Paging Truth Police: One Last Time - the Reality of Nokia when CEO Elop Took Charge as CEO, and What Was Not Broken

There is a pervasive myth about Nokia that says Symbian was dead and Nokia dying in smartphones, when new CEO Stephen Elop took charge. Like any good myth, there are elements of truth that make the story so compelling. But this blog deals with facts in mobile, not wives' tales. Here is the absolute truth about Nokia when new CEO took charge and what he caused, once and for all. First, lets look at Nokia branded smartphone sales. Please look at this picture.


(Update May 4 2012 - there is now a lawsuit by shareholders in USA against Elop and Nokia. See end of this blog for details)


Here are the three biggest smartphone manufacturers of today, Apple, Nokia and Samsung, not necessarily in that order. Here are their quarterly sales for eight quarters from Q1 of 2009 to Q4 of 2010. Note the dotted line, that is when Elop took charge, just before Q3 of 2010 ended. Tell me which company is 'in trouble' in smartphones. Each of the three giant smartphone makers added about 2 million more smartphone unit sales from Q3 to Q4:



Source: Tomi Ahonen Consulting based on company data
This slide may be freely used and shared


I have taken public info as close to 'apples to apples' comparisons as possible, but unfortunately these three companies do not report exactly the same data. But yes, please consider: the 'Blue Company' grew smartphone revenues 22% in that period, grew average sales prices for smartphones up 14% from the quarter before, and the 'Blue Company' grew net profits in the smartphone unit up 65% from the period before.

Then consider 'Red Company' which grew revenues up 16% from the previous quarter. It grew average sales prices by 1% and the Red Company grew corporate net profits up 39%.

Finally consider the 'Green Company' which grew revenues up 19% from the previous quarter. Its Average Sales Price for all handsets was down by 2% and the profits in the handset unit were down by 23% from the quarter before.

Which of these three companies is 'in trouble' ???  All grew unit sales about the same level, after the big Christmas Quarter when usually after-Christmas sales are weak - all grew about 2 million more unit sales. All grew revenues strongly. All generated a big profit. Blue company also increased average sales price which for Red Company was flat and for Green company declined. Net profits exploded for Blue Company, gerw nicely for Red Company and fell for Green Company. But each generated a strong profit.

So? Which company is in trouble? Anyone? Which of these three is the magnificent Apple that dominates the world of smartphones, mobiles, profits and tech? Which of these is the dominating superpower Samsung? And which is the loser-company Nokia whose smartphones were undesirable and failing in the market?

Please look at those graphs and think, if you were given one of those three companies to run, which would you most love to run? For which of the three would you like to be CEO? All see growing sales, growing revenues, all generate a healthy profit. But Red is 50% bigger than Green. And Blue is bigger than Red and Green, combined. Who is strongest of these three?

I totally understand, from all the bullshit revisionist history written about how Symbian was dead and nobody wanted it, that you might think Nokia is the Green Company and Apple is the Blue Company. But the truth is - please feel free to read ALL the Quarterly Results from 2009 to 2010 - that the Blue Company is Nokia, the Red Company is Apple and the Green Company is Samsung. Yes. This is the situation, more than a quarter after Elop had taken control of Nokia.

The 'undesirable' Symbian based Nokia smartphones were growing sales from Q3 to Q4 - as they did in 7 of the past 8 quarters - and generated a profit once again, as they had in each of the past 8 quarters. Note, that 'dominating' Apple iPhone also had a declining quarter in sales in this period, as did the strongly surging Samsung, also for one quarter.

Nokia's Symbian based smartphones not only grew sales strongly - as strongly as Apple and almost as strongly as Samsung - Nokia did it while growing its ASP strongly (Samsung's fell, and Apple's was flat). Under Stephen Elop's leadership, Nokia's profits in the smartphone unit grew at a Nokia-record level.

ELOP WAS REWARDED

The Nokia investors appreciated the first five months of Elop's leadership so much, that the Nokia share price had climbed 11% since he took charge! Previous CEO Kallasvuo had seen Nokia share price drop 55% over a 3 year period (and was fired for that). In just five months, and while the world was still recovering from the global economic crisis, Elop had already recovered back one tenth of the share price losses, what Kallasvuo had lost. Elop was a 'hero'. The Nokia credit ratings by all three ratings agencies were one notch from the best possible. Nokia's brand was rated 8th most valuable on the planet. Nokia's new phones were winning awards.

These are the facts. There is no truth to the myth that it was the iPhone that killed Nokia's smartphones. It is true, that the iPhone killed smartphones - it killed Palm and Windows Mobile based smartphones, but not Nokia (nor Blackberry, it was Android that killed Blackberry).

Take one more look at that graph in the picture. Imagine being Boeing. Or Toyota. Or Levis Jeans. Or Pepsi Cola. Or Burger King. Or Nike or Timex or Sony or United Airlines or whatever global brand. If that picture was your market, all three giant rivals are profitable and growing, and you could be one? In every case, those CEOs of those giant companies would want to be Blue Company. Literally bigger than the nearest two rivals, combined (as long as the business itself was profitable, ie your leadership was economically sustainable).

WHY THE WIDELY SPREAD STORY THEN?

Ok, why the prevailing story then? First. This blog story is about smartphones. Nokia is much more than smartphones. The corporation of Nokia had become unprofitable in 2010. That was because the networking unit, NokiaSiemens Networks generated a big loss and the profits in the handsets division - smartphones and dumbphones - was not big enough to cover the loss. So yes, you are VERY correct to remember that Nokia had been in trouble, it was so, across the whole corporation but its smartphone unit was very healthy when Elop took charge. Nokia's smartphone unit delivered only a third of the total revenues of Nokia corporation but almost half of its profits by Q4, 2010, the first quarter that Elop was in charge. At an annual level, the profits generated by the smartphone unit (548 million Euros/Q4) would be worth about 2.75 Billion dollars per year. So the Nokia smartphone unit profits alone, would rank 175th biggest profits of the Global Fortune 500 in 2011. (Nokia's ranking by sales revenues in 2011 Fortune Global 500 was 143rd; thus the smartphone unit performance was remarkably strong even in a global corporate context)

SYMBIAN

Secondly, Symbian is not same as Nokia smartphones. Symbian is often considered synonymous with Nokia, but not all Nokia smartphones ran on Symbian (there were other OS platforms even before Windows Phone based Lumia, such as Maemo and MeeGo). Not all smartphones made on Symbian were Nokia branded. Earlier Symbian family included smartphones from SonyEricsson, Siemens, Samsung, LG, Motorola, etc. Even in 2011, there were still many electronics giants producing Symbian based handsets like Panasonic, Sharp and Fujitsu out of Japan. 

