder of any career. His name will be synonymous with total executive disaster. So even if he were to have a comfy job, his life of expecting to be the next Bill Gates or Steve Jobs in the media spotlight will be extinguished. And as Microsoft would lose its mobile path, Elop would also be stuck in a company whose best days were behind it, and he'd have no chance of succeeding Ballmer as CEO.

So what does this mean? Elop is very biased. If any potential suitor were to approach Nokia trying to acquire it quietly, Elop will instantly inform Ballmer and make sure that Microsoft jumps in immediately, and then we'll have an open bidding war.

Microsoft doesn't want the bloated Nokia as it exists now. They preferred that Elop sell off NokiaSiemens Networks (one half of Nokia's employees and a third of its revenue). And ideally, also to sell off the dumbphones handset unit. And fire off tons of unnecessary Symbian etc programmers (as Elop has been doing). Meanwhile Ballmer is a businessman. He doesn't want to pay more for Nokia than necessary. So the continuous dive of Nokia share price this spring has been good news for Ballmer, thinking he can soon buy Nokia at a big discount. In a perfect world, he doesn't really want to own Nokia, Ballmer would prefer that Microsoft makes all the profits in the software and Nokia makes slim profits as a box-mover, just like say Dell was in the PC world as a Windows PC provider. But if needed, Ballmer will move to buy Nokia.

So now we have an interesting dynamic. If anyone other-than-Microsoft makes a move for Nokia, then I am 100% sure, Microsoft will instantly make a better offer and we'll get into a bidding war. Who has the pockets, who has the desire. These things then get often into matters of ego etc, but it should be interesting.

But I do not see Microsoft buying Nokia secretly like Google did with Motorola. I think even Ballmer and Elop know, that if they tried that, they (and Nokia Chairman Jorma Ollila) would be investigated for all sorts of insider trading, share price manipulation etc. And with national pride at stake, in addition to Wall Street (and Stockholm) the Nokia share is traded on the Helsinki stock exchange, and with Europe involved - Nokia is a big employer in many European countries and is considered Europe's biggest IT/tech company, Microsoft could face nasty EU investigations as well. 

But Ballmer is hoping that Nokia can survive to next year, and the new Windows Phone based Nokia smartphones are released, then most of the troubles would have passed. But the situation is too dire. Nokia will see a new profit warning within a few days or weeks. Then the Q3 results will come out with ever bigger losses in all units. Then the market shares come out for Q3 and Nokia will have fallen to about 5th place in smartphones and lost its global lead in dumbhpones to Samsung. By Q4 Nokia is deeply in the red and seemingly disappearing on every measure. If a buyer does not appear soon, I think the pessimists will win the day, and Nokia's share price will resume its steep dive. But I am not a financial analyst and this is not a Wall Street analysis blog haha..

So that is how I see Microsoft's conundrum. They did see the big smartphone opportunity and they made many plays into it, with ever diminishing success. Now they have played their last hand, that of Nokia and while it looked strong in February, now that Google bought Motorola, it seems very likely that very soon we'll hear someone is considering a Nokia takeover. And if so, Microsoft cannot stay on the sidelines. Then we're in for a bidding war. And no matter how we slice it, Nokia as we know it, will be history. And in a personal story, Stephen Elop's career hangs in that balance, if he brings Nokia to Microsoft, he is the hero and next CEO of Microsoft and Nokia the brand will soon be forgotten as yet another casualty of the rapidly evolving tech industry. Or else he can't bring Nokia to Microsoft, it goes to someone else, and Elop is the biggest laughing stock in all of corporate management with his name synoynmous with catastrophic self-inflicted suicidal destruction of the company you were hired to run. The Ninja assassin with a kamikazi complex turned suicide-bomber. And he cannot use the Nazi defense from the Nuremberg Trials, that 'he was just following orders' because he was not supposed to follow orders from Microsoft. Elop was hired to run Nokia. Not to ruin Nokia.

So What Value in Nokia Then? Considering Post Google-Motorola Purchase

So a few hours after I heard about the Google Motorola purchase, am more and more convinced the world will see now a bidding frenzy for Nokia. Nokia will be sold. And because Nokia's assets are so diverse (within the mobile space) I am also sure that whoever ends up buying Nokia, will then split it into some parts, because it won't make sense to hang onto all of the parts, and there will be plenty of hungry interested parties who would be willing to buy a piece of Nokia's remains. Lets explore these a bit. You may be surprised.

THREE HANDSET UNITS

First, we have the strange notion that Nokia actually is three separate handset companies. One is the cheap phones maker, which Nokia itself calls its 'featuresphones' unit. Then there is the current smartphones unit which is witnessing catastrophic sales collapse worldwide. That unit invented the smartphone and runs on the world's most widely used smartphone OS, called Symbian. The 'conventional wisdom' says that Symbian is a dead OS - but as we do on this blog, we don't deal with myths, we deal with the facts. We'll explore Symbian and Nokia's smartphones unit here in just a moment. You may be surprised.

And then there is something called MeeGo. This is the newest smart operating system for smartphones and tablet PCs and netbooks, which has had its first devices (netbooks and tablets) released this spring. The world's first smartphone sold on MeeGo is Nokia's hot new N9 and Nokia actually has several other smartphones ready to manufacture and sell using MeeGo. Note none of these are Microsoft's Windows Phone (those phones are not even manufactured by Nokia, the first Microsoft based smartphones will be subcontracted to Taiwan-based Compal. The tech press has gone gaga over MeeGo and the N9, some even calling it the 'godphone' (where the iPhone was called the jesusphone) and many think Nokia's N9 is its biggest hit ever, but idiot CEO Stephen Elop is refusing to sell the N9 in most of Nokia's strongest markets like the UK, Germany etc, and even in markets where Nokia has suffered in the past like the USA. So unless Microsoft buys Nokia, any other owner will immediately terminate the Microsoft madness and fully launch a series of 4 MeeGo based Nokia smartphones now in 2011 and many more in 2012.

THE BRAND

So thats three handset units right there. But Nokia is much more than that. Nokia is also the Nokia brand, what was quite recently one of the 20 most valuable brands in the world. While it has suffered in the past few years and has been badly damaged by CEO Stephen Elop's lunatic statements this year - I wrote the blog coining the term Elop Effect which combines the Osborne Effect and the Ratner Effect, as the most damaging CEO statements in the economic history of mankind - the Nokia brand is still strong in many parts of the world. We just heard last week that in South Africa for example (population 50 million) Nokia is the strongest phone brand and more people intended to buy a Nokia next year, than currently own a Nokia, so it is likely to grow there.. Similarly Nokia is still the bestselling phone brand of India, of China, of Brazil etc.

So I think whoever buys Nokia, in most cases will be a strong brand in the mobile space already and probably doesn't 'need' the Nokia brand. For example, Apple would never bother to try to sell Nokia brand alongside the Apple brand. Or Samsung would not see any real value in adding the Nokia brand to its portfolio, so the brand is likely to be sold. It might be sold as part of one of the handset units, but could also be sold independently. Remember Rolls Royce and Bentley? They were part of the same company, but the Rolls Royce brand was far more valuable than Bentley. So the owners split it so, that whoever bought Rolls Royce, only got the brand (inlcuding the flying lady hood ornament, the double RR logo and the iconic Rolls Royce grille design) but the other buyer would get the full Rolls Royce factory and the Bentley brand. So if you bought the first independent Rolls Royce it was actually less of a 'real' Rolls Royce than the Bentley of the same time which at least came from the original Rolls Royce factory..

I think the new owners of Nokia will do that with the Nokia brand, it will be sold as a separate entity. I think the Nokia brand would be very interesting to many smaller handset manufacturers out of China and other parts of Asia, so it could be sold to a Huawei or ZTE or G'Five etc who could then use the Nokia brand to provide a premium product within their products, for example as the brand for their smartphones.

NOKIA SIEMENS NETWORKS

I am not an expert in the valuation of brands haha. But we can discuss NokiaSiemens Networks. That unit, worth roughly one third of total Nokia revenues, has about half of Nokia's total number of employees (so roughly speaking about 60,000 staff) and made revenues of about 12 Billion Euros (17.4 Billion dollars in 2010), and was slightly profitable. Note, 19 Billion dollars in annual sales would get you into the Fortune Global 500, so NSN is nearly big enough to be a Global Fortune 500 corporation all by itself. In size the NSN unit is the third biggest telecoms infrastructure provider behind Sweden's Ericsson and China's Huawei. NSN has been somewhat of a 'recovery project'. Nokia Networks was a (slightly) profitable division of Nokia, then it acquired the loss-making networking unit of Siemens. Nokia turned that around and just after NSN was back to making profits, the Nokia management bought Motorola's loss-making networks division and that plunged NSN back into making losses, but they are now on track again to recover the networks unit to slight profitability. Very many analysts say that there is little synergy between a networks unit and a handsets unit, so almost whoever were to buy Nokia, would end up selling one side or the other. But there would be plenty of tech companies that could find considerable value in Nokia's huge global telecoms networks customer base, its deep patents portfolio in this area, its very deep engineering competence and factories producing very complex and expensive telecoms networking gear (potentially profitably). So if a Cisco wanted to go full steam into mobile, it might want to buy the networks side of Nokia while not wanting the handsets. Or a Huawei or Alcatel-Lucent could want to take the networks side of Nokia to bolster their scale and customer reach in the global battle against Ericsson etc..

The problem with NSN is that the owners are split, between Nokia and Siemens 50/50 ownership so whoever buys Nokia can't just sell NSN, they would have to convice Siemens to sell its part obviously. And recently Nokia had attracted three buyers but the final negotiations broke down and none of the three ended up making an offer for NSN. So this is not the hottest part of Nokia and its sale might take a long while and might have to be given away at cost or even at a loss.

NAVTEQ

The location-based mapping and advertising arm of Nokia, Navteq is the smallest of its four reporting divisions (smartphones, dumbphones, networks and Navteq). Their sales in the latest Q2 results were about one quarter of a Billion Euros, so in total Navteq has about 1 Billion Euros (1.45 Billion dollars) of annual sales (and made a loss). It has a couple of thousand employees. But its a hot area, mapping, navigation and mobile advertising, so this unit could get a big premium on its sale. This unit should be of interest to just about anyone who doesn't have a mapping solution (so not to Google haha) even including Apple. Anyone 'serious' in smartphones would probably want to bid on it, starting with HTC, RIM, Samsung etc. But yes, since its not making a profit, and its only a small unit by revenues, this is not the big part of whats on offer. But I think it legitimately ranks in the crown jewels. And depending on the buyer, it could be part of the piece that the original buyer of Nokia ends up wanting to keep.

PATENTS PORTFOLIO

The biggest value of any Nokia components is its huge patents portfolio. Nokia invented the smartphone, Nokia has been very busy innovating in the mobile space and also has meticulously pursued the intellectual property of all of its inventions (I remember from my times as a lowly product manager early in my Nokia career, that one of our milestones in the product development process was considering the intellectual property opportunities haha, that was a long while ago, gosh, time flies). Just as a sign of how strong Nokia's patent portfolio is, the lawsuits with Apple resulted in a settlement where Apple pays Nokia a one-time penalty fee for Nokia's patent infringements over the past 4 years of the iPhone - and new unique handset royalty payments for every iPhone sold, into perpetuity.

What is the value of that? We do not know. The rumor mill has been suggesting Apple pays 11.50 US dollars per iPhone to Nokia. We do know some royalty payments range from $5 to $15 so it would be in the right ballpark. If we use the $11.50 figure, then Nokia earns just out of Apple nearly one Billion dollars on an annual basis this year. Then there would be all other licencees (and if the new owner was in a litigious mood, they could sue some newer makers as well for even more royalties). If Google paid 12.5 Billion dollars for Motorola Mobility and one of its biggest motivators was the patents portfolio - Nokia's is bigger, and so if we value cautiously the patents at Motorola say at one third that, at 4 Billion dollars, then Nokia's patents might be worth what, 6 maybe 8 Billion dollars. Again, I am not an IPR lawyer haha but this is one of the parts of the crown jewels and in most cases, this will be a driver for whoever ends up buying Nokia. They must be a player who REALLY wants to be one of the true top dogs in mobile, who will value the long term use of the patents portfolio. But it could be that some buyer wants some other parts, and is not interested in becoming a handset maker and could even sell that portfolio (or parts of it).

OVI STORE

So then before we get to the three handset units, there is the big ecosystem. I wrote on this blog that while Stephen Elop dismissed the Nokia ecosystem as dead in his 'burning platfoms' memo (the costliest CEO memo of all time, and reason all alone for Elop being fired on day 1 of the new owners taking charge)  in reality the Nokia ecosystem for its smartphones was BY FAR the strongest, Nokia had more than twice the user number of the iPhone or Android (and was still selling more than either when Elop took charge). Nokia's developer community was by far the biggest. Nokia's carrier relationship - a sales multiplier - including the highly caveted carrier billing - was the world's biggest by far. Even if measured by the Apple loyalist favorite measure, downloads at the app store - even though Nokia's Ovi had been around for barely half as long as the Apple iPhone App Store, by the end of last year, Nokia's Ovi Store had passed all others like RIM's Blackberry or Microsoft's Windows Mobile or HP's Palm WebOS etc app stores, and had become the second most used app store if measured by number of downloads. The Nokia Ovi branded app store is definitely a major asset (one that Nokia's CEO is now trying to kill by destroying the brand). The interesting play with Ovi is, that Ovi Store not only supports Nokia's Symbian based smartphones, it also supports Nokia's cheaper featurephones running the S40 operating system. And with Nokia's migration strategy, the intention was that Ovi Store would also support MeeGo premium smartphone application sales.

What is the value of the world's second most used app store, that has the world's biggest customer base by reach? The App Store that reaches more than twice as many pockets than Apple's iPhone App Store? The only app store that has 'carrier billing' (the most desirable form of payment collection, allowing one-click payments directly to your phone bill, rather than entering credit card info etc) for over 100 carriers worldwide and supports over 30 languages. The App Store would be kept by the buyer if they want to be a player in smartphones - except obviously not if they already have their own app store - consider Apple iPhone, Google Android - or who might want to use parts of the Ovi store to enhance their own app store (ie Microsoft Windows Phone, Hewlett-Packard Palm/WebOS, Samsung bada). But this yes would have to be valued in the billion dollar plus valuation, the world's biggest software store by reach and second most used by traffic. This asset could even be sold to a major carrier group like Vodafone or Telefonica or T-Mobile etc to consider as their app store haha, but yes, most likely the buyer keeps Ovi, or else bundles it with one of the smartphone unit sales (see below).