You may have seen dramatic decline of Symbian's market share, globally. That is true. Nokia invented the smartphone, it started initially with 100% market share. Then with Symbian, Nokia invited all of its rivals to join and co-develop the OS platform, hoping to avoid a 'platforms war'. It almost worked. Only a few North America-based rivals refused to play nice, and we had rival platforms such as Palm, Windows Mobile and Blackberry. But Symbian controlled over 60% market share still when the iPhone launched in 2007, but after that, the Symbian partnership broke apart. The partners bickered about what should be Symbian's development path and Nokia ended up buying out its partners and turning Symbian into an open source foundation. Most of the facts you may have seen, of the continuous decline of Symbian market share was not Nokia losing market share. It was the Symbian partners shifting away from Symbian, and joining Google's new Android OS. Even so, by Q4 of 2010, the end point of the diagram I drew for you, the world's bestselling smartphone OS was still Symbian and the world's biggest installed base by a wide margin was Symbian. Those are the facts.

USA MARKET

And thirdly, USA. Yes, Nokia has failed in the US market, but that happened YEARS BEFORE there was any iPhone in existence. Nokia had died in the US market long before anyone had used the iPhone App Store etc. So there are those who think because Nokia has not recently had successful smartphones in the US market, it is therefore true, that Nokia died globally. What those analysts do not know, is that USA is a backwater tiny market in handsets, home of obscure standards, crippled phones, bloodthirsty carriers, and truly outdated handsets.

You love the iPhone? Think it was the best thing since sliced bread? Sure. But the original iPhone in 2007, what is now known as the iPhone 2G, the phone known as Jesusphone? That one. It was the hottest tech story in the USA in 2007. In Europe it was launched, and failed. Only the far improved model, iPhone 3G, that launched in 2008, was able to succeed in Europe, because Europe is and was more advanced than the US market. And what of Asia? The original iPhone 2G was literally obsolete for the world's most advanced handset market Japan. Yes. When American analysts ooh'ed and aah'ed about the Jesusphone, its 2G technology was literally phased out from Japan and no such old obsolete tech phones were sold in Japan anymore. Even the iPhone 3G failed in Asia, and only two editions later, with tons of fixes and upgrades, the 2009 model of the iPhone, the 3GS, was finally able to succeed in Asia.

Need any more evidence? So tell me, how many months have you had in your pocket a smartphone with a built-in pico projector? Like those from Sharp and Samsung for example, that we have here in Asia. The Europeans are getting their Samsung Beam smartphones about now. The US market may get their first pico projector smartphones late this year, or next year. I've had mine here in Asia for 18 months already. Who leads, who follows? The US market is not the leader in telecoms, definitely not in handsets or smartphones.

It is true that Nokia had failed in the US market, but that market is not the biggest smartphone market (which is China) and it is not the most advanced handset market (which is Japan). The Apple iPhone was not, and is not currently the bestselling smartphone of China, Nokia is. Nokia was more than 20 times bigger in China at that time, in Q4 of 2010, in smartphones. Meanwhile in the US market? How much bigger was the iPhone than Nokia? Five times bigger. Only five times bigger in the US market, while in the bigger Chinese market, Nokia was 20 times bigger than Apple. Who was winning this race? And Japan? Betcha you didn't know that up until February 2011, Japan's biggest carrier, NTT DoCoMo - half of Japan's market - specified the Nokia Symbian OS as its standard operating system for its phones, manufactured by such Japanese handset brands as Fujitsu, Sharp and Panasonic. Today yes, the iPhone is big in Japan, but at the time of that picture in that graph, the overwhelming dominating OS used in Japan, was Nokia's Symbian and Android and iPhone and Blackberry and Palm and Windows Mobile were literally nowhere.

You may have seen statistics such as those published often by ComScore of US smartphones and seen that Nokia was tiny or nowhere. Therefore it is a vaid belief, that Nokia was failing. But until you understand the global market, it is an incomplete picture. But there is still more. Nokia was having plenty of trouble, in its delivery schedules, many Nokia handsets were severely delayed. There were smartphones that were admittedly failing in their design, like the N97. There were problems with the marketing and sales and customer satisfaction. All was not well at Nokia, I am not suggesting that. But the facts are, that globally Nokia was growing sales roughly at the same speed as Apple and Samsung - witness the picture in the above - and Nokia was profitable, its average sales prices were growing and Nokia's profits jumped at a Nokia record level, after Elop took charge.

GLOBAL FOOTPRINT

Now lets understand regional markets. Lets look at them by size.

OCEANIA = NOKIA, SYMBIAN, iPHONE APP STORE

Oceania (Australia, New Zealand and Fiji) is the smallest of the six continents by population. Their total population is under 30 million, that is 'one Canada' in size. Their smartphone migration rate by Q4 of 2010 was about 60%. The bestselling smartphone brand was Nokia. The bestselling smartphone OS was Symbian. The biggest installed base of smartphones were Nokia and Symbian. The bestselling app store of Oceania was the iPhone App Store. The biggest rival to Nokia in Oceania was Apple's iPhone. The bestselling dumbphone brand in Australia was Nokia (meaning future transition potential to smartphones) as well as the installed base of dumbphones.

NORTH AMERICA = RIM, BLACKBERRY, iPHONE APP STORE

North America is the second smallest of the six inhabited continents. Yes, I know it hurts, but its true. If you want to count geographical North America, ie Mexico and the Middle America region, you can get North America to about 500 million people, but most count North America by cultural divide, ie USA and Canada only leaving Mexico into the culturally similar Latin America.. North America when counted as USA with Canada has a population of about 360 million, so North America is 12 times bigger than Oceania by population. North America was at about 40% migration rate from dumphones to smartphones by end of 2010. The bestselling smartphone was Blackberry as was its OS, the installed base most smartphones was Blackberry as was its OS. The bestselling app store was the iPhone App Store. The biggest rival to Blackberry in North America was the iPhone. Among dumbphones the beststelling brand was Samsung, but the biggest installed base of dumbphones was Motorola.

LATIN AMERICA = NOKIA, SYMBIAN, OVI

Latin America is the third smallest or fourth largest continent by population, at about 570 million so Latin America was bigger than North America and Oceania combined, with plenty to spare. Latin America is not yet strongly migrated to smartphones but will reach 100% smartphone migration well before this decade is done. By end of 2010, the bestselling smartphone brand in Latin America was Nokia, the bestselling smartphone OS was Symbian. The biggest installed base of smartphones was Nokia, as was Symbian the operating system. The bestselling app store of Latin America was Nokia's Ovi Store. The biggest rival to Nokia in smartphones in Latin America was Blackberry. The bestselling dumbphone brand was Nokia and the biggest installed base of dumbphones was also, Nokia.

EUROPE = NOKIA, SYMBIAN, OVI

Europe has a population of about 725 million people, ie slightly smaller than North and Latin America combined, or more than twice as big as North America. Europe had passed 50% smartphone migration by end of 2010. The biggest smartphone brand in Europe in 2010 was Nokia. Symbian was the biggest OS. The installed base of smartphones in Europe were Nokia and Symbian. The bestselling app store in Europe was Nokia's Ovi. The biggest rival to Nokia in Europe was the iPhone. The bestselling dumbphone in Europe in 2010 had become Samsung but still the installed base leader of dumbphones was Nokia.

AFRICA = NOKIA, SYMBIAN, OVI

Africa has a population of more than 1 Billion. Three times as big as the USA. Africa is far from even dumbphone penetration and a tiny fraction of its handsets were smartphones. Africa will probably take into the next decade of 2020s until all of its phones are smartphones. But still, in 2010, the overwhelmingly dominant smartphone brand of Africa was Nokia. The dominant OS was Symbian. The installed base of smartphones was overwhelmingly Nokia, as was Symbian as the OS and Nokia Ovi store as the most used app store. The nearest rival, a tiny one tenth in size of Nokia, in smartphones for Africa, was Blackberry. The new sales of dumbphones were ruled by Nokia as well, and Nokia was by far the biggest installed base of dumbphones.

ASIA = NOKIA, SYMBIAN, OVI

Asia has a population bigger than the other five inhabited continents, combined. India alone is bigger than all of Africa. China is even bigger than India. Asia was early in the migration from dumbphones to smartphones but because of its immense scale, just China alone was selling more smartphones than the USA. Across Asia, the bestselling smartphone in 2010 was .. Nokia. Bestselling smartphone OS? Symbian. Biggest installed base of smartphones? Nokia. Operating system? Symbian, App store? Ovi store. Biggest rival smartphone platform Android and manufacturer, Samsung. Biggest dumbphone maker Nokia. Biggest installed base of dumbphones, Nokia.

The only inhabited continent where Nokia did not utterly dominate smartphones, operating systems, app stores, and dumbphones - is North America - the fifth biggest out of six continents. The continent where only 5% of the planet's population live. But in North America there were 8 separate domestic handset manufacturer rivals, and 6 domestic smartphone operating system rivals, to challenge Nokia. There is definitely a home field advantage to providing high tech like phones, just witness the kind of phones that Americans used to be accustomed to, that often totally failed in most of the rest of the world (like say, Palm or Motorola).

BURNING PLATFORM

Now, with all that. The facts are that Nokia smartphone unit sales had grown 7 out of 8 past quarters and declined one quarter, exactly the same as Apple's iPhone and the Samsung smartphones. The Nokia smartphone unit had been profitable every single quarter and its profitability was increasing strongly by the time Elop took charge. Nokia's smartphone revenues were growing and so were Nokia's smartphone average sales prices. By every conveivable measure, Nokia was doing very well in the enormously competitive cut-throat smartphone business, where rivals such as LG, SonyEricsson and Motorola were generating losses.

Nokia's smartphone brand and the Symbian OS was the bestselling smartphone and OS on five of the six inhabited continents, and the Nokia Ovi store the bestselling app store on four of the six inhabited continents. If you wanted to argue the future of handsets belonged to smartphones, or the software side of operating systems, or the ecosystem including app stores and digital content, Nokia dominated over its rivals including Apple, iOS, Samsung and Android.

This is where the Nokia CEO issued his infamous Burning Platforms memo, the costliest management communication ever, that was half of the Elop Effect, and caused the total collapse of Nokia's smartphone business (and far more damage to Nokia as well). Yes. When Nokia towered over its rivals and held 29% market share, growing profits. That is when CEO thinks its time for Burning Platforms memos. So lets re-visit that graph I drew for you. This is what happened in February 2011:




Source: Tomi Ahonen Consulting based on company data
This slide may be freely used and shared

That is the truth. Nokia exchanged strong consistent profitable growth of smartphones for a world-record collapse of sales, revenues, average sales prices - and plunging the strongly profitable smartphone unit into generating huge quarterly losses.