ENGINEERING STAFF

Then lets talk employees. The NokiaSiemens Networking unit has about 60,000 employees, and their fate depends somewhat on Siemens and their competence is in the infrastructure side, so not necessarily of interest to all players in 'mobile'. But the rest of the engineers? The rest of Nokia staff is another 60,000 and a large part of Nokia's total staff are engineers. Nokia's engineering, R&D and design competence is totally second to none. Even after CEO Elop has been firing thousands of Nokia staff almost monthly, there is an abundance of extremely highly-trained, highly-competent, highly-desirable skills in very rare areas of very hard-to-find knowhow. Almost all who work in the tech space, say the 'mobile' side of the competence is the most complex and hardest to find. Nokia is overloaded with that skill - and as Nokia was known as a 'job for life' type of employer, where the monthly pay is low but the values of the company were of the kind you would feel comfortable staying there - many of Nokia's staff are vastly underpriced in their salary structure, compared to rivals. So if you were a tech company who wanted to boost your staff by say 10,000 new staff in super-competent mobile skills from radio competence (Apple?) to location to content to messaging to voice to video to whatever, this is perhaps the cheapest concentration of top level skill. No matter who buys Nokia will probably do a 'cull' of some of the best talent from Nokia's deep pools and augment their own units.

FACTORIES

Nokia has factories the world over. There are factories over at the networks side, but in handsets I think Nokia recently said they operate factories in nine countries. I have personally visited for example at their Beijing facility which is the world's biggest handset factory. And some of the premium superphone manufacturing ability is still in Finland, where new super killerphones like the N9 come from. So if you are currently in the handsets business, whether very high-end phones like Apple, or very low-cost phones like ZTE, Nokia would have facilities to instantly upgrade your production ability. And Nokia has those factories at most of the biggest markets too, from India to Brazil, so if you have a national focus need, then a Nokia factory already running in the big country you want to dominate, could be useful. In practise, probably the Nokia factories would be divided among the three phone brands as per below.

RESOURCING

As part of Nokia's competitive advantage - did you know, that until this Spring's Elop Effect, the Nokia handset division is the only major handset maker which had never - ever - produced a loss? The only quarter when Nokia Corporation produced a loss in the past decade, was caused by the Networks unit, and the Handsets unit still made a profit even in that quarter. All of Nokia's major handset maker rivals, Samsung, Motorola, SonyEricsson, Motorola etc - have all produced losses in their handset units, but not Nokia (until the Microsoft Madness of Stephen Elop's misguided strategy this Spring). The resourcing of components and supplies has been a core Nokia competence and source of competitive advantage (up to February 10 of this year obviously). This part of Nokia's competence could be a unit all by itself - sold perhaps to a loss-maker handset rival like LG or SonyEricsson now or sold either with dumbphones or Symbian smartphones unit here below.

CARRIER RELATIONSHIPS AND RESALE CHANNEL

Another massive competitive advantage Nokia has held for over a decade is its world-leading carrier relationships. Nokia is the only brand that is known in every country on the planet and the carrier relationships and management of the resale channel is what has enabled that global success. Nokia branded phones are used by over 1.3 Billion (today almost 1.4 Billion) people daily, that is far more than who drink a Coca Cola, or smoke a Marlboro, or wear Levi's Jeans or walk around in Nike shoes or write with a Bic pen. Up until the Elop Effect kicked in fully this Q2, for many years Nokia had been shipping more than 1 million mobile phones sold daily. Daily!  If anyone removed Stephen Elop and reversed his idiotic strategies, Nokia would instantly jump back to one million handsets sold daily (and recover to modest profits while doing that too).

This is the hardest job in mobile, building those carrier relationships takes years of meticulous business-to-business sales, accepting the rejection, cajoling, apologizing, trialing, pushing products, taking CEO's and buyers to the major sporting events like Football World Championships and Formula One races and the Superbowl and begging for more business, and then when getting it, supporting it with marketing, co-branding, handset customization etc etc etc. A long long long process. And Nokia has BY FAR the biggest and most powerful carrier relationships built the world over. I would say, that after only the R&D engineering competence and the patents portfolio, this, the carrier relationships, is the most time-consuming asset to build and has incredible value.

This assett would probably be split according to the three phone brands, certainly the sales of low-cost basic 'dumbphones' is a different type of sales process, to the topmost smartphones, and their markets would be different etc. I would see the salesforce split probably into two, one for dumbphone sales unit, and one smartphone sales for the new owner to massively boost its smartphone sales (RIM, Apple, Samsung, HTC, etc) or else if the new owner didn't want to sell smarpthones, then bundled with the Symbian unit. Ok, now the last three major assets: the three handset units.

DUMBPHONES UNIT.

The Nokia 'featurephones' ie dumbphones unit is now in trouble, thanks to the Elop Effect. But lets go back only six months, and examine what is the value of this unit. The Elop Effect for dumbphones can be mostly reversed with minimal effort (fire Elop, cancel Microsoft and restore Qt migration path ie Symbian, S40 and MeeGo). It won't get Nokia exactly back to where it was, but probably very close, with the dumbphones unit. Most dumbphone buyers worldwide have no concept of who or what is an Elop, what is Symbian, what is Microsoft, what is Windows Phone, and couldn't care less what OS is on their phone. They have maybe 100 dollars to spend, won't care about is it 'smart' or not, but would like a nice camera, a nice color screen, easy messaging etc. The average user worldwide. Most of the phones sold in India, Africa, Brazil, Mexico, China, Russia, Indonesia etc. Not the affluent rich, but the avarage user. They own a Nokia today, they are happy with it, and if the store sales rep was willing to sell another Nokia today, they would make an instant sale. But Nokia is facing a reseller boycott because of the Elop Effect. The desirablity of Nokia branded featurephones has not collapsed, only the sales channel interest in selling an obsolete Nokia phone..  So this effect is mostly reversable.

Lets go to Q4 of 2010, six months ago, just before the Elop Effect. Nokia sold 95 million 'dumbphones' in the quarter, earned 4 Billion Euros of revenues. Originally Nokia did not break down its profitability by division, but with its revised accounting, it gave us that info this summer. So we now know the dumbphones unit earned 470 million dollars of operating profit in Q4. When we multiply those by 4 to get a rough count of what Nokia should have been in 2011 (before the Elop Effect), Nokia's dumbphones unit is worth about 16 Billion Euros (23 Billion US dollars) in sales revenues annually generating a profit of 1.9 Billion dollars (2.7 Billion US dollars). How big is that?

If split into its own unit, the dumbphones side of Nokia would be as an independent company, the 423rd biggest company in the Global Fortune 500 listing and by profits, would be ranked 225th most profitable company!). They'd still own easily the world's biggest market share in mobile phones (even after the smartphones are removed, this Nokia dumbphones unit would be bigger than number 2 - Samsung - even if Samsung adds both its dumbphones AND its smarpthones).

Like I said, the brand would probably be a separate issue, but consider anyone who wants to be a Top 5 handset maker or to challenge Samsung for number 1? Take LG or ZTE or Huawei. Easily find tremendous value in acquiring this asset. A HUGELY profitable handset manufacturing juggernaut, which is only making losses now because of management madness by incompetent CEO Stephen Elop. Any clown in charge would instantly turn that unit back into profitability if Elop and Nokia's Microsoft misadventure was terminated. By terminated, I mean Elop's job terminated, haha, not to be physically terminated as in a James Bond termination job haha..

There probably would need to be a transition time for brand co-ownership and then someone would take sole ownership of Nokia brand and the other(s) would have to rebrand their part of the package. But consider, this dumbphone unit from Nokia alone is nearly as big as Google was before it bought Motorola! A little bit smaller than Oracle or Ericsson (the networks guys not the handset guys) and a bit bigger than Acenture, Lenovo or Alcatel-Lucent. By revenues this dumbphones unit would be significantly bigger than for example RIM the world's fourth-biggest smartphone maker.

And remember, differing from the dumbphones on most other rival brands, the Nokia featurephones running Nokia's S40 platform, are a kind of mid-ground 'almost' smartphone - they accept apps! They are fully capable of using the Ovi store. So while they are not anywhere in the same league as an iPhone or Android handset, for the very low cost markets, these are the 'poor man's smartphone'. They can do the full internet, can do app downloads, and have very nice specs for the roughly 50 dollar to 100 dollar and below price points.

I would think the buyer of this unit would be 'most interested' in acquiring the Nokia brand too, so it would make most sense to sell the brand here, a bit like how Rolls Royce brand and factory were split.

NOKIA SYMBIAN SMARTPHONES

So then the most dead of any dead smartphones, ever. Or maybe not. Yes. Symbian. It is true, that Elop has been torpedoing Symbian ever since he took office and his Burning Platforms memo and his Microsoft announcement have done irreparable damage to Symbian. Just to be perfectly clear - Nokia had failed int the US market. But on all other five of the six inhabited continents - and remember, that is where 92% of the planet's population lives - on all those other five continents, Asia, Africa, Europe, Latin America and Oceania/Australia - on those continents - all of them - Nokia's Symbian based smartphones were the leading smartphone - yes, the best-selling smartphone as recently as February 10, 2011. Nokia utterly dominated the biggest markets, in China its market share was measured north of 70%, in India over 60% of smartphones and in all of Africa Nokia had over 80% market share. With Asia and Africa that covers over 5 out of the 7 Billion people alive on the planet! And most analysts of the phone market say that during this decade, all 'dumbphones' will become smartphones - and for most of those people, they cannot afford an iPhone costing 600 dollars (when paying full price without handset subsidy of the 2 year contract). They will want low-cost smartphones. Like Nokia's Symbian smartphones - that were designed to operate on low-cost components, modest power CPUs and low amounts of memory etc.

Today Symbian is truly dying. Nokia's smarpthones have fallen behind Apple's iPhone and Samsung's smarpthones into third place. But just six months ago, Nokia was not just ranked number 1, they were as big as Apple iPhone and all Samsung smartphones - combined! That is dominance! That is what Stephen Elop had in his pocket, when he went mad and issued the Burning Platforms memo (causing the Ratner Effect) and destroyed the sales of Nokia smartphones with his Moment of Microsoft Madness (which caused the Osborne Effect) which caused the biggest collapse of sales of any leading global brand ever in the economic history of mankind (and caused the Elop Effect). So again, we cannot examine Nokia Symbian smartphone sales today. Elop destroyed that profit-juggernaut. But lets go back six months and see what Nokia had.

In Q4 of 2010, Nokia reported not declining smartphone sales as one might think - Nokia reported growth in unit sales of 7% from Q3. Yes. I know I know I know, the 'conventional wisdom' suggests that Nokia's Symbian was dying. It WAS true, it HAD been dying - the operative word being 'been'. It was not dying anymore. Check out the facts: Nokia smartphone unit average sales price shot up by a Nokia record of 14% from the previous quarter! Normally Nokia standard decline in ASP was about 7% as Nokia was migrating its customers and smartphones to lower-cost phones. So Nokia increased unit sales AND it increased prices? WOW. There is absolutely no way that anyone can say, that Nokia's Symbian phones were somehow obsolete, or dying, or undesirable! They grew unit sales and established a Nokia record for the jump in average prices. Wow. So, what of profits. Good that you asked. Nokia's Symbian-based smarpthones unit reported a - get this - jump of - 64% of its profitability! YES ! This is a unit that has a hit product on its hands and no possible 'gimmick' of any kind of price wars or discounts or marketing gimmicks caused the uptick in both unit sales and average prices - if profits also grew! That is genuine desire at Nokia!

This is the smartphones unit that Nokia CEO then killed on February 11 with his moronic statements. Nokia had a genuine hit product in its smarpthones - the new Symbian S^3 version was seen as fully competitive with most operating systems out there - no, I am not saying S^3 was 'as good as the iPhone' - nobody is - but it was competitive with Android, and far better than RIM's Blackberry or Palm or Microsoft's Windows Mobile or its new Windows Phone etc. You cannot grow unit sales, AND average sales prices AND profits - unless you truly have a hit product on your hands.

This is not reversable now. The damage done by the Elop Effect is enormous. But it can be partially recovered simply by firing Elop and cancelling the stupid path from the world's most used smartphone OS (Symbian) to the smallest and least-used (Microsoft's Windows Phone 7 which even today is losing sales and has shrinked to 1% market share globally).

Lets go back to Q4 of 2010, six months ago. Nokia's smarpthone unit sold 28.3 million smartphones, it generated 4.4 Billion Euros (6.4 Billion US dollars) of sales revenues and produced a profit of 548 million Euros (795 million US dollars). Clearly the smartphone unit had a dominating position in the global smartphone market share - as I said, as big as iPhone and all Samsung smartphones added together. As an annual sales company, this Nokia Symbian smarpthone unit generated the equivalent annual sales revenues of 26 Billion dollars and profits of 3.2 Billion dollars. This unit alone would rank 374 on the Fortune Global 500 rankings by revenues and by profits would rank 155th biggest giant corporation on the planet. What stupid clueless moron CEO takes that Goose that Lays the Golden Eggs and turns that into the turkey that makes a loss!

Now, in one year this cannot recover, the damage by Elop has been so severe. But also, the Nokia smartphone design competence is enormous. The Symbian and Ovi ecosystem installed base is powerful. The carrier relationships are strong. This could be a recovery project, with a 'target' of achieving a 20% or above target using Symbian - and remember, Symbian has a migration path to MeeGo, so this is the only legacy OS that is 'futureproof'. So whoever buys the Symbian Nokia smartphones unit and its factories, sales organization etc - would also obviously - obviously - sign up for the logical migration path to the most desirable smarpthone OS out there right now, which is MeeGo. And only Symbian has a migraiton path to MeeGo (using Nokia's developer tools called Qt). The stupid move by Elop was to cancel the migration path (because that obviously did not fit with Microsoft's plans). The smart move by whoever buys Nokia's Symbian unit, is to instantly restore the migration path, and to kill all Microsoft development plans and shift them to MeeGo migration paths.