I am NOT saying Nokia had no problems before Elop took over. Previous CEO, Olli-Pekka Kallasvuo was in charge when Nokia produced its first-ever corporate loss (while the smartphone unit still generated a profit). Nokia corporation (networks, dumbhones, Navteq navigation and maps, Symbian, Ovi store, smartphones) was bloated, inefficient, bureaucratic and needed strong management in 'execution'. Nokia did not need a new operating system and the headaches it would generate to transition to it. Nokia's Chairman, Jorma Ollila said very plainly when Elop was announced, that his primary mission would be to help streamline Nokia operations to run Nokia more efficiently. Elop's job was to solve 'execution' problems, not to cause more of them by silly Microsoft misadventures.

I am also NOT attempting to claim that Symbian is fully modern and capable of winning the world, it is not. But before Elop destroyed Nokia's Symbian in February 2011, up to that point, Symbian based Nokia smartphone sales were not just growing - they were holding their huge lead over the iPhone and Samsung! Before Elop destroyed Nokia, Nokia's smartphone sales were twice as big as those of the iPhone and three times as big as those of Samsung. Today Nokia's smartphone sales are one third the size of Apple or Samsung.

Nokia had a clear announced migration path from Symbian to MeeGo and Meltemi (Linux based, open source operating systems). This migration path included Nokia's developer tools Qt and the Ovi store. The immensely strong positive market acceptance of MeeGo OS (powering Nokia's much beloved flagship smartphone the N9 and its sister phone the N950) is confirmed the world over in comparisons where it is seen far superior to Windows Phone and Symbian, and far ahead of Palm, Blackberry, Android; and is rated usually roughly on par, in many cases better even, than the iPhone iOS. That is strong praise indeed.

The Windows Phone OS is not compatible with Nokia's Qt developer tools. The Windows Phone is not compatible with past Microsoft smartphone operating system Windows Phone, and early gossip says it will also not include a migration path to the next Microsoft OS, Windows 8. Microsoft based smartphones and the Nokia Lumia smartphone series are under reseller boycotts reported from China to the USA, from Finland to France to the UK. Nokia smartphone sales are now collapsing, as you can see in the second diagram. This while both Apple and Samsung global sales are exploding. Nokia had victory in its grasp, but Elop snatched defeat from the jaws of victory.

Since the Elop Effect, Nokia has now lost more than 60% of its share price value in only 14 months. Elop's predecessor lost 55% value in 3 years and was fired. Now Elop has lost 60% in half the time! Nokia's credit ratings have been cut many times and now on all three credit rating agencies, Nokia is at the last level just above 'junk' status. Nokia's brand value dropped out of the global Top 10 for the first time since the ratings were reported globally.

Note that just a few weeks ago, Elop said that today Nokia is no longer having a Burning Platforms problem! So when Nokia smartphone unit sales collapse, revenues crash, average sales prices fall, the profits are changed to losses, and Nokia's market share is down to 7% ie literally one fourth of what it was just a year ago - 'now' there is no problem at Nokia!! Now today, no platforms are on fire. Now Elop is satisfied and can sleep soundly. Now Nokia is safe. What a moron! 

But anyone who claims that Apple killed Nokia, does not know what he or she is talking about. In North America, Nokia was already dead years before the iPhone. Rest of the world, look at the evidence. Nokia utterly dominated its rivals. Dominated until the fateful Elop Effect. You can say that Nokia had problems in its marketing and execution. You can say Nokia was bloated and slow to bring innovations to the market. But the facts are irrefutable. Before and after Elop took charge, Nokia was growing its smartphone unit sales, its smartphone revenues, its smartphone average sales prices and its smartphone profits. Only after the Elop Effect, did all those turn into disasters. The causes of the profitability problems at Nokia corporation or Nokia's Networking unit may be many, but the only cause of Nokia's smartphone unit collapse - is new CEO Stephen Elop who demolished that hugely profitable business unit. How bad is that? Ignoring the troubles in the other Nokia business units, the smartphone unit today (Q1 of 2012) generates a loss of 311 million Euros, or at an annual level about 1.6 Billion dollars. How big is that? In the Fortune Global 500 the smartphone unit alone, as managed by Elop, would be the 11th biggest losses of the year! Shame! Going from 175th biggest profits to 11th biggest losses on the planet. This is a disgrace!

So. You may think that the Ovi store was a failure. You are entitled to that opinion. Yet the facts are, that on four of six inhabited continents, it was the most used app store. You may think Symbian is obsolete and useless. You are entitled to that opinion. Yet the facts are, that on five of the six inhabited continents, Symbian was the bestselling smartphone OS. And you may think that Nokia's smartphones are not fit to sell in any market. You are entitled to that opinion. The facts are, that until Elop destroyd the brand just 12 months ago, Nokia branded smartphones were easily selling more than all iPhones and all Samsung smartphones added together - and growing at about the same rate, while growing profits too. The real paying customers in China, rest of Asia, Africa, Latin America, and to a lesser extent, in Europe and Oceania - were snapping up those Nokia smartphones quite happily. And today, that most award-winning 808 PureView superphone, it also runs on Symbian, on tech so advanced you cannot build the same phone on an Android or Windows Phone OS. Symbian is not dead (yet). 

With this, I end my lecture, and if you wanted to know how Nokia might be saved, I have that blog for you as well. It is here: Nokia can be saved.

PS - there is a follow-up now, 'Nokia is on a Certain Road to Death' which explains why this current path and management cannot lead to salvation  

UPDATE May 2 - Welcome Kauppalehti/Nokialandia readers (thanks Pekka Nykanen for mentioning this blog article). If you want my latest projection of how bad it is at Nokia, note that I just released my official forecast for how Nokia smartphone market share will go in 2012 - it falls from 29% a year ago to the 8% it is now to 3% by end of year. Read it all here: Nokia 2012 Forecast.

UPDATE May 4 - A 'class action' ie group lawsuit has been filed against Elop and Nokia by a group of USA Shareholders for violations against US regulations about the stock market. Please see more including links etc at this link: After the Shareholder Meeting Situation is Far Worse. 

 

Comments

[ejvictor]

Good clear facts... waiting for @Baron95 to stick his head in the sand... god I miss that guy!