This is a restoration project. This is like Google buying loss-making Motorola. This was a VERY healthy division of Nokia, which while being only the size of the 374th biggest company if set alone, still was so profitable, it would have been the 155th most profitable company on the planet. This is a VERY healthy company, that was driven into the ditch by Elop. Fire him, cancel the Microsoft strategy, resurrect the Symbian strategy with Ovi store, Qt migration to MeeGo, and this unit can be restored to something close to the value it had six months ago. The damage is not all lost, some can be recovered by smart management now. The phones are great, the sales organization is great, the latest Anna edition of the Symbian OS is very competitive. And whoever buys this, earns instantly the world's most used smarpthone OS - twice as big as Apple or Android by installed base - and with some love and care, can restore the new smarpthone sales to at least 2nd biggest smartphone maker, possibly even back to biggest and probably by next year, back to 2nd biggest smartphone OS by new sales (Android is now too big to be caught as the biggest obviously).

What is 20% or maybe 25% of all smarpthones sold worldwide worth? Its as big as all Motorola smarpthones, plus all SonyEricsson smartphones plus all LG smartphones plus all Sharps, Fujitsus, ZTEs and Huaweis and Lenovos and Dells and HP/Palms - added together! Remember, Nokia was very healtily profitable until the Elop Effect - and in the last quarter before his outrageous statements, Nokia average sales prices surged by a Nokia record and the profits skyrocketed by 64% from the quarter before. That is a company worth owning, even if the current CEO has driven the car into the ditch and dented it a bit (Ok, caused a lot of damage, but this is not a write-off. Remember, Symbian is the only OS apart from Samsung's bada, that works on very cheap phone hardware! This is THE strategy to get into the pockets of the next billion smartphone users. Not Android and definitely not resource-hog Microsoft Windows Phone OS haha).

Look at Nokia's phone portofolio. Still today, almost a year after it was released, the Nokia N8 is still the phone with the best camera. And remember consumer surveys from the USA to Europe to Asia - even among smartphone buyers - they value the camera MORE than the apps or the operating system! Nokia is a master at cameras thanks to its long standing partnership with Carl Zeiss. And what of the E7, that was a genuine killer smartphone by many reviews (just on the eve of the Elop Effect). Or the first casualty of the Elop Effect the X7 - a smarpthone so good (this is the first with the latest Anna version of Symbian), AT&T of the USA, agreed to sell it with handset subsidies, the first time Nokia had a premium consumer phone accepted by one of the big US carriers to sell with subsidy - a decision that Nokia (Elop) cancelled from its end - because Elop wanted the Microsoft deal and didn't want AT&T.

A company that is potentially the world's biggest smartphone maker again, but certainly at least the second biggest still today, that always delivered big profits for Nokia, would be far bigger than RIM or HTC or LG or Motorola with or without Google haha. This is a big profitable part of Nokia's assets but a vastly undervalued asset now, due only to the Elop Effect. While that effect cannot be totally reversed, it can be greatly minimized and Nokia can recover with its Symbian smarpthones unit - provided they restore the migration path back to MeeGo as was the official Nokia strategy up to February 10.

As I said, Microsoft needs to buy Nokia because anyone else will cancel the Microsoft path and restore Nokia to profitable business. But Microsoft would instantly become irrelevant in mobile if they now lose their last opportunity with Microsoft Windows Phone 7 operating system. So this strategy depends on who buys Nokia. If Microsoft buys Nokia, they will kill the Symbian path as outlined here, and force the Nokia smartphone unit to shift to Microsoft Windows Phone 7 as now is the Elop strategy. For Microsoft it wouldn't matter how costly this is, and what market share they are left with in the end. I have modelled the best case scenario gives them a bottom of 6% next year and a peak of 8% at the end of 2013 by Nokia going the Microsoft way. For Microsoft even if they do half that - and only get 4% with Nokia - that is 4 times better than how they are doing now without Nokia, as Microsoft's Windows Phone is failing so badly in the market that its share dropped to 1% in Q2 of 2011, this after Microsoft's best efforts including offering phones with so enormous discounts that they were selling for one dollar in the USA for example. Microsoft is dead without Nokia in mobile.

But if anyone else gets Nokia, they do the smart thing obviously and ditch the dead-end path of Microsoft restore Nokia Symbian and its migration to MeeGo, and get something like 20% or better market share by next year to Nokia smarpthones and something back to near 25% by 2013. That Nokia smartphones crashed from 29% market share in December to 15% today - is only due to the Elop Effect, nothing else. The phones did not develop suddenly technical problems (like Antennagate) or Nokia brand poisined by Nokia oil rig spill in the Gulf of Mexico or Nokia car brakes failing like Toyota etc. Nokia is fine, it was the CEO who was the cause.

MEEGO PREMIUM SMARTPHONE UNIT

Which brings us to the hidden gem. Would you like to have the owned Motorola one month before the Razr was launched? Would you have wanted to own Apple one month before the iPhone launched? Nokia is in that very rare and privileged position now - in August - that it is weeks from the launch of the hottest phone on the planet, the N9. This phone is not based on Microsoft, it is based on the newest, best, open source (Microsoft is not open source, Apple is not open source, RIM is not open source), Linux based (Google's Android is also Linux based), touch-optimized smarpthone OS, called MeeGo, developed with Intel. And yes, only MeeGo is a new OS that has a migration path from a previous OS - and isn't it nice if the OS you have your migration path from - happens to be Symbian the one with the world's largest installed base, by far the world's biggest developer community and the world's biggest carrier coverage and the second most used app store.

The tech press has not been as wild about any phone since the iPhone. No Nokia phone ever, ever, has had as strong a positive response as the N9 had when it was unveilled some weeks ago. The phone and its revolutionary swiping operation is loved by the tech reviewers some - some US based to be clear - have even gone as far as to say this is better than the iPhone. I won't claim that. But I do dare to say, the N9 alone, with MeeGo, is the biggest hit phone Nokia has ever had in its portfolio and only a total dumbass would refuse to sell it in every market. As the N9 is a premium price phone - and Nokia is suffering from losses this past quarter, Nokia should sell the N9 absolutely everywhere. As it is manufactured in Nokia's own factories - which stand idle (generating big losses) - using Nokia standard components (for which Nokia has bulk sales commitments to get the volume discounts) every possible reason says Nokia has to sell the N9 in every market it can. But Elop says no. He refuses to sell the N9 in most of hte biggest markets like the USA or India etc, and in most of Nokia's traditionally strong smartphone markets like the UK, Germany, France, Italy etc. Idiot. The Microsoft Muppet. But this management folly is easy to reverse and its effect is immediate and total - release the N9 to sell in every market and you have a hit phone, guaranteed!

Not a fake Nokia phone like the first Microsoft Nokia design which would be made in Taiwan by Compal's factories - this is a genuine Nokia design, made in Nokia factories. Whoever buys Nokia (unless its Microsoft) would instantly reverse Elop's idiotic decision to limit the N9 sales, release it to all markets, run the factories at full shifts, and flood the world with Nokia's best superphone ever.

How could it sell? Currently, really, Elop said the N9 will only sell in 29 'countries'; including such tiny ones as Luxembourg haha. The 'big' countries like the UAE, New Zealand, Ireland, Norway etc. Countries of under 5 million population are likely to get the N9. But not France, Italy, Spain, UK, etc countries with ten times the population or more (like Germany with 80 million population and where Nokia has always been by far the bestselling smarpthone until this Spring).

Elop has further deliberately damaged N9 and MeeGo sales by saying in public that 'even if the N9 is a hit, there will not be more MeeGo based smartphones from Nokia'. What a moron. But yes, any normally intelligent CEO would launch the N9 globally immediately (it starts to sell now in September in some small countries haha, even Sweden had to remove its N9 'countdown clock' from its website so even Sweden is not now sure if they'll get the N9. Is 8 million people really too big for Elop?)

So. Lets compare. The last phone that had some buzz from Nokia was the N8 which released for Q4 of last year. Conveniently for our analysis, it also was on a new version of the OS, Symbian, and its S^3 version. How did it do? Nokia said that all S^3 sales totalled 5 million in Q4 - that was across three handsets, only the N8 sold the full quarter. It was analyzed by independent sources that the N8 sold between 3.5 and 4 million of those phones.

The N9 is a bit more expensive than the N8 but it has far more buzz now, and the overall smarpthone market has grown since Q4. So in rough terms, we should be able to see at least 3 million N9 sales in one quarter. At an average sales price of 500 dollars and multiplying that sales with four quarters, we look a MeeGo based Nokia premium smarpthones division generating sales of conservatively at least 6 Billion dollars (and it should have at least similar profitability as the Symbian phones had in Q4, so they'd make about 750 million dollars of profits (in reality much more, because remember, the Symbian profits included far older phones too, and lower cost less desirable phones on the older Symbian OS as well).

But wait. There is a second MeeGo phone ready to sell right now in August! Yes! Even though Elop refuses to sell it (Nokia is only making a small run for developers) it is called the N950, and it is roughly speaking similar to the N9 what the E7 is to the N8, the N950 is an even more premium smarpthone with a slider QWERTY keyboard. So Nokia could right now release two MeeGo based premium smartphones instantly and sell them if only the CEO allowed it. And both running the magical new MeeGo OS that many tech pundits think is the best OS (or second only to the iPhone) out there, far outclassing the Android, Blackberry, Microsoft Windows Phone, Palm, bada etc operating systems out there.

But wait - actually there is a third MeeGo handset. Elop killed a previous MeeGo based Nokia model in January, called the N9-00. And if we stretch the issue a bit, we could even sell an older Nokia model, the N900, with the new MeeGo operating system (the original N900 ran MeeGo's predecessor OS, called Maemo) but as this phone is about two years old, it could be manufactured at significantly lower costs, as a kind of 'entry level' model, similar to how Apple sells the older 3GS iPhone even as it sells the newer iPhone 4. So. I can see your MeeGo N9, and raise you four models. Four MeeGo based, genuine Nokia design premium smartphones, that run the newest and most exciting smartphone OS - MeeGo - Linux based, open source OS - that has a full migration path from Symbian!

The other three phones are definitely not as hot as the N9, but if three phones running Symbian S^3 were able to sell 5 million units in Q4 when two of them sold less than the full quarter, and now we'd have 4 phone models, then surely these 4 Nokia MeeGo smartphones should sell 5 million units per quarter. Their prices would vary from below to above the N9. So if we average the prices at 500 dollars (most of the phones sold would be the N9 model) then this company total sales would be worth 10 Billion US dollars, earn a profits of about 1.2 Billion dollars and at 20 million smarpthones sold annually, this MeeGo-only premium Nokia smarpthone unit alone, would be ranked the 8th biggest smarpthone maker! (yes, bigger than Motorola that Google just bought).

MeeGo and the N9 were the result of what Nokia could do, when given the task to leapfrog Apple iPhone to create the world's best smarpthone. We can't know how good it is, unless it is fully sold and supported by its owner, not if it is being badmouthed by the CEO. But any competent CEO - or the new owners of Nokia - would instantly release the N9 (and the three other MeeGo devices) and give them the best possible Nokia marketing support NOW. In every market. NOW. in the USA now. In the UK now. At every carrier and operator around the world - come on, China Mobile the world's biggest mobile operator - as big alone as all US carriers - doubled - has said it will priortize MeeGo! MeeGo! And Nokia is the only maker of MeeGo smarpthones today. Why not use China Mobile and make this the must-have superphone of China - while China Mobile cannot sell the current iPhone because that is incompatible with China Mobile's network technology (Nokia has provided smartphones on the China Mobile standard called TD-SCDMA for many years now).

Oh, by the way, the smart buyer of Nokia will go after Anssi Vanjoki to run this MeeGo unit as it was supposed to be, and allow all the fired/resigned MeeGo top staff to be rehired to bring the unit to its full potential, obviously.

SOME POTENTIAL BUYERS

Microsoft - sell NSN, sell dumbphones, sell Nokia brand (sell Microsoft branded smartphones, Nokia value more to Microsoft by selling it, than attempting to keep and co-brand it), sell dumbphone factories and most of the sourcing (Microsoft phones use many different chips etc) keep Navteq, keep patents, keep Nokia smarpthones, related factories, engineers and especially smartphone sales staff and carrier relations, keep Ovi store but kill Ovi brand, use Ovi as the rebranded Microsoft Windows Phone store, use the MeeGo unit to create iPhone killer (but running some future edition of Windows Phone) in the style of how Zune was supposed to kill the iPod.

Intel - sell NSN, sell dumbphones, sell short-term rights to Nokia brand for dumbphones but for example 2 year transition after which the dumbphones unit has to rebrand to something else. Keep Navteq, meep patents, Nokia Symbian smartphones, Nokia MeeGo smartphones including related factories, sales, carrier relations and Ovi store. Bring Anssi Vanjoki to run it all.

Samsung - sell NSN, sell some of the dumbphones parts including some of its factories at the low end but keep the smartphone factories and engineers and sales staff but keep probably a few factories of super efficiency and scale in desirable countries, retool those for Samsung basic phones. Sell Nokia brand to someone other than the one who bought the Nokia factories (so that Nokia will definitely go to a smaller rival brand to ensure that Samsung is world's biggest phone maker). Switch Symbian to bada, adopt MeeGo as Samsung's premium OS (shifting gradually from Android to MeeGo, now that Google is owning Motorola). Keep Navteq. Keep the patents, use it to get rid of Microsoft tax on Samsung Android phones and to get rid of Apple blocking of Samsung tablet sales in Europe. Take the Ovi store and turn it into a Samsung/bada/Meego store. Only selectively keep engineers (Samsung is very deep in fresh graduated engineers out of South Korea and many parts of Asia, cheaper and more recently graduated)

Hewlett-Packard - sell NSN, sell the dumbphones unit and Nokia brand. Keep Navteq, patents, the Symbian unit and its sales organization and factories and engineers. Sell MeeGo unit (too much overlap with Palm, all HP really needs is the sales organization and factories to become big player)

Cisco - Keep NSN, keep patents, keep Navteq, pick much of the top talent from engineers. Sell dumbphones, sell Symbian smarpthones, sell MeeGo smartphones, sell Ovi store, sell Nokia brand.

Apple - sell NSN, sell dumphones, sell Nokia brand, sell Symbian unit including engineers and sales staff, but keep its factories and switch away from Foxconn to use Apple's own (ex Nokia) smartphone factories to get more control of production and (even) more profits. Keep MeeGo unit to help build some future iPhone or split of product line but never release any visibly Nokia designs under Apple brand. Keep patents, keep Navteq, keep some of top engineers, keep Ovi store for its carrier relations and end Ovi brand obviously, adapt that to App Store.

Google - haha, this is a twist but could be sneaky.. Remember, you can buy Nokia and sell most of its parts, so its total cost is not as heavy. Sell NSN. Sell the dumbphones unit and Nokia brand. Keep the Symbian unit but migrate it to Android as Google brand, but promise all Android partners that similar to Motorola, Google will release the Nokia smartphones unit into its independent entity as soon as it has migrated to Android and has returned to profits, ie latest late 2012. Becuase this is very sensitive now, with Moto and Nokia, Google would have more smartphone capacity inhouse than its partners have, Google should almost instantly turn these two units into semi-independent units, even when still generating operating losses, for example sustained with Google-financed loans, but not to be in Google's formal control. Sell parts of Navteq that are direct competition to Google maps and Admob etc. Take the carrier billing parts of Ovi store and incorporate to Android store. Pick best brains of engineers to enhance Google's mobile mission. Use the Nokia acquistion as a kind of bargain-price headhunting task, resulting in big Google campuses in Finland and other major Nokia bases of today (Singapore, Spain etc). Adapt the Qt development tools to include Android, giving past Symbian developers and any Intel partners a natural migration option to Android in the long run. Then sell off the MeeGo unit. Obviously terminate all Microsoft work.

Sony - sell NSN, sell dumbphones, sell the Nokia brand, sell most of the smarpthones unit and most of the MeeGo unit but cull them for what best parts can enhance Sony or SonyEricsson. Keep the patents. Sell Navteq, sell Ovi, but keep some of top engineering talent. Of phones, keep essentially what were known as N-Series phones for their cameras, musicplayers etc - incorporate those engineers, designs, factories and sales - to SonyEricsson handset sales. This strategy would not make sense if SonyEricsson handset unit continued as an independent. So Sony would have to buy out Ericsson out of the SonyEricsson partnership. Even then, probably easier not to mess with all Nokia assets, just take SonyEricsson into Sony ownership and run with that (with Playstation Portable etc)

Siemens - if they have sellers' remorse, they could come back instantly via Nokia. Keep NSN. Keep Navteq. Keep Symbian based smartphones unit and MeeGo full MeeGo migration and Ovi store. Keep the smartphone factories and sales. Keep the patents. Sell the dumbphones unit and sell the Nokia brand with a time-share, where Siemens could keep Nokia branding for about two years, after which it goes 100% to the new buyer of dumbphones (while which Siemens would re-instigate the Siemens brand).

Hon Hai (ie Foxconn) - sell NSN, keep Nokia brand, keep all efficient Nokia factories, certainly all dumphone factories and most smarpthone factories. Sell Navteq, sell the Ovi store, sell the MeeGo unit, keep the patents. Turn this into Hon Hai/Foxconn's major global strategic move from being a manufacturer of other brands, to selling under its own brand but on low-cost featurephones (in style of ZTE) and low-cost and mid-price smartphones (in style of Samsung bada). Thus keep Nokia sales channels. Keep the Symbian OS to prove to Apple that Foxconn cannot be a 'serious threat' to the premium customers that Apple attracts (because Foxconn wants to continue to make iPhones etc). Sell most of the engineering, design etc as far cheaper engineers can be hired in Asia.

Dell - sell NSN, sell dumbphones, sell Nokia brand. Keep Navteq, Nokia Symbian and MeeGo smarpthones including its migration path and Ovi store and factories, engineers, sales and carrier relations. Keep patents.

ZTE - could theoretically keep most of Nokia and make use of it but lets say they were 'selective' then at least they would keep NSN and instantly leapfrog domestic rival Huawei and Ericsson to become world's biggest telecoms infrastructure provider. Keep the Nokia phone brand and use it as a premium brand but sell the dumbphones unit (ZTE has ability to sell dumbphones even more cheaply today). Sell the Symbian unit but keep the MeeGo unit and launch the N9 etc MeeGo phones as ZTE's world domination superphone play, and thus keep much of the smartphone sales staff. Sell most of the engineers and factories for handsets and probably also the Ovi store and Navteq, where ZTE's big plays would be in the scale of infra and lower cost handsets. Keep patents.

LG - Well, anything Samsung can do, LG could do too, right? Same play as Sammy, but LG could keep the Nokia dumbphone unit - and thus leapfrog Samsung to become world's biggest handset maker (and with Nokia's efficient factories etc, turn LG's phones unit into profits). Sell the Symbian unit and with it the Nokia brand but keep the MeeGo unit as LG's premium phones unit, and migrate from Android to MeeGo while riding the hot N9 and siblings to big smartphone successes. Obviously sell NSN, keep the Ovi store but rebrand for LG and keep Navteq and patents.

Any Japanese phone maker like Panasonic, Sharp, NEC, Fujitsu etc - By acquiring Nokia the Japanese player would make an instant global return to the mobile market as a major player. As typical of most Japanese, they'd probably instantly rebrand to their own brand so Nokia brand should be sold, as should NSN. I think Japanese players would see no point in fighting for ever slimmer margins in dumbphones so sell the dumbpohne unit and keep the Symbian smarpthones unit (compatible with most Japanese makers anyway who made Symbian until a few months ago) and the migration path to MeeGo and the Ovi store, patents, Navteq.

Alcatel-Lucent - Keep NSN and instantly become biggest infrastructure maker. Sell most handset stuff including dumbphones, Nokia brand, Symbian phones, Navteq and Ovi store, but keep the MeeGo unit and take the big profits of the hit N9 phone, and use that to relaunch Alcatel branded phones into many markets that the French maker has left years ago but play the smartphones only at very high end premium smartphones in style of Apple. Keep the patents.

Many many others could want some parts of Nokia: Huawei, Amazon, Oracle, HTC, Ericsson, Pantech, Lenovo, SAP, even some big operators/carriers possibly like China Mobile, Vodafone etc.

And the imaginary Management Buy-Out - And lets imagine for a moment, that some wealthy Nokia managers get together with some investment bankers and buy out Nokia. If it was thinking of what is 'best for Nokia, strongest Nokia, best for long term as pure Nokia' - then yes, NSN would have to be sold, it makes the package too expensive. The dumbphones unit will never bring as good value as today, sell it too, and the mass volume factories and related sales, but rent the Nokia brand for them for a minimal period like 18 months perhaps. Keep the Symbian smartphones unit and MeeGo unit, restore the migration path (fire Elop and end the Microsoft misadventure). Keep Ovi, Navteq and Qt development tools. Keep the patents. Thus put Nokia Corp on a severe 'diet' and immediately cut it to one third its current size, but keeping its most profitable parts and its migration path and growth into the future. Ride the N9 and MeeGo hysteria to the max. If there were some wealthy Nokia owners who maybe were looking at the drop in Nokia value and considered this scenario, now would be a high time to make their move, because if it gets into a bidding war, probably the big tech giants would have deeper pockets to end up owning Nokia.. The obvious guy to run this company would be Anssi Vanjoki again, but it might be personalities issues with the buyer group who might have their own 'leader' who would want to then run Nokia (but Anssi could also be one of the buyers haha, he's quite an affluent guy haha)

So there you have it. What is there of value in that old brand of Blue, Nokia, the company whose ringing tone is the most recognized song on the planet.. Whoever ends up buying Nokia will almost certainly not keep all of Nokia. This was a primer on what parts might be of interest to what kind of parties, and in some cases, also what kind of valuation one might give to individual units.

(Also please note, I am on summer vacation, so while I enjoy the comments here, please don't be alarmed that my responses are likely going to be very delayed during August)  

Another Death in the Bloodbath: Google Buys Motorola Mobility

Well, I did say we can expect fireworks and that there are too many competitors in the smarpthones space. Today Google bought Motorola Mobility for 12.5 Billion dollars. Part of why the timing, is no doubt the 'sale' that is going on at Wall Street right now, because of the big share price declines, major corporations are on discount if you ever wanted to buy a rival.

WHAT'S IN IT FOR GOOGLE

First, this is a big move obviously. I think this is a good move by Google but one that gives it a conundrum. Lets first see what they get. Motorola had a deep patent portfolio in the mobile space. As Google has said tis future is completely tied to mobile, and as the rivals like Apple and Microsoft have been suing Google and its Android partners about patents issues, the patent portfolio is one major asset and reason to do the acquisition.

Secondly, they get a major handset maker. Motorola is a top 10 smarpthone maker and a top 10 overall 'dumbphone' maker. Motorola's current production level is of the capacity of about 8-9 million handsets made per quarter (30-45 million per year) of which currently two thirds are smartphones. Motorola has very aggressively been shifting its total production from dumbphones to smartphones and Motorola was the first major brand to go solely Android (leaving Nokia's Symbian alliance and Microsoft's Windows based operating systems). But just recently Microsoft has spoken in public that they 'might' want to join Microsoft Phone 7. I think now its obvious to see, that was a bargaining ploy, to force Google to boost its price and make its move, before Motorola signed any deals with Microsoft..  So remember, this puts Google now in the 'big leagues' with such rivals as Nokia, Samsung, LG, HTC, RIM and SonyEricsson - and gives Google more control of its handset division than Apple (who outsource their handset production to Hon Hai ie Foxconn).

Thirdly, Google gains a major handset brand in the two biggest national markets for smartphones - USA and China (Motorola is third bestsellling handset brand in the USA, and third bestselling smartphone brand in China). But in most of the rest of the world, what Motorola once was (had 21% market share) is now mostly gone. Yet, if Motorola had the carrier relationships and manufacturing and shipping capablity to support some 500 of the 600 carriers of the world - far more than say Apple - with some Google money and organization and 'intelligence' they could quite possibly now recover. But a brand is very valuable and in these big markets, Google would be wise to keep the Motorola brand alive for a while (perhaps shifting to Google over time) and in the rest of the world, might well want to shift more rapidly to Google/Nexus branding and just use Motorola's sales organization or what remains of it to break into those markets.

WHAT MOTOROLA GAINS

Motorola has been making losses for years now. So Motorola has not been able to capitalize on whatever clever ideas they may have had, and have been far sub-optimimized because at all times they've been struggling to just try to recover profitability. Its not like smartphones cannot be hugely profitable - look at Apple, HTC, RIM etc - and also low-cost 'featurephones' or 'dumbphones' can be profitable look at Samsung, ZTE and (the recent past of) Nokia. So its not like Moto was in a bad industry, they were definitely a diamond in the rough, that was just VERY BADLY mis-managed, as I've chronicled here on this blog for example many times.

If Motorola gains first of all some injection of cash, to hire good staff, to provide long-overdue salary increases to critical staff, to keep best staff from exiting the company etc - and to help boost Motorola marketing and sales activities (stop the bleed from the rapid decline of Motorola's once overwhelmingly powerful sales organization) - there is no reason Motorola could not have a resurgence similar to what it did with the Razr in the middle of the last decade. Google has shown a great interest and ability in innovating in the handset space both via Android and via the various Nexus phones. What Google didn't have was the sales organization and carrier relationships - now suddenly Motorola becomes - SuperMoto! Able to leap over buildings and more powerful than a locomotive (like Superman). There are no doubt many pending ideas sitting in Motorola's R&D and also at Google's R&D, that could be superphones as soon as next summer/autumn.

ANDROID ARMY

So what of the other Android makers? Samsung, HTC, SonyEricsson, LG, ZTE, Huawei etc.. Many of them had been recently in a 'partenrship' with a handset maker who controlled the operating system - I am talking of Symbian and Nokia. And we could see how quickly they all abandoned Nokia and Symbian when Android came along. I think its pretty clear, that all of these makers would prefer that Google is not both the owner of Android, and making a handset. So we come to a conundrum.. What should Google do.

One obvious choice is that Google keeps full control of Motorola, and becomes a full rival to the others of the Android army. Android already has 45% of the total smartphone market, with a vibrant Android apps space etc. Google can spin this story to the Android partners that Google will use the Motorola patents to protect the partners so they don't need to pay Microsoft (Microsoft earned more from Android patent fees than from Windows Phone 7 sales in Q2) or Apple (who just blocked Samsung's Android based Galaxy tablet PC from being sold in Europe) etc. But this is a murky area for a company who says 'do no evil'.

If Google holds 100% ownership of Motorola handsets and sells either Moto or Google branded smartphones, then I think several of the current Android army would seek alternate platforms. Samsung has its own in bada, and I think regardless, this move reinforces Samsung's HQ that the decision to invest in bada was the right move and they'll just migrate ever more of their smartphones from Android to bada. Expect bada to 'grow' into more mid-price and even premium phones soon. And remember, Samsung is the biggest of the Android makers.

HTC is the other big Android maker who just a few months ago complained about how badly they were doing in Microsoft based phones and that they'd shift ever more production to Android. They now feel certainly a bit like being stabbed in the back. So I'd expect HTC to shift some attention now back to Windows Phone 7. SonyEricsson might well also add some new focus to WP7.

Then it gets interesting with the rest. LG, ZTE and Huawei have all committed to MeeGo (the newest OS developed by Intel together with Nokia which was supposed to be Nokia's new OS). Because MeeGo is Linux based like Android, it will be a far easier change from Android to MeeGo. I would expect solid commitments to MeeGo by some of these players and possibly some pick-ups by MeeGo from other handset makers who suddenly dont' feel so happy about Google and Android. LG also is in the WP7 camp but I think because of their loss-making, the far cheaper option is to shift now to MeeGo rather than WP7.

IF GOOGLE DOESN'T KEEP MOTO HANDSETS

But I think there is a further twist that is possible. Google knows its handset manufacturers do not want Google in the race, that is what Google heard when they launched Nexus One. The carriers also are dubious about Google and fear it might be getting too powerful. Google might be best served to help Motorola onto its feet, and then float Motorola as an independent phone maker soon. And to communciate this very loudly and clearly to its Android family.