[vladkr]

I don't know if Nokia was dead in North America in 2011, but according to official results Nokia published, they managed to sell even less in 2012 than in 2011.

Nokia had few troubles in 2007-2010, but what Elop did was a Titanic effect:
Facing an iceberg, Titanic's captain ordered engines in full reverse and steered to the left. The full reverse order completely annihilated the steering, the ship went straight and stroke the iceberg.

Nokia faced few fails, the N97 for instance... and instead of applying corrections (steer to a direction to avoid obstacles and competition) it was decided to make a full reverse: Symbian and Meego are put to junk, full energy is put on Windows Phone, which is quite the opposite of Meego; what do we see now? Nokia is out of control, and goes straight to troubles.

Well done captain! The worse is that the captain still doesn't understand (or admit) that the ship is sinking, so he maintains full power to the wrong direction.

Can this guy be proud of himself?

P.S. Today, the demo Lumia 710 at Costco in Quebec city (as in FNAC Velizy, near Paris) still don't work. The seller at Costco doesn't know when they'll put a new one (it's the 3rd week now)

[vladkr]

mmm... I changed my mind: Titanic is not the best analogy for Elop... no, Elop is like those Middle-Ages doctors, who tried to cure about anything (flues, headaches, colds) with bleeding and trepanning. Too bad that Nokia had a cold, and that they got the wrong doctor.

[vladkr]

most specialists agree on that both Titanic engines were on reverse before the shock.

[Tomi T Ahonen]

Hi ej, vladkr, Tomifan

ej - thanks.

vladkr - I like the Titanic analogy, but in your telling of the story (I honestly don't know the facts of how it sunk) the Captain seems to have identified the correct problem, and applied a reasonable response to try to fix that specific problem but in the way he executed his solution, he made the thing worse. In Elop's case, there were massive problems at Nokia (in marketing and execution) but Elop misdiagnosed what was wrong, he actually evaluated something that was a success and deemed it a failure, and then proceeded to further damage Nokia in his 'remedy'. I can't even immediately think of a good historical analogy or imaginary analogy to exactly how he botched things up haha..

I do like the middle-aged witch-doctors more as an analogy, but they were more ignorant. Elop was not ignorant of how well the smartphone unit was doing haha.. Again, it is difficult to try to think of the sheer stupidity of his actions.

TomiFan - at Mid-February you say? I have actually calculated, for the fun of it, the EXACT growth rate of Nokia from Q3 to Q4, divided by month, extended into January and February. Then I took the EXACT rate of decline from Q2 to Q3 - see it is the more steep decline. And split it by month, and used the same rate, and plotted it BACKWARDS into Q1 ie to March and April.

And those lines intersect almost exactly at mid-month of February. And then I counted the actual sales of Nokia smarthpones for China, and the rest of Nokia markets, and it comes out almost exactly square and correct. The growth of Nokia Symbian powered by S^3 and the N8 and E7, continued - GROWTH to mid-February, and from that point, the collapse is at that steep decline curve as we see from April on. If Nokia was reporting the data by month, it would be obvious. But you cannot provide ANY evidence of your hypothesis, that would conform to the math, or can you (I have tried out all the plausible scenarios, you know how nuts I go with my stats and math haha).

No, you make a good point TomiFan, but the truth is, that Nokia smartphone sales did continue its growth up until Feb 12 or so, and then collapsed. And that can be calculated and the math is consistent with all Nokia reported data including regional sales etc.

PS if N8 sales had stalled in January of 2011, they would not be bestsellers stil l one year later in January 2012 haha. Sorry. You lose TomiFan.

Keep the comments coming,

Tomi Ahonen :-)

[Laughing]

@vladkr, Tomifan:
Your exchange of comments is more entertaining than Tomi's blog. Please continue.
BTW, the curve ship makes when guided by rudder is definitely smaller in slower speed. Titanic just had too small rudder to begin with. Makes good Nokia analogy then. :-)

[karlim]

Ok. I do agree that the facts that you provide are irrefutable. But they certainly are not all the facts. Only the selection of facts to support your theory.

Here is another set of hard facts that you have ignored.

Nokia market share losses 5% in Q3 and 5% Q4 2010. From 39% to 34% to 29%. And in Q1 2011 - there was nothing new that Nokia introduced that should/could have reversed the decline that started 2 quarters before. Symbian 3 and N8 shipped on the first day of Q4, other Symbian 3 handsets shipped during the same quarter. None of them stopped Nokia market share decline. So - losing another 5% of market share in Q1 didn’t need Elop effect. Losing those 5% was just a natural progression of the trend that started in in Q3 2010.

Now let’s look at the actual Nokia market share in Q1 2011. Bingo. The same 24%. Can you provide good reasons why and how Nokia could would have stopped market share losses with the portfolio they had (N8, C7, C6-01 and E7 which shipped very late in Q1), and which didn’t slow the market share losses in Q4? If not - then the actual unit volume drop in Q1 was simply a function of a slowing market growth. Rapid growth of smartphone market in Q3 and Q4 helped Nokia to keep anemic unit growth from Q3 and Q4, but when sequential market growth stopped - those saher loses simply translated into actual unit volume losses. And it would have happened Feb. 11th or not.

Other facts. That huge jump in Nokia smartphones revenues came from a one single source. The introduction of the new Symbian 3 line of phones - N8, C7, C6-01. And Nokia reporting the number of units shipped to carriers and distributors. Not end user sales. There was no single reputable source confirming or insisting that N8 and other Symbian 3 phones end user sales matched the shipments into the channel. I did check. I think every one of them. Gartner, IDC, Canalys, Forrester, Strategy Analytics, etc;

And Nokia performance in Q1 can be as much a proof of Elop effect, as a proof that Nokia simply stuffed the sales channels with S3 phones, that the wholesalers were not able to clear via sales to end users. ANd with tons of unsold S3 inventory sitting on their shelves Nokia partners simply stopped ordering Symbian 3 phones. Not because of Feb. 11th, but because they still had a lot of them unsold. There is simply no way to definitely prove it one way or the other, unless someone leaks the real numbers of Symbian end user sales someday.