This is how I'd do it if I was Google. First, do a lot of cross-pollination of Google and Motorola talent. Give Moto a big long-term low-cost loan (like how Microsoft gave a loan to Apple to keep Apple alive) and then take a group of senior Google engineers and staff who have a particular love or interest in handsets - and send them onto 'sabbatical' for a year or two, to provide short-term brainpower to Motorola. A luxury billionaire-version of an 'apprenticeship' where the staff would remain Google employees, but would get to go do a year or two of 'real work' designing the next generation of superphones for Google - with of course shared patents coming out of that for both Google's and Motorola's shared intellectual property - and these staff would be guaranteed a return job at Google if they wanted to come back in a year or two. Meanwhile Google would also actively headhunt some of Motorola's best talent to pick to join Google..

Then prepare Motorola Version 2 to re-launch as an independent stand-alone handset maker (minus its patent portfolio and some selected elements and some premium talent). Use Google resources to produce a set of superphones for late 2012 time frame that should be able to propel the recovery of Motorola. And once that is done, when Motorola's handsets are back in making profits and back to growing market share, with a hit phone - then sell Motorola and launch it to the stock market back as an independent company - but of course one where Google would retain a small share like 20%.

This way Google would get the best of all worlds. One, they get their patents. Two, they get to 'fix' Motorola which for no conceivable reason is struggling in a market with a strong brand, good sales organization but producing losses year after year. Three, they gain a strong participant in the Android army, but as Google is open about the intent to launch Moto soon to be independent, they would not anger the Android army. And four, to the degree premium smartphones are a VERY lucrative hardware play (witness Apple) by helping Motorola position itself against Apple (powered by Google), Google could gain (20%) out of that opportunity.

Thats what I'd do. Else there is the danger that Android will go the way of Symbian haha.. And the shuffle behind the scenes today is very intensely Intel with MeeGo, Microsoft with Windows Phone 7 and even HP with Palm/WebOS recruiting handset makers to shift away from Android - and these three are all big giants who can afford to put some dollars on the table too - money that a loss-making LG or SonyEricsson for example could be very happy to get..

WHO IS NEXT

So, Motorola Mobility, which has annual sales of 13 Billion dollars was now sold for 12.5 Billion dollars, where its patent portfolio was a very major part of what made the deal so attractive to Google. Who is next? Nokia is the obvious target, their market cap is down to 20 Billion dollars, their annual sales are at 56 Billion dollars (last year) more than 4 times as big as Motorola's and Nokia has the deepest patent portfolio of any tech giant in the mobile space. They also have several highly valued assets that could be sold independently to make the purchase price of Nokia cheaper - ie Navteq the mapping, navigation and advertising unit; NokiaSiemens Networks the networking unit; dumbphones, smartphones, the Nokia brand etc. And on the inside track is Microsoft, no doubt Steve Ballmer's investment bankers have had a plan in place to buy Nokia from the start, just in case the Stephen Elop-led Nokia partnership turned sour at any point. Like Motorola, Nokia too is now making losses so its a very obvious take-over target and as to a Wall Street discount, Nokia is down 58% from its recent peak of early February, thanks to the mismanagement of new CEO Stephen Elop.

RIM is another obvious target, a former smartphone giant who has recently turned into losing sales. But RIM is still making profits. And compared to Motorola and Nokia, RIM is no patents powerhouse.

Its also possible that SonyEricsson might go, but then I think the obvious buyer would be Sony, who might want to stop the partnering with the Swedes, and take full control of SE. As SE is making losses again, Ericsson might be willing to throw in the towel, if Sony made the offer sweet enough.

HTC is a long-shot, they are growing and making profits. Their patents portfolio is not big so here is a rather expensive rival who would not have very much beyond simply the smartphones maker itself.

Who might be in the game? I think we can easily look at the top 10 top 12 biggest tech companies and find many of them, maybe most of them, eager to consider a purchase. In order of size the top 10 is: Samsung, HP, Hitachi, Siemens, Panasonic, IBM, Sony, Toshiba, Apple, Microsoft. Then we have plenty more in the mid-field like Intel, Amazon, Cisco, Fujitsu, NEC, Philips etc. If Siemens or Philips are experiencing some sellers remorse about getting rid of the mobile handset business (and looking at Apple in an envious way) this could be a fast way to get back. If a bit-player in mobile who once was big, like say Panasonic or NEC would want to get into it at full steam, this would be the fast way. Or some of the tech companies who may have had regrets for 'missing out' on the smartphones opportunity like say Cisco or IBM, this could be the fast track into that game. And obviously for those big players who seem to have mismanaged their opportunity in the past, like say HP and Microsoft - now they could buy a really big smartphone player and get back into the game for real.

Also don't forget the billionaires.. What if Carlos Slim the richest person on the planet - who already knows how important phones are to his business - he made his billions in the mobile telecoms operator/carrier business. Would he want to have America Movil branded handsets to his specs? Or say Hong Kong's richest man, Lee Ka-Shing who owns an empire from harbor installations to yes, mobile phone operator/carrier businesses of the Hutchison Group and Three branded operators in a dozen countries. He even actually owns a small handset maker in Europe called INQ Mobile. If he felt like buying one of these players - like say Nokia (and selling parts of it) - suddenly his early play into handsets would be amplified massively.. Keep a couple of the big Nokia handset factories like in China, India, Brazil etc- and sell parts of the piece he wouldn't find worth keeping etc..

NOKIA NEXT

I do think Nokia is the next on the chopping block. Nokia is a juggernaut, a profit engine that is being ruined by moronic management right now (remember, in the first 5 months of Stephen Elop, before he announced his crazy Microsoft strategy, Nokia was growing sales, growing revenues, growing average sales prices, and grew profits by a Nokia record; and Nokia had a hit new smarpthone OS version of Symbian called S^3 which was so successful in the first quarter it sold 5 million units worldwide - ever since Microsoft's Phone 7 has launched, it hasn't sold 5 million total up to now! and now we have seen, they even have a second even more desirable OS in MeeGo that only a lunatic CEO would refuse to sell when Nokia sits on the hottest pair of superphones, the N9 and N950 that would return Nokia to profits instantly. All that it takes is to remove Elop from the CEO chair and put any recent MBA graduate to run Nokia and it generates profits again) 

And I do think we'll see a visible public rush for it, not this sudden secret sale like Google's purchase of Motorola Mobility. Microsoft will have to bid, their whole mobile future is sitting on that one card they have left to play, Nokia. And equally, if there is a public contest, I think Intel would be foolish not to get into it - the perfect solution for Intel is to buy Nokia and abandon the Microsoft strategy, and for Intel to get its MeeGo OS based Nokia handsets as they wanted - such as the magnificent N9 and N950 that Nokia now is not giving most of the world. We could easily see four or five big tech giants bidding for Nokia.. In almost any case, whoever buys Nokia will sell off NokiaSiemens Networks - and Stephen Elop's career hangs in the balance of whether Microsoft gets him - any other buyer will fire Elop on Day 1 of owning Nokia.

Then I think the biggest loser of the Nokia Sweepstakes would probably almost instantly go use their money to buy RIM haha..  And we might see HTC also sold in the aftermath.

This kind of environment might also see some other 'friendly' mergers, as suddenly some of the players get very big. We might see other big mergers in this environment in the tech space, where one player feels they are losing out on the mobile space. What of Dell for example? Or HP's rather weak showing in mobile after they bought Palm. What of Cisco who has often played around mobile but still play only on the infra side and in a limited way in mobile.

Ok. Thats my thinking right off the news. Exciting times in the Bloodbath Year 2: Electric Boogaloo. I am pretty sure this is not the last merger/acquistion in this mobile space and we may well see a very public race for the carcass of Nokia. Stay tunes, same Bat-Channel, same Bat-Time..

Coining Term: "Elop Effect" when you combine Osborne Effect and Ratner Effect

I got a great tweet from Matthew Bassett @hewbass on Twitter who pointed me to the Ratner Effect when discussing the Osborne Effect and Nokia's CEO Stephen Elop and the market share massacre he has engineered at Nokia this year (Nokia towered over its rivals only six months ago with 29% market share in smartphones, today it has fallen to 15% and third place and is headed to single digits by year-end).

I am about to coin a new term, called the Elop Effect, the most damaging CEO statement conceivable and proof of ultimate management incompetence in the CEO. But lets understand Osborne Effect and Ratner Effect first.

Osborne Effect, as defined by Wikipedia is "a term referring to the unintended consequence of the announcement of a future product ahead of its availability and its impact upon the sales of the current product."

So the Osborne Effect does not really take issue on whether the current product is good or bad, it is only the announcement of the next version, which will make the current edition instantly obsolete. That means the current prodcuts will not sell, the sales collapse means prices have to be slashed which destroys otherwise healthy profitablity and plunges the company into massive losses instantly.

Now, lets take Ratner Effect (this was new to me, but it happened in 1991 which was years after I had gotten my MBA so obviously we didn't study the Ratner Effect in my MBA studies in New York City haha)

Gerald Ratner from Wikipedia was CEO of British jewelry group Ratners (since renamed Signet Group). He made a famous speech in London to the Institute of Directors in 1991 in which he said his company products were sold for such low prices "because its total crap." This remark was then published and caused his company to collapse and was only saved by his departure - and the rebranding of the company to Signet.

So the Ratner Effect is not related to 'generations' or 'platforms' - it is simply that if the CEO of a company calls his own products crap, he will be believed. That will instantly devalue all their products and cause collapse of prices, sales, profits.

Now lets take the Elop Effect. It combines the Osborne Effect with the Ratner Effect. Stephen Elop did not just announce that his company Nokia switches from the existing Symbian and MeeGo platform strategy to one bought in from Microsoft (thus causing instantly an Osborne Effect) - he further added to this damage, by calling the Nokia platform crap, with his Burning Platforms memo, which with hindsight is seen as full of factual errors and many statements that Elop himself has made since seem to retract some of the most damaging statements in the memo. Nonetheless, with the Burning Platforms memo, Elop also called the Nokia platforms, Symbian, Ovi, MeeGo and Qt - as uncompetitive, ie he called his own products crap. That instantly destroyed their long-standing trust and credibility in the market. As part of Elop's damage-control he is already now trying to rebrand parts of it - killing the Ovi branding of the Nokia app store for example and changing the naming regimen for Nokia handsets etc.

The Elop Effect is therefore when a CEO announces both that his current platform is not competitive AND he announces a new system to be replacing the current one, without any new products to sell (in Nokia's case, for at least 9 months).

The Osborne Effect alone bankrupted Osborne Computer company. The Ratner effect alone almost destroyed Ratner which only survived by firing its CEO and rebranding the damaged company. The Elop Effect is far greater than either the Osborne Effect or the Ratner Effect alone. The Elop Effect in only 6 months from February 11, 2011, has so far caused Nokia to go from 29% market share in smartphones to 15% market share (lost half of its customers in less than two quarters). This while the smartphone industry is experiencing hypergrowth globally. Nokia also lost 23% of its lower-prices featurephone sales in the past six months, while the overall non-smartphone 'dumbphone' side of the phone industry is stil growing.

How damaging is the Elop Effect. Well, before the Elop Effect, for the last 3 month period before it, ie Quarter-on-Quarter performance, Nokia was growing smartphone unit sales by 7%, growing average sales prices by 14%, growing total smartphone unit sales revenues by 22% and growing profits by 68%. The smartphone unit profits were of the size of 740 million dollars in Q4 of 2010.

Since the Elop Effect, Nokia smartphone unit sales have declined by 41%, average sales prices fell by 9%, total revenues crashed by 47%, and the smartphone unit which had been Nokia's profit engine, in a handset unit that had never generated a loss, became a giant loss-maker. Smartphone units in Q2 now have produced a loss of 230 million dollars! The turnaround (from profit to loss) has had a value lost of 970 million dollars, 3% shy of a Billion dollars of pure profit out of Nokia's biggest profit engine division, destroyed by the Elop Effect.

Note the total turnaround in Nokia's overall performance as a corporation. In the first five months since Elop took office up to February 10, the Nokia share price had grown 11%. Since the Elop Effect on February 11, the share price has fallen to a 14-year low, and has lost 57% of their value in a six-month period, with further declines. The ratings agencies have downgraded Nokia to barely above junk status.

CORRECTION..

I had a few minutes to think about it and it hit me that the above is still not quite right. With Osborne, he announced his NEXT device making the current Osborne PC obsolete. Elop did something worse. He announced that the current line is obsolete, he would switch to Microsoft - and yet Nokia would be releasing two dozen MORE new phones on the now-instantly-obsolete system. So its like Osborne Effect but two dozen products into the future, far far far worse. He said in effect, all products on this platform are now obsolete, but we will make two dozen new products on this obsolete platform please buy them even as they are obsolete.

CORRECTION 2..

And the same with the Burning Platforms Memo. Ratner told the truth saying his cheap products were crap. If Elop had really been sincere and truthful, with his Burning Platforms memo, then it would be a fair analogy to Ratner. But again, that is not the case. What is worse in Elop's case, is that he made several statements about Nokia's 'faults' which were not true. He was calling his own product worse than it really was. I have chronicled here what all faults were there and how Elop has been walking back some of those statements. But the sad fact is that with Ratner Effect, the CEO talked about honest real faults in his products (as they really were crap) but in Elop's case, he exaggerated the faults of his prodcuts (or blatantly lied - saying that Nokia had fallen behind US based smartphone makers like Apple's iPhone - while at the same time Nokia attorneys were finalizing the patents dispute negotiations - by which Apple pays Nokia and Nokia does not pay Apple for Nokia's patents - is clear evidence that Elop knew when he wrote that, that the reality wasn't so. The public perception was yes, that Nokia had fallen behind Apple by several years but in reality, Nokia's innovative designs and patents had far exceeded that of Apple and it was Apple who had been stealing Nokia property - admitting this by paying back-royalties in the settlement - and agreeing to pay into perpetuity to Nokia a fee for every iPhone ever sold from now on. That Elop says Nokia fell behind Apple is totally wrong and he knew it. There are many other such errors in the Burning Platforms memo but the point is - Elop took perhaps valid issues of Nokia problems - but made them much worse by exaggerating or even blatantly lying about the issues, making Nokia's devices seem worse than they were!

So the corrected Elop Effect - A CEO's statements that annouce that your products are obsolete now, and commit to producing several new products on the obsolete basis before replacements are to be made; all while calling your own products crap, even adding claims of imagined faults that your products do not have. That is the Elop Effect and it will destroy your company in less than a year, guaranteed.

So there you have it. It would take an incompetent CEO to make such a big error as an Osborne Effect. IT would take a colossal idiot CEO to call his own products crap. But now we have a new standard for the ultimate in corporate management incompetence and self-inflicted damage: The Elop Effect is where the CEO both calls his own products uncompetitive and simultaneously announces a shift to a new platform that is not available to sell currently. This is the fastest way to destroy a company. The Elop Effect will be studied in MBA classes for decades to come as the most damaging CEO statement ever made by any major company CEO. (And yes, Nokia's Board has to fire Elop now! If Nokia's Board is not firing Elop, they are guilty of complacency in the face of obviously incompetent CEO running their company)

Smartphone Market Shares at Q2 and Report Card for Half-Year Performance

We now have all info from the major smarpthone manufacturers on their Q2 results, and we have the four big analyst houses (Gartner, IDC, Canalys and Strategy Analytics) each giving their final count of Q2 total smartphone market. I am able to do the market shares and with considerable confidence. So what is our big number? Taking the average of the big 4 analyst houses, we get the Q2 number at 108.0 million smartphones sold in the quarter, up 7% from Q1. And obviously if your company grew by about 7% then you were only keeping up with the industry growth. Any faster growth means you are taking market share and slower growth means you are abandoning market share.

MARKET SHARE TABLES

Some who come to this blog will want the analysis, but others only want the big headline numbers, so here is the Top 10 Smartphone Manufacturers (and below it the Top 7 operating systems too)

Rank . . Brand . . . . . . . Millions sold . . . . . . Market Share Q2 . . . . (market share Q1)

1 . . . . . Apple . . . . . . . 20.3 million . . . . . . . 19% . . . . . . . . . . . . . (18%)
2 . . . . . Samsung . . . . 17.8 million . . . . . . . 16% . . . . . . . . . . . . . (13%)
3 . . . . . Nokia . . . . . . . 16.7 million . . . . . . . 15% . . . . . . . . . . . . . (24%)
4 . . . . . RIM  . . . . . . .  13.3 million . . . . . . . 12% . . . . . . . . . . . . . (14%)
5 . . . . . HTC . . . . . . . . 12.2 million . . . . . . . 11% . . . . . . . . . . . . . (10%)
6 . . . . . LG . . . . . . . . . . 5.4 million . . . . . . . . 5% . . . . . . . . . . . . . (  5%)
7 . . . . . SonyEricsson . . 5.3 million . . . . . . . . 5% . . . . . . . . . . . . . (  5%)
8 . . . . . Motorola . . . . . . 4.4 million . . . . . . . . 4% . . . . . . . . . . . . . (  4%)
9 . . . . . Huawei . . . . . . . 4.0 million . . . . . . . . 4% . . . . . . . . . . . . . (  2%)
10 . . . . ZTE . . . . . . . . .  2.7 million . . . . . . . . 3% . . . . . . . . . . . . . (  2%)

Others 5.9 million 5%
TOTAL 108.0 Million

That is by manufacturers (please see below for analysis which also explains how I arrived at some of the numbers like the total for Samsung etc). Here is the operating system market share table:

Rank . . . Operating System . . Market Share Q2 . . . . . (was market share Q1)

1 . . . . . . Android . . . . . . . . . . 45%. . . . . . . . . . . . . . (35%)
2 . . . . . . iOS . . . . . . . . . . . .  19% . . . . . . . . . . . . . . (18%)
3 . . . . . . Symbian . . . . . . . . . 16%. . . . . . . . . . . . . . (25%)
4 . . . . . . Blackberry . . . . . . .  12% . . . . . . . . . . . . . . (14%)
5 . . . . . . bada . . . . . . . . . . . .  5% . . . . . . . . . . . . . . (  3%)
6 . . . . . . Phone 7 . . . . . . . . . . 1% . . . . . . . . . . . . . . (  2%)
7 . . . . . . Windows Mobile . . . . 0.5%  . . . . . . . . . . . . (  2%)
Others . . . . . . . . . . . . . . . . . .  1% . . . . . . . . . . . . . . (  1%)

Feel free to quote the stats, link to this site and use at your convenience in any context. For the above numbers (and all in this blog) please use as your source: TomiAhonen Consulting August 2011. (for those who need more info on the handset industry numbers, please consult my TomiAhonen Phone Book 2010 statistical volume; or for those who want to understand the larger mobile telecoms industry including the carrier business, mobile voice, data, messaging, internet etc, please see TomiAhonen Almanac 2011).

Now lets go to the handset manufacturers, in the order of size, starting with the new number 1:

APPLE - 19% MARKET SHARE - PROFITABLE - GRADE A

Apple took the crown from Nokia and it wasn't even close. In Q1, Apple was 23% smaller than Nokia in smartphone unit sales; just one quarter later Apple is 21% bigger! Now, to be fair, Apple only grew 9% in iPhone sales from Q1 - the huge shift was due to the Nokia collapse (Nokia fell 31% in the same period). While normally for most smartphone makers, I would be saying that 9% growth, when the market itself grew 7% is not particularly strong, its barely faster than the industry - this was a strange Q2 for Apple. Usually Apple releases its new iPhone on the last days of June and gets several million more sales for Q2. This year Apple is waiting (rumors say its because of the redesign after Apple tried to create a SIM-free iPhone but the carriers revolted and said no way - a SIM-free iPhone would in effect bypass the carriers and reduce them to bit-pipe operators). We can be sure that when the so-called iPhone 5 will be launched (rumors say end of September) then we will again see people standing in lines and buying it in huge numbers setting world records for new smarpthone sales. So considering Apple's "obsolescent" product line - only the CDMA variant (so-called Verizon iPhone) and the iPhone White were the recent news - Apple's growth faster than the industry is truly remarkable. The iPhone 4 is literally over a year old now and still growing sales. Astonishing. And yes, Apple has the best loyalty, the biggest desirability, which it intelligently transfers to the highest profits in the industry. Their sales will surge when the iPhone 5 is released, and if the rumors about a lower-cost 'Nano' iPhone are true, it could be a phenomenal Christmas for Cupertino. From Christmas when Apple had only 16% market share, they have picked up 3 points in this very tough year, while having by far the most expensive smarpthones. Excellent. So its a clear Grade of A for Apple for the first half of 2011.

SAMSUNG - 16% MARKET SHARE - PROFITABLE - GRADE A+

If there is perfection in execution in smartphones in this year 2 of the Smartphone Bloodbath, that is Samsung. They grew in this past Quarter by a whopping 41% to 17.8 million units (because Samsung has not provided officially their smartphone shipment number for Q2, I am using the average of the three analyst houses who gave a Samsung number, which gives me the 17.8 million number). This is by far the biggest growth of any smartphone maker in the quarter and a growth rate of almost 70% in the first half of this year. Samsung has a genuine hit phone series in the Galaxy, an Android based premium phone.

Samsung also has a new hit OS platform for low-end phones, in the bada operating system, which sold 5.4 million units in Q2 and for the first half of 2010 has sold 8.9 million smartphones. Since its launch five quarter ago, bada has accumulated 14.2 million smartphones sold - this is by far the best launch of any new smartphone OS, even better than the iPhone or better than Android in the comparative period of their launch. Obviously compared to its famous big brand launch (Microsoft's Windows Phone), bada has now outsold all new Windows Phone smartphones by over 3 to 1. bada grew its sales 54% in just the past quarter. I also calculated the split of Android/bada/Microsoft smartphones for Samsung for those who are interested in such things - and I get 69% Android, 30% bada, and 1% Microsoft out of all Samsung branded smartphones sold in Q1. Samsung as a corporation is suffering from the global economic weakness in some of its other units like plasma screen TVs and microchips, but its mobile phone handset unit is generating healthy profits for Samsung corporation and is a bright light to the company. When you are able to make profits and grow unit sales faster than anyone else - and capture large chunks of market share (Samsung had 11% market share in Q4), this is the best grading for H1, Samsung gets an A+

NOKIA - 15% MARKET SHARE - LOSS-MAKING - GRADE F-

Nokia has collapsed totally. In Q4 of 2010, Nokia's smarpthone unit was as big as all smartphones made by Apple and Samsung combined, today Nokia has fallen behind both. In Q4 Nokia made more than half a billion Euros of profits in its smartphones unit, this Q2 Nokia's total handset unit has become unprofitable and its smartphones unit generated a loss of almost 150 million Euros. The sales of Nokia's Symbian based smarpthones crashed comprehensively after February 11, when Nokia CEO Stephen Elop in what will go down as one of the biggest and costliest management blunders in history, told the world that Nokia will end its Symbian production, and will not pursue the previously-announced MeeGo based smartphone path for migration - but rather will switch to Microsoft based smartphones. And this bizarre statement was done saying Nokia would not use the current Microsoft system(s) but rather will wait for a later Microsoft Windows Phone 7 based OS which means the first Nokia smartphones running Microsoft would not be sold until the end of the year at the earliest. This bizarre announcement in February, with no phones to sell until December, has caused what is commonly known as the 'Osborne Effect' (nobody wanting to buy the current models because the company itself has announced they are obsolete) and unfortunately Nokia had dozens of new Symbian based phones coming out of its pipeline. We heard in July that another 10 more Symbian based phones will be released this year - all to comprehensive market rejection.

So, Nokia was the world's biggest smartphone manufacturer by a huge margin just six months ago, makign healthy profits - in fact, Nokia's newest Symbian S^3 based smartphones were such a hit, that Nokia profits in the smartphone unit surged 68% in Q4. Nokia had seen unit sales grow, average sales prices grow (by a Nokia record!) and profitability grow (massively). Now the CEO has killed all that growth and in turn made Nokia Symbian phones instantly undesirable. The Nokia dominant market share of 29% in Q4 has fallen by half to 15% today (and the trend is unstoppable, because of the Osborne Effect and as Nokia cannot retool its factories, Nokia can not produce any other except Symbian-based smartphones in large volumes this year, so Nokia market share will fall by another half to 7% by Q4 of 2011, before the first Microsoft-based smartphones can even be released).

Nokia was 23% bigger than its nearest rival (Apple) just three months ago. Now all smartphones selling with a Nokia brand, are 21% smaller than the iPhone. And this while Apple delayed its launch of the iPhone 5... Nokia average sales prices are down, its unit sales have collapsed, its market share is in freefall - and for the unit of Nokia that was a lock for generating profits - the handset unit has never reported a loss to Nokia - for the first time now in Q2, Nokia reported a loss in its handsets unit. And the profit engine of handsets, smartphones - are now producing the lion's share of the losses of Nokia. That is execution at the very worst way imaginable. We are witnessing the most rapid destruction of any brand, not just in mobile phone handsets, but in the total tech history. There are absolutely zero positive news from Nokia. What the management now is doing, is not attempting to restore Nokia sales by cancelling the dead-end Microsoft path, rather they now are changing the naming of Nokia phones and changing the advertising agency of Nokia. (this is like rearraning the deck chairs while the Titanic sinks)

In perhaps the most bizarre twist of incompetence in Nokia CEO, it is a very rare occurance that a phone manufacturer faces a true hit phone. Nokia was gifted that in its development of the N9 smartphone powered by Nokia's home-grown MeeGo smartphone OS (the newest, most advanced, most open-source, Linux based OS that had a migration path for Nokia's massive application developer community, from Symbian). The N9 has had almost unprecedented strong response from early reviewers and tech press. The MeeGo OS has been compared favorably even to the iPhone OS and seen as better than Android and anything else on the market. The N9 is in huge demand worldwide and is even seen by some tech analysts as a legitimate 'iPhone killer' superphone for Nokia. It is very rare for any phone maker to have a hit phone - Samsung has one now with the Galaxy from last year. Apple's iPhone was the previous hit phone from 2007, and the previous global hit was Motorola's Razr two years prior to that. It is rare to find a hit phone. And the N9 has every element to be such a superbly desirable premium phone. And best of all, Nokia has even a ready sister phone to the N9, a QWERTY variant called the N950, both ready to manufacture and sell now. So what does CEO Stephen Elop do? He refuses to sell the N9 in most of Nokia's biggest and best markets like Germany, the UK, Italy, India etc. In the USA where Nokia's Symbian had been failing the longest, we just heard that even though USA based pundits and bloggers like the N9, Nokia will not release the N9 there either?

Only 29 countries will get the N9 and those are mostly very marginal tiny countries like the UAE, New Zealand, Norway etc. And the N950 will not even be sold anywhere. And the CEO Stephen Elop went on record with the biggest newspaper of Finland, Helsingin Sanomat - saying that "even if the N9 was a huge hit, there will be no further MeeGo based phones from Nokia." This is the level of incompetence that Nokia is now exhibiting. Even when faced with a genuine - and rare - hit phone - of premium price, premium profit levels - the CEO would rather force Nokia to eat massive losses, than let the N9 be sold in big markets (and refuses to sell the N950 anywhere). And he causes a second 'Osborne Effect' on MeeGo, so instantly stalling any possible excitement for the new phones and their advanced OS. This is sheer incompetence in smartphone management. 

Nokia is a disgrace to the industry, while the industry is in hypegrowth stage. This is far worse mismanagement than Siemens or Motorola or Palm (or Microsoft Kin). Nokia's free-fall means that by the end of Q3 they will have fallen behind HTC and RIM, and by Q4 will be passed by LG and SonyEricsson (maybe even Motorola and Huawei). Going from undisputed number 1 with 29% of the market to number 8 with 7% of the market, in a matter of 12 months, that is self-inflicted corporate suicide. When other manufacturers complain of shortages, Nokia factories are idling and Nokia suppliers cry of lack of demand from their biggest client. (And to add insult to injury, Nokia is not even using its idle smarpthone factories to manufacture their new Microsoft-based smartphones - because of the components etc, the factories are not capable of making the Microsoft-based phones, so the first Nokia branded smartphones are actually made by Compal of Taiwan, can you imagine! That you own the biggest, most efficient mobile phone factories in the world, then you force them to be idle, and you pay third parties to make your phones in sweatshops to far lower levels of quality than expected of Nokia branded phones. What madness is this?). I am not the only tech writer who has now suggested Nokia may disappear as an independent company over the next months to come. That is how badly Nokia is now being mismanaged. Oh, and if you thought a CEO doing an Osborne Effect was a sign of incompetence, have you heard of the Ratner Effect? Thats when you call your own products crap (and then are surprised that consumers stop buying, if the CEO says it of own products, that is instantly believed). Now we have a new standard, called Elop Effect, which is combining the damage of the Osborne Effect with the carnage of the Ratner Effect, and we get the Elop Effect.