And all Nokia Q4 positives - increased sales, profits, ASP, even the unit growth - come singularly from those 5 million Symbian 3 smartphones shipped into the channel and recorded as sales.

Volumes of the main (at the time) Nokia’s smartphone line based on the old Symbian 1 OS fell off the cliff already, declining by 3.2 million units in Q4 2010. PArt of that was undoubtedly cannibalization by N8, C7 and C6-01. But if you look at the ASPs of the old and new Symbian line - these phones targeted very different price tiers, customers/markets. So the cannibalization very likely was very limited and can not account for 3.2 million unit drop for “old Symbian”.

Some one more data point that I think support my theory more then yours. February 2011 Kantar survey of U.K. smartphone market you have referenced in one previous post.

That survey recorded all customer purchases for the period of 12 weeks. Starting on Monday, November 21 and ending on February 20th (+-2 days). Note - that according to Kantar methodology - they do record all purchases by 30 000+ households who are members of their panel.

From previous September Kantar survey, Nokia’s U.K market share dropped from 23.% to 12.4%. A 46% drop. There is no way Feb.11th could have accounted for that huge a drop. Remember - all the purchases over those twelve week were recorded at the time they happened and were part of the Kantar panel sample. Let’s assume the worst case scenario. After hearing that Nokia is abandoning Symbian on Feb. 11th - not a single Kantar panel member bought a single Nokia Symbian smartphone. And also lets assume that 1000 of panel members bought a smartphone (Kantar is recording not only smartphone purchases - so not all of 30K bought one). At 23.1% market share that will mean a total of 231 Nokia smartphones would have been bought in 12 weeks, or about 19 panel members buying Nokia smartphone a week. In 11 weeks before Feb 11th - they would have bought 209 Nokia smartphones. If not a single one of them bought Nokia phone after Feb. 11th - that will still leave Nokia with 209 recorded smartphones and 21% market share in Kantar survey. Which leaves Nokia with 19% market share in the absolute worst case scenario - if Elop effect cause 100% stoppage of all Nokia smartphones sales. Not 12.4% Kantar actually recorded. Which makes me conclude that catastrophic Nokia Symbian sales decline in U.K. started way before Feb. 11th and Elop effect had very little to do with it.

Btw, if the catastrophic Nokia Symbian unit volume drops in Q1 and Q2 2011 were caused by Elop effect, how do explain even more catastrophic drop in Q1 2012?

Whatvere damage Fe. 11th and Elop effect caused to Symbian sales - happened during Q1 and Q2 2011. When unit sales dropped from 28.3 million to 16.8 million. But Nokia was able to limit the damage and stop the decline at 16.8 million units in the second half of 2011. Actually - Symbian unit sales increased in Q4. To somewhere between 18 to 19 million units. No way to tell for sure since Nokia didn’t break out smartphones in Q4 2011. They only said that Symbian sales increased. (The opposite of what some commenters on allboutsymbian.com claimed, which led them to some erroneus conclusions about huge N9 sales).

So Nokia had a steady Symbian unit sales from Q2 to Q3 2011, then grew unit sales from Q3 to Q4. And then again, a huge unit volume drop off in Q1. Percentage wise - even worse to what happed to Nokia in Q1 and Q2 of 2011 combined, unit wise - also much worse then Q1 2011 drop from Q4 201. What happened - there was no Feb. 11th, or any other collosal Elop blunder to cause such a sales crash?

I, and some others, explain this phenomenon in a much more simple ways. We do not and never insisted that Apple/iPhone killed Nokia. If it were only for the iPhone - Nokia will probably still be doing ok, and maybe even would have had the time to transition to Meego.

It was Android that killed Symbian. Or, to be more precise - Android devices with the specs similar to the one’s the first Motorola Droid/Milestone -the first highly popular Android smartphone, and the one that started the explosive Android growth had. At each price level, when Android 2.x devices with the specs comparable to Moto Droid and above were released - thay quickly killed most of Symbian sales in that price bracket. $450-600 in 2010 (when Nokia profitability problems started), in mid tier ($250-450) last year - which translated into volume drop, and this year it is happening in high volume $250 and below price tier, and now Android is killing not only Symbian but also upper tier S40 Asha phone sales too.

[Asko]

The investigative journalism program MOT was aired today, Monday, on Finnish national television YLE TV1 and it had phone interview with Tomi. Nokia's destruction was the program's topic.

It is refreshing that Finnish media is actually talking about how bad the situation is for Nokia. Before this the media has let Nokia and its directors too easily.

[Kimmo]

Like Nokia in 2007 you fail to recognize the innovation that the iPhone brought. All you can see is hardware features like "built-in pico projector" that are not important to sell a good experience in the mass market. So iPhone had nothing on N95. Jeesus

Apple launched Appstore in the summer of 2008. The Ovi Store was launched world wide in May 2009. Apple had freereign on developers for a year and all the innovation was happening there. Just like in operating systems all the major app development is happening in the Nort America.I´m sorry but Appstore dominated Ovi Store in every possible number be it revenue, number of downloads or apps http://en.wikipedia.org/wiki/App_Store_(iOS)

It´s true Nokia was not killed primaraly by IOS. Apple was making premium products at premium prices at the time. They are making more money than Nokia on fewer phones. Not that bad?

But Android was hugely influenced by IOS. Android killed both RIM and Nokia because it could be on every price level

Nokia unit sales grew from 2009 to 2010 and guess what? It still wasnt enough. Its marketshare crashed from nearly 50% to less than 30% because the industry was growing faster than Nokia. When your marketshare declines this fast on a market that is growing like a rocket it will mean that soon your actual units sales will start to take a hit which leads to total collapse. The board recognized this and began looking new CEO in spring 2010.

Symbian^3 launched in Q4 2010 of course there was some pent up demand from Symbian loyalist. Nokia still wasnt stupid enough to think they were not in longterm decline or the product they put out was good enough to fight Android.