But the numbers don't lie. If you go from big profits to big losses, if you go from growing unit sales to decline, if you go from being as big as your two biggest rivals combined, to smaller than either of them, if lose half your world-leading market share in a matter of six months - that is the worst performance of any company in the tech space ever. Ever. The worst performance EVER. I am sorry I can only award Nokia a grade of F-. They deserve much worse.

RIM - 12% MARKET SHARE - PROTITABLE - GRADE C-

Poor Blackberry. Two year ago they were happily growing and seemed to have fixed all their worries, the formerly North-America -centric Canadian smartphone maker had managed to find success in the far bigger international markets, and the previously business-phone brand had found a strong youth audience. All seemed peachy. And then it all went wrong. In the summer of 2009 RIM had its peak market share of 21% in smartphones around the world. Since then its been a steady decline, now selling 13.3 million units, a decline of 8% from Q1, RIM's market share is at 12% (and still falling).

As so many other pundits, I have been puzzled by RIM's predicament and have written my latest thoughts about it on this blog last week. I think RIM has two highly loyal and low-churn segments, but in both there is far less growth than in the overall smartphone market. Business users do not grow by the speed of the smarpthone market. Business/corporate/enterprise and government users of mobile phones were among the early ones to get them two decades ago, and were early onto the smartphone. So their growth period is long gone. Now most businesses have clear policies on what level job is entitled to a company-paid mobile phone, and that total pool is not growing significantly, especially not in the volatile economic climate right now (or the past three years). Its steady business for Blackberry but not growth. The youth market is good news, but there, the love is not for specifically the Blackberry phone handsets, its for the Blackberry Messenger service. And for that, any old Blackberry will do. The youth and young adult segment (16-24 year old) are the highest adopter rate of smartphones, so that age group has already mostly smartphones - the market in it is not growing - and worse for RIM, if a young user has a Blackberry in their pocket, they have no real strong need to upgrade it, the old BB works just fine. As this segment does typically have two phones in their pockets, what the youth do - is upgrade their OTHER phone for hte new HTC, Samsung, iPhone etc - so RIM has loyal customers here, who have no real interest in replacing their old Blackberry handset..

But with all that, RIM is selling to its steady loyal customer base, in ever smaller numbers. RIM's total sales per quarter level peaked this year in Q1, and now the overall unit sales are declining, not just market share. So against an industry that grew 7%, RIM sales of Blackberries declined 8% in Q2. That means an effective loss of 15% of where RIM was just three months earlier. That is bad. But, what sets RIM apart from most others who have bad results in Q2, while RIM is losing sales, it is generating profits. And to remain long-term viable as a company, selling whatever, you have to generate profits. So for the first half of this year, I am grading RIM with a C-. 

HTC - 11% MARKET SHARE - PROFITABLE - GRADE B

HTC has been growing nicely, faster than the industry, and making profits. But HTC's performance has fallen into the shadow of Samsung. And deservedly so. Samsung noticed how strong Android was, and prioritized Android over Microsoft Windows Mobile (the old obsolete version) and Microsoft Windows Phone 7 (the new, but incompatible version). When Samsung focused on Android for its top-end phones (and bada for low-end), Samsung was able to drive strong growth. HTC kept trying Microsoft until Q1 of 2011, when it finally threw in the towel. HTC said that of its total smartphone sales in Q1, 95% were on their 'Sense' platform (ie running Android). Thus only 400,000 total HTC smartphones - 5% of all that HTC made - were on the two Microsoft platforms, Windows Mobile and Windows Phone 7. They finally understood that to fight for Microsoft was a wasted effort (something that Android partners Motorola and LG had already, very vocally, said). HTC seems to be the perpetual bride's maid in the smartphone bloodbath, they consistently report good results, but always someone else gets a spectacular result so HTC is always in the next-best category. But they grew unit sales at 26%, grew market share by one point, and did this while making strong profits. A good performance, earns a grade of B

LG - 5% MARKET SHARE - LOSS-MAKING - GRADE C-

South Korean LG, the world's third-biggest mobile phone maker was late to smartphones and had a disasterous adventure into Microsoft-powered smarpthones that turned their profit-making handset unit into a loss-maker (sound familiar?), and LG abandoned that path and now is concentrating on Android. They have seen strong gains in the smartphone market shares as a result, passing Motorola in Q1 and now in Q2 passing SonyEricsson as well, to arrive as the 6th biggest smartphone maker with 5.4 million smartphones sold (growth of 15% from Q1). That would be a good performance except that LG is still making losses in its handset unit, so we cannot grade this as good performance. For all of the first half of 2011 LG's handsets have operated at a loss and LG now needs to get its business back into solid profit-making basis. LG is a giant electronics conglomerate so phones are not its ony business, but still, long-term viability in the smartphones does require a profitable business, and that is not what LG is delivering right now. Their market share gains are coming at the cost of giving away LG branded smartphones at below cost. So I grade LG at a C-.

SONYERICSSON - 5% MARKET SHARE - LOSS-MAKING - GRADE C+

Then we have Japanese-Swedish partnership, SonyEricsson, who have struggled to get their act together in smartphones for a long time. They were hit particularly hard by the original iPhone (at the time SE was growing strongly on the back of Walkman branded musicphones, that were mostly featurephones) and plunged into loss-making. They crawled back about a year ago and were making profits for 5 quarters in a row - but now the latest price wars, Nokia dumping prices and the bloodbath nature of the smartphone market has taken its toll on the modest SonyEricsson profits, they went back into loss-making.

In the market share meanwhile, SonyEricsson was growing at almost exactly the rate of the industry at only 8% from Q1, to 5.3 million smartphones and lost their number 6 smartphone manufacturer ranking to LG. This is not good performance but it is passable, for one quarter they managed a profit and they are keeping steady in the market share, so its not disasterous performance like some others, so I grade SonyEricsson for the first half at C+, with a warning, they need to fix the profitability issue now before things get worse in the second half.

MOTOROLA - 4% MARKET SHARE - LOSS-MAKING - GRADE D

Motorola Mobility as its now called since the loss-making former handset number 1 was split up last year, and following its long-held tradition of reporting losses (ever since the good old days of the Razr, long before Apple came onto the scene with an iPhone), Motorola Mobility once again reported losses. Its smartphone sales grew 7% to 4.4 million units which keeps Moto in 8th place among the smartphone makers. However, its slide back is not ending (Motorola was 6th biggest smartphone maker as recently as Q3 of last year). Now the Chinese are chasing Moto, and Huawei may well pass Moto-moto by next quarter. Do we need to say more? Motorola reported losses in both quarters and lost a point of market share in the past half-year with no good news in sight. I grade Motorola at a D.

HUAWEI - 4% MARKET SHARE - PROFITABLE - GRADE B

So in the Top 10 we've always featured some Japanese handset makers. This is the first quarter when the last fully Japanese makers are ousted (SonyEricsson being only half-Japanese and half-Swedish). The last two heroic Samurais of Sharp and Fujitsu were dumped by two hungry new Chinese brands Huawei and ZTE. Huawei is better known as the world's second-largest telecoms infrastructure maker (the big telecoms equipment such as the cell towers and related 'base stations' that cellular networks run on). They also are one of China's largest handset makers and cellular modem makers. They were dabbling in smartphones for a while but got serious about it last year. Huawei has not given a formal number for Q2 but they have said in early July that their full year will hit 20 million smarpthones. I am projecting from that on a strong growth pattern with typical mobile phone quarterly sales seasonality, that they would be doing about 4 million smarpthone sales in Q2. The math works out at a range of 3.8 million to 4.2 million, so there is not chance they'd yet have passed Motorola but they are well clear of Chinese rival ZTE. And we do not have solid numbers for Q1 so I can't give you an exact growth rate but I hope we will get more info from Huawei on a quarterly basis in the quarters to come. Nonetheless, a profit-making strongly growing smartphone maker who picks up market share, is a solid B grade for Huawei for the first half of the year.

ZTE - 3% MARKET SHARE - PROFITABLE - GRADE B

And then we have ZTE also from China. They also make telecoms equipment but are better known for being the world's fourth largest mobile phone handset manufacturer, growing very fast, specializing on low-cost handsets for example for India and Africa. ZTE much like Huawei was doing a bit of smartphones but got serious about it last year and focused like Huawei, on Android. They have also seen strong growth in smarpthones and we did hear ZTE tell us in July that they have sold 5 million smartphones in the first half of this year. I have broken that down as 2.2 million in Q1 and 2.8 million in Q2 so I project 27% growth rate in one quarter, but please note, its my projection, it could be less, we won't know until we see Q3 results how realistic that has been as a growth pattern. But also, like Huawei, ZTE does its growth by being profitable and thus they too earn for the first half of the year, a grade of B.

That was the top 10 handset makers. Note the absence of such 'major' brands as HP (who bought Palm, Palm was a top 10 maker) and such bold rivals who wanted to extend their PC leadership position into smartphones like Dell, Acer and Lenovo. Note that the Japanese traditional big smartphone makers like Sharp, Fujitsu and Kyocera are not in it anymore. And now 5 and a half of the top 10 makers are Asian-based (Samsung, HTC, LG, Sony(Ericsson), Huawei and ZTE). I think thats about right, as half of all the population of the planet, and half of all mobile phone users - are living here in Asia haha.. Now lets look at the smartphone operating systems also by size

ANDROID (SMARTPHONES ONLY) - 45% MARKET SHARE - GROWING - GRADE A

Google's Android is on a powerful roll. Google kindly keeps giving us their activation number update quite regularly and from that its relatively easy to count the total unit sales, project that to three month periods and get their market share. I counted about 49 million total Android sales in Q2 which is up 38% from Q1, an astonishing growth rate that is actually accelerating now (was 35% in Q1) this no doubt fuelled mostly by lower-cost Android smartphones that are eating up the free Nokia customer-give-away that Nokia kindly volunteered to hand over to its rivals this year. I have also done as I like to do, my market share split-up of the top Android manufacturers (see below). Also note, I have removed Android tablet sales from the total, so this is pure smartphones as it should be. I grade Android at an A.

iOS (iPHONE ONLY) - 19% MARKET SHARE - FLAT - GRADE B

Apple's iPhone is now the world's second largest smartphone operating system by new sales. While iPhones sell less than half the total number of Androids at 20.3 million units in Q2, see what I wrote in the above about a surge of iPhone for the second half of 2011 with the new iPhone 5 and quite possibly a cheaper iPhone model as well. Apple's iOS operating system suffers as an ecosystem in that it is exclusive to Apple only and consequently as the iPhone 4 is now a year old, the growth rate of the iOS (in smartphones, excluding the iPad and iPod Touch obviously, as this is a count only of smartphones) platform is slowing from Q1 when it was 18% to only half that, the 9% growth rate it is now. This means Apple is now growing only marginally faster than the market. I therefore give the iOS platform a grade for the first half of the year, of B.

SYMBIAN - 16% MARKET SHARE - DECLINING - GRADE F

In Symbian we are witnessing a spectacle, a death of a platform (and bizarrely, a death caused when it was the world's biggest platform and still growing, a death caused by its owners, Nokia and its new CEO Stephen Elop in probably the costliest management mistake ever made in business). Symbian declined not only Nokia smartphone sales, but after Stephen Elop's February 11 announcement of the end of Symbian, of course the last remaining partners in Symbian (mostly Japanese makers) have abandoned that ship too, most importantly NTT DoCoMo, Japan's biggest mobile operator who had been specifying Symbian for its phones for over a decade but now said it shifts to Android. The Japanese handset makers who supplied NTT DoCoMo obviously immediately followed suit. DoCoMo said a few months ago that half of all phones sold to its network by Christmas will be Android based. So Symbian saw a collapse of 31% of its sales in Q2, and when we add in the fact that the market grew by 7%, the real loss to Symbian was 38%. When you see your last loyal remaining platform partners abandoning the sinking ship, that is when its really all over for a platform. Stephen Elop caused this death, just weeks before his silly February 11 announcement, NTT DoCoMo had renewed its commitment to Symbian. Now Nokia is scuttling all possible parts that could help Symbian, from ending the migration path to MeeGo (via Qt), to terminating the Ovi branded app store to ending all Nokia sales of Symbian in North America etc etc etc. Symbian is a dead man walking now. Whatever Elop 'promised' to sell 150 million more Symbian smartphones back in February might not even reach half that level..  In Q4 of 2010, exactly two quarters ago, Symbian market share was 32%. So Symbian has lost half of its customers in six months. That is a record loss of customers. That is a grade of an F.

BLACKBERRY OS - 12% MARKET SHARE - DECLINING - GRADE D

RIM's Blackberry OS suffers from the same problem as the iPhone, that RIM won't license it to anyone else. The irony is that Nokia had asked to meet with RIM about Nokia licensing the Blackberry OS when Stephen Elop did his dealings with Android, Microsoft, Intel etc - and RIM said flatly no, they were not interested. I think with hindsight that will be seen as a mistake. Certainly Nokia would have been far better off even with poorly-performing RIM than with reseller sales boycott-ridden Microsoft. At least Blackberries even now sell 12x more than all Microsoft Windows Phone based smartphones added together. But even so, it would have been a marriage of two losers. And RIM didn't like the idea of being bossed about by the Finns over at Nokia. In a way RIM even benefitted, as now with the desperation moves by Nokia such as abandoning the alphabet-coded segmentation of Nokia phones - the E-Series was RIM's biggest rival globally - now Nokia's business and youth phones brands are severely weakened by this latest dumb move by Nokia HQ.

But as an operating system platform, RIM's Blackberry is no longer in growth, it saw its first quarter of actual declining sales and its market share has been declining since 2009, from its peak of 21% to the 12% it is now. There are no signs RIM can stop the bleeding either. In the past half year, the Blackberry OS lost two points of market share. I grade this suffering OS platform at a D.  

BADA - 5% MARKET SHARE - GROWING - GRADE A

So that was the top 4. Remember when Microsoft and Nokia talked of the Windows Phone platform being one of the big 3 platforms. That is obviously not happening. But in its shadow, there is the biggest new platform that is still growing strong. Grew 54% in just one quarter! Yes. Grew faster than Android (but from a smaller base). Who is that? Its Samsung's bada, its low-cost smartphone platform for Samsung's lower cost smartphones, by which it will migrate its featurephone users to Samsung branded basic smartphones. Samsung supports four operating systems, Android, bada, Microsoft's outgoing Windows Mobile and Microsof'ts new and incompatible Windows Phone OS. And Samsung didn't bother to tell us how it is selling in any of those, not even the total unit sales of smartphones for Q2. So its a lot of detective work and heavy math modelling to try to figure out how many Android phones were made by the other Android makers, to find out how many Samsung did. And then do the same for the two Microsoft operating systems. To find out what is the remaining bada number.

But I have done my maths several times over and am very confident that Samsung sold about 5.4 million bada smartphones in Q2. That is up 54% from Q1 when they sold 3.5 million. (Oh, if you felt you had not seen any bada phones, they tend to be marketed as the Samsung Wave lower-priced basic smartphones, that may ring some bells). In total for the first half, thus Samsung has sold 8.9 million bada-based smartphones, which is a little below their announced target of 10 million for the first half of this year. That is probably why we didn't hear the number from Samsung. That means I get a cumulative bada shipments since launch of 14.2 million which makes bada by a wide margin the best new OS launch for smartphones in history - yes faster than the iPhone, faster than Android. That means we cannot give bada anything less than a full A grade.

WINDOWS PHONE 7 - 1% MARKET SHARE - DECLINING - GRADE D-

And then we have the 'best' of Microsoft's two operating systems now, the infamous Microsoft Windows Phone 7, the operating system which Microsoft goofed massively by not providing a migration path to its developers from Windows Mobile. WinMo had at its peak over 12% market share. If Microsoft had done what it did with DOS and Windows - provided a migration path - then it could today easily have a market share close to 12% for the Windows Phone 7 OS. But while WinMo still lingers on, how is Windows Phone 7 doing? It saw its unit sales crash 31% from the 1.6 million smartphones in Q1 to 1.1  million in Q2. The market share of Windows Phone 7 is now globally at 1% (which is after we have removed the market share of Windows Mobile obviously, some analysts now count the two added together but as these are incompatible, I think it is wrong to count WinMo and WP7 in the same classification). When you have a 'hot' new OS that is optimized for touch screen phones and you have managed to anger your developers, and your handset makers all complain they can't do any sales on your OS - and now the resellers are in sales boycott (that is because Microsoft bought Skype and the carriers/operators hate Skype so they refuse to support any Microsoft sales. This story from June was just repeated in a fresh story in the San Francisco Chronicle this past week) - and as the smartphone market globally is in hypergrowth stage - if you cannot grow, something is seriously wrong. And it is. Microsoft is simply failing the smartphone market. If you lose 31% of your market share in one quarter, that is misery indeed. Its no wonder that Steve Ballmer refuses to even give us the count of Windows Phone now..  And yes, Microsoft, do bow your head in shame. This is another disgrace you are involved in with your mobile strategy. Shame on you! I grade Microsoft Windows Phone with a grade of D-.

MICROSOFT WINDOWS MOBILE - 0.5% MARKET SHARE - DECLINING - GRADE D+

And as a thorn in the side of Windows Phone 7, there is the old Windows Mobile that refuses to die. It still sells in modest numbers mostly to some business/enterprise users and while it also saw a big decline in sales - fell 28% from Q1, this is far less rapid a decline as its newer and supposedly better big brother, Windows Phone 7. But Windows Mobile is about to disappear from our radars, its market share is now under half of one percent, so if I round it off to full percentage points, its market share is rounded off to zero. It is nearly as irrelevant as Palm OS or Linux Mobile etc. I believe this is the last quarter we track WinMo but lets see what surprises Q3 brings us. Still, in its swan-song, WinMo still managed a slightly better score than its newer sibling, I grade Windows Mobile at a D+

And what about Palm ie WebOS that is now owned by Hewlett-Packard (a giant tech company as big as Nokia and Microsoft put together)? Or where is Maemo? MeeGo? LiMo etc. They are all so tiny they fall into the well below one half of one percent range, and do not deserve a paragraph and mention.. Sorry.

ANDROID SPLIT BY MANUFACTURERS

That was the operating systems for Q2. Finally, as I have been offering on this blog, I do the split of the major Android makers dividing the total Android pie of 49 million smartphones. This is rough only, but it should be reasonably accurate. I get the top 7 Android makers as follows:

MAKER . . . .
Samsung . . . . 12.2 M . . . 25%
HTC . . . . . . . . 11.7 M . . . 24%
LG . . . . . . . . .  5.3 M . . . 11%
SonyEricsson .  5.2 M . . . 11%
Motorola . . . . . 4.4 M . . . . 9%
Huawei . . . . . . 4.0 M . . . . 8%
ZTE . . . . . . . .  2.7 M . . . . 6%
Others . . . . . .  3.4 M . . . . 7%
TOTAL . . . . . . 49.0 M

Thats it, the smartphone bloodbath year 2, Electric Boogaloo, half-year report cards for all major brands. I will return with more analysis of this story as the second half of the year unfolds. Please note, I am now on my summer vacation so while I invite people to post comments on the blog, please don't worry that it may take a while for me to get back to respond. I will be responding in due time..

Enjoy and feel free to use the info and post links to this blog and send readers who want to know more about mobile phones and smarpthones from their market and platform angles. And if you need more info than this blog can provide, please see my TomiAhonen Phone Book 2010 and the TomiAhonen Almanac 2011 for more facts and data.

Pondering The Blackberry Puzzle: what IS going on here?

Just when you think you finally have figured out RIM (Research in Motion) and its Blackberry, it goes all belly up again. But at least its good to see that others, including RIM management, admit to confusion about the iconic smartphone maker.

It was ten years ago that Canadian 'beeper' maker Blackberry launched its first smartphone which had the peculiar shape, the uniquely-shaped QWERTY keyboard and was optimized for email use by busy business executives. Blackberry took the US business world by storm, soon Blackberry users were calling their device the 'crackberry' for its addictive nature. And to show how big a splash the early BB did for the world of mobile - Nokia, which was selling more than 10 times more smartphones at the time, took the Blackberry example and created its own clone, the E-Series and believed so strongly in this type of smartphone use, that it set the E-Series in its own business unit to sell Nokia branded smartphones to enterprise/business and government users.

WE ARE IMMUNE TO THE iPHONE

Then in 2007 came the iPhone and changed everything. Yes. But early on, the iPhone was not seen as a valid smartphone for business uses (early iPhones were not even technically classified as smartphones, and until the App Store came along, Apple did not let users install applications to the early iPhone, thus most business type users didn't find much use out of the iPhone if they couldn't install the necessary apps to access the corporate IT systems.) So for the first two years of the rapid growth of the iPhone, both Blackberry and Nokia's E-Series continued strong growth, almost oblivious to the iPhone.

Around that time we also started to hear increasing stories that the Blackberry was a big hit success smartphone in surprising countries, like in Indonesia, in Venezuela and in South Africa. And in those markets, it was consumers - often the youth - who took to the Blackberry. And RIM executives were quite open about it, they were baffled and quite surprised. While the QWERTY keyboard certainly played a big part in helping messaging-crazy youth to like the Blackberry, it was actually the Blackberry instant Messenger (BBM) which was fuelling that success. BBM seemed very similar to SMS text messaging but had the added virtue that any messages between any Blackberry owners (on any networks, in any country) were free. If you send two or three SMS per day, the economics will never work out. But, if you send 100 SMS every day, the savings add up very rapidly - and by late in the decade of the 2000s, youth the world over from South Korea to England to the USA, were found to have many who average more than 100 SMS per day. A ripe target audience for the 'Berry.

But the Blackberry is in a strange place. It has pretty well saturated its home market and primary target users, the corporate/business (and government) users. A survey of 20,000 US businesses by TNS in January of 2011, found that 81% of large corporations used the Blackberry and 69% of small businesses. And President Obama himself is a Blackberry user, becaue the first US president who is allowed to have a cellphone by the US secret service, the US president's bodyguards. That is how addicted he is to his Crackberry - in the tech world we like to call Obama the Blackberry President haha. You can't get much of a better endorsement of security systems and extreme utility, if your brand is the one that the US president insists on using..

But the US enterprise/business/government sector is pretty well saturated by Blackberry, it is more seeing a gradual erosion of its high market share there. The rest of the world is not as keen on selecting the Blackberry platform and in many countries recently we've seen government reaction against Blackberry (for being too secure). Meanwhile, back when Blackberry came into mobile, almost all smartphones were used by business type users. Today business-oriented smartphones count for less than one fifth of all smartphones sold and used. RIM has clearly hit its peak in this market and as the business/enterprise user base of smartphones is not growing strongly, even if RIM achieves any growth in that sector will mean a loss in market share where the bigger consumer side of smartphones is growing much faster.

So what of the success of Blackberry in India, in Brazil, in Botswana and Saudi Arabia? That is mostly consumers, and it surely reflects the right direction for Blackberry.

Yes. And I was eagerly promising that Blackberry is a sure hit last year, because I saw the early evidence of the shift from business to consumer users. From 2009, RIM has sold more Blackberries to consumers than business users and today Blackberries are sold more outside of North America than within it. That all should bode well for Blackberry.

COOL KIDS

So. We do see that the youth love the Blackberry, in many countries to absurd levels of adoption. In Canada (hardly a fair comparison being Blackberry's home market) a survey of university students found that 95% of them had a Blackberry. But lets go to the UK. A survey by Phones 4 U (UK's second biggest indepdendent handset reseller, a competitor to Carphone Warehouse) in Mach of this year found that two thirds of British youth between ages 16 and 24 - have a Blackberry in their pocket. The UK youth have taken to calling sending messages on the Blackberry as 'feeding the BeeBee' (or 'feeding the baby').

And we can easily understand why there is a sudden Blackberry surge in the youth markets around the world. Its the cool kids in class. If the cool kids get Blackberries, they will of course shift their messaging traffic away from costly SMS to free BBM. And now the 'other' kids in class, are either 'excluded' from participating in the chat with the cool kids - who of course will not pay SMS to send the other kids messages - or else the uncool kids have to get Blackberries also - just so the cool kids will agree to communicate with them. A very cruel form of class discrimination in a way, sociology and youth culture at play, but that is how kids behave. And if the cool kids suddenly adopt the Blackberry, all others have to follow suit, very rapidly. Meanwhile just today we heard from Ofcom the UK telecoms regulator, out of data from their latest findings of their annual survey, that twice as many teenagers have smartphones than adults (in the UK half of all new phones sold are smartphones). So you have the addiction of the most desirable age segment that is also most addicted to your device.

That to me was very strong proof that Blackbery has the future well in their hand. The youth of the world seem to love the Blackberry and if you have 67% market share in the most desirable age bracket, 16-24 age, then isn't the future pretty much belonging to you?

That seems reasonable yes. But why then is Blackberry in decline? Its not just that it was growing less fast than the industry (something from the enteprise/business side of the Blackberry business) as RIM has actually had declining market share from its peak of 21% in Q3 of 2009 - for the first time RIM saw an actual decline in unit sales now from Q1 to Q2, when RIM went from 14.5 million down to 13.3 million smartphones sold. So RIM declined 8% in one quarter at the same time when the market itself grew 8%. So the effective loss to RIM of its market position was 16% decline in one quarter. Thats pretty catastrophic.

It doesn't make sense to me. There is no utter failure phone. The corporate/enterprise customers buy on a steady pace, they make long term plans, they use one platform as the TBI survey from 2009 told us - 80% of US businesses insist on only one smartphone platform, obviously most of those will be on Blackberry. So if they bought Blackberries last year, they will be buying them again this year. And don't say iPhone here. Yes, the Marketing Department probably got permission to switch from Blackberries to iPhones but most other departments will continue on the Blackberry.

And if we see enormous growth in so many Emerging World countries, and the youth love the Blackberry at rates of 67% adoption rate in the 16-24 year age segment, why isn't Blackberry growing sales now?

Ah. I have pondered that a lot. And I do think I have an answer to the conundrum. I think its not the Blackberry which is the answer, it is the Blackberry Messenger, BBM. And lets first go back to the market share in the UK. We just learned in June from Kantar Worldpanel that Blackberry's market share in the UK market had grown from 19% to 22% in the past year. Now if we take the youth age 16-24 (12% of the population) away from that number, ie 8 million smartphones, we are left with 5 million to distribute to the rest of UK population. And of that, a vast majority will be corporate users. So while the youth are very loyal to the BeeBee, the rest of the population don't care for the device.

Meanwhile, why isn't 67% penetration in highly mobile-addicted youth segment generating massive repeat sales? Ah, here I think I have had an epiphany. As the solution is BBM, the addiction is not to the handset, it is to the service. And here the kicker: a five-year old monochrome screen Blackberry works just as well as the latest Bold. So while yes, the youth are heavily addicted to smartphones, they don't have a compelling reason to upgrade their Blackberry. One Blackberry is enough, it can easily be a year or two old, no problem, what the youth do - is to replace their OTHER smartphone! So they go buy the newest Samsung or iPhone or HTC or SonyEricsson and replace that regularly, but they keep the old Blackberry!

So RIM is in a very peculiar pattern, where they have strong loyalty in their two main segments - business users and youth - but neither is growing anywhere near the speed of the industry. And the evidence is pretty clear that once we pass the youth segment, the rest of the population is not in love with the Blackberry, they seem to want almost any other smartphone currently. Hence the overall decline in smartphone sales for RIM.

Again, the Blackberry conundrum is so difficult to get, that this is likely still not the full picture, but yes, expect there to be sudden surges in given countries, when the specific 'cool kids' in the youth discover the Blackberry Messenger, but also, don't think that sudden growth pattern will then repeat across the full population. The Blackberry seems very much destined to be only a niche smartphone maker and seems to have hit its peak and no sign suggests they could recover any kind of growth out of this, no matter what better operating systems or touch screens (or tablets) they were to launch.

(and just watch me be proven wrong once again right after I post this haha..)