[ejvictor]

@ Karlim… like you said unless someone gets detailed spreadsheets from Nokia we will never know the granular detail.

BUT take some of your own assertions - if Nokia was stuffing the pipeline and carriers were taking the inventory, it’s only because they knew that eventually the product would sell – Nokia had very good conversion rates.

The minute CEO EOLS product carriers cancel all orders. After Feb 11 in second half of 2011 Nokia didn’t rescue anything – fire sale!!!! Nokia loyalists got great deals. Nokia closed all its stores – In USA I bought an E7 for under $200, my GF got the pink N8 for around $200. Nokia moved a lot of Symbian phones at those prices- to loyal Symbian users.

The “Symbian” unit increase in Q4 2011 was a combination of Belle, on new phones, Elop back-peddling on Symbian support and yes the huge buzz around the N9 (again we will never know the real numbers).

Android didn’t kill Symbian – the CEO killed it – Android just picked over the corpse. Just remember from Feb to late August Nokia had no new devices to sell.

The huge Q1 2012 drop off 1) Bug Jar closed for N9 effectively saying PR1.3 last upgrade, device is dead – China dead….AND 2) CEO single mindedly focused on one platform that has no mid-low end… AND 3)market realizing that WP 7.5 is not going to save Nokia and that Apple and Google will keep staying ahead of WP8. Look how iPhone launch moved back to October – to kill WP8.

If it makes you happy... Android killed Nokia. But it’s not much of a kill to stab Nokia in the leg after the CEO gave it a head shot :).

[karlim]

Tomi re: your comment @TomiFan re: calculating Nokia growth rates by month, from Q3 to Q4 to Q1.

Did you calculate them for Symbian overall, or split them between Symbian 3 and Symbian 1? I'd try that myself - but I'm pretty bad with Excel :)

If you have not done the S1/S3 split calculations - I believe you may get some interesting numbers that way. A 3.2 million decline in S1 units in Q4, from zero to 5 million new S3 units.

Another interesting thing to do would be to include ASP into the mix. We have more or less clean sample old Symbian ASP from Nokia Q3 2010 numbers - 136 Euros. We know Symbian 3 sales numbers in Q4 - 5 million. And we know combined S1&S3 ASP for Q4 -156 Euros. So finding the likely S3 smartphone ASP in Q4 should be possible.

How it affects the Q1 2011 ASP drop - it may be hard to tell. Facing serious sales decline, whatever the reason, Nokia may have engaged in price dumping again. On the other hand - Nokia pretty much limited their price dumping options with early OPK 2010 tricks to hold on to market share, and then launching S3 phones at such low prices. So it couldn't lower prices too much without plunging the smartphone unit into losses already in Q1.

Anyway - with a number of realistic assumptions - the S1/S3 split and ASP should be an interesting model to play for someone who knows how to use the tools (I don't, beyond some very basic stuff that's easy to replicate with hand calculator :).

Who know's - it might even give you some more evidence of Elop's Effect that will convince even a sceptic like me. I like to think of myself as a pretty open minded person, ready to admit mistakes when hard data stares me in the eye. Our disagreements here are mostly because I can find a much more simple and obvious (to me) explanation of Nokia's decline. Like Android, and linearly extending Nokia market share losses (5% a quarter), if Nokia does not have a significantly better device to reverse the decline. It gets Nokia to 24% market share in Q1 2011, 19% in Q2, 14% in Q3 and 9% in Q4 and 5% in Q1 2012. Actually worse than real Nokia numbers even today.

[vladkr]

Like you, I'm quite sure Stephen Elop knows exactly what he's doing. What is frightening to me, is that I don't understand why he does that. Of course, I'm not a multi-million $ guy, nor have I a mba, but I do know few millionaires, and they don't manage their companies like Elop manages Nokia.

So what can be his aims?

1. Make it weak and cheaper to buy for Microsoft ? At that rate, Nokia will soon become an empty box, and what will MS do of an empty box?

2. Kill the biggest competitor? That makes sense, but maybe there was for MS a cheaper way to do so. Then ruining Nokia won't necessarily put a good reputation on Windows phone.

3. Offer the best products to customers?
Well, if customers obviously reject the product, it's logic to try something else, isn't it.

For example when Renault released the Avantime (mini-Van-coupé), it was massively rejected by people, so logically Renault stopped its production and tried something else.

It's wrong to think people will like your product just insisting, and Apple is not an exception; remember Apple Newton ? It was a brilliant device that wasn't accepted by the public (though a good idea as showed later successes of Palms and pocket PCs).
Remember Mac G4 cube? Brilliant, but a commercial fail.

Even things like Apple TV or mac mini, which for some reasons are still kept alive (it doesn't jeopardize Apple's future anyway). Don't tell me people buy it just because there is an apple on it, they just don't.

People buy iPhones, iPads because they like it and because they know what to do with it. People don't like Windows phone 7.5 and many people don't like beta releases of Windows 8 (which is supposed to be quite similar to WP8).

So please, explain me, maybe understanding will make a smarter man of me.

P.S.1 Rudders on Titanic were clearly too small to be effective, and the "Full astern" order was given, I insist. Anyway, if you don't believe that full reverse is a bad idea, shift your car on reverse while cruising on a wet/icy road - after checking there is no one around of course - and you'll see it's a bad idea.

P.S.2 Radical changes are rarely good in industry; aircraft maker Marcel Dassault used to think that small improvement are much better than radical changes; that's what his company always did with its planes, that's what Apple does with its products.
Making Nokia bash its Oses and replace it with WP is just as stupid as if Dell CEO decided to replace Windows with OS2/warp because Windows' growth (after Vista and 7) isn't as good as OS-X's one, despite its much bigger volumes.

[Troed Sangberg]

Featurephones sold well after the introduction of the iPhone - for a while.

Smartphones sold well after the onslaught of third party apps on iOS and Android - for a while.

But the only future was in Mobile Internet Devices, and Symbian was never a contender. It simply lacked the third party support.

The only way to explain how it was possible in late 2008/early 2009 to see why and when RIM and Nokia/Symbian would start to decline is to understand that what is simply referred to as just "Smartphones" are actually two very different things (see link below). I thus use the term MID to describe what is today a market of only iOS and Android.

When the world changes, you need to change with it. IBM is often referred to as being the best company at understanding when to disrupt your own business, even if it's still successful.

http://blogs.sonymobile.com/troedsangberg/its-not-about-smartphones/
http://blogs.sonymobile.com/troedsangberg/speed-of-innovation/

Do I miss Symbian, having spent the years between 1999 and 2001 creating what was essentially an "iPhone" five years before the iPhone? No, not really. It was built for phones, not Internet devices. I seldom make phone calls on my MID ;)

(Btw, on the fallacy of projections of the future: It never crossed my mind that Ballmer would offer up such an enormous amount of cash - I was sure Nokia would go Android in 2011. The alternative would be to wait and suffer until Web apps make the issue of operating system moot, which seems to take a bit longer than first projected (2012).)

[karlim]

@ejvictor

"... Nokia had very good conversion rates"

Maybe they did. Before N97. Maybe.

The way Nokia pushed N97 down carrier throats, promising slaes and arguing that it's just a short term software glitch, will fix it. Pronto. Only to have the first Nokia exec ever to come out publicly and do Ratner and Osborne effect on the most profitable, high end 400-600 Euro Nokia devices -N97 and N97 Mini. By saying - N97 was crap - even if we have pushed millions down your throat. But we learned our lessons and next gen will be much better... That was not Elop. That was the beloved theoretical Nokia savior Anssi Vanjoki. In February 2010.

After that - carriers went unanimously to saying FU to any Nokia device above $400. And the only way keeping up the volumes was Symbian price dumping, mixed with still important S40 pushed by the same sales force. And promising, and then giving 12Mps N8 flagship at mid tier less then $400 mid tier price (wholesale). Well, until wholesalers/carriers couldn't move even the trial volumes talented Nokia sales force convinced them to buy.

"...fire sale!!!! "

Really? You bought E7 for under $200? Where? Nokia, authorized reseller with all the warranty commitments and not on on off 3 day promotion? Because I can't find E7 cheaper the for $300 on Amazon even today.

So-new Symbian phones started shipping this fall with Belle. And old Symbians got Belle only in February. Btw - the only new phone Nokia started shipping in Q1 last year - was E7. And that was $700+ WERTY niche device few cared about.

So please, do explain - what is so different between Q1/Q4 in 2011 vs 2012? And how Q1 huge drop is different with and without Elop effect?

[Steve]

Baron95, So what you are saying is that the real downfall started as soon as Elop took over?
So the Elop effect is real but it should be 6 weeks earlier and that all good results were really the work of previous CEO, Olli-Pekka Kallasvuo so Elop only have losses even from the start.
Why do you think that Elop didn't do anything good when he started and things were looking good?

He explained quite well how he ended up with those numbers and if you check all the reports it should become clear to you to.

[Sander van der Wal]

All the Nokia smartphones that I saw in stores in Holland during 2009-2011 were free with 30 euro contracts. The iPhone was always as expensive as on the first day it was introduced, with the same contract. The theory that Nokia was fine doesn't explain this fact either.

Then the famous interview in Business Week, with MeeGo not going to be ready for three years, this theory des not explain this fact either.

Then that 400.000 developers number. That number has been given bij Nokia for years and years and years. If, after the succes of Ovi Store, that number hasn't grown, it shows that the Symbian/Qt strategy did not get any kind of traction at all. Again a fact which is not explained.

A theory needs to explain all the facts which have been observed, not just the facts that support it.

Also Memelti was introduced months after the memo. There was only a hint of Qt being ported to feature phones before that.

Alternative theory. Nokia lost lots of credibility with early adopters and the leaders of the early majority with the bodged N97. So when good or even better competitors showed up, these people switched. This caused an accellerating trend of decreasing market share. Together with the lack of developer traction and Nokia's inability to create a better OS on time meant that the board choose to go with a different OS.

[ste]

Tomi, can you add RIM to the graphs?
They had no Elop.

[Michael]

You are exactly right. "WAS" success.

You say that OVI was success because 4 out of 6 inhabited continents used OVI store and that on 5 of 6 inhabited continents Symbian was used.

You are talking past here. We are talking future here.

That was exactly Nokia's problem! Those technologies and services were success in the past. Do you really think that just because a technology was dominant in the past that it can also be dominant in the future? Do you really believe that? Especially in electronic consumer market.

You are approaching technology as if it were Coca-Cola, no real change in recipe, really, all we need is good marketing.

Companies fail because they fail to change and invent, as simple as that. Nokia thought that the future is certain just because present is assured. The future is only certain if you invent, Nokia didn't.

DVD was invented in 1996 by many companies including Sony. Should Sony never invest and develop Blu-Ray in 2002 just because DVD was good back in 1996. And this is just 6 years gap. Should SONY tweak DVD for the next 20 years even if it meant that competition came along with HD capable media?

You can assure yourself that it wasn't iPhone that killed Nokia. In my case it did!

[Vikram]

Android + iOS killed Nokia. RIM showed all sorts of positive growth just before it fell off a cliff - much like the graphs that Tomi is showing for Nokia.

Does anyone sincerely believe that those Symbian3 phones were going to be competitive with Android or iOS. They most definitely were NOT. And if Elop kept Symbia, does anyone actually think that Nokia wouldn't have tanked anyway? Everyone who uses these phones knows how bad the Nokia software was compared to iOS and Android. Nokia makes hardware as beautiful as Apple, but the software is what people use and it was demonstrably inferior.

Tomi is right in that the iPhone wasn't what killed Nokia then, rather it was Android (via Samsung) that was the main culprit.

[khim]

Guys, if you want to discuss Nokia and RIM collapse you must read "The Innovator's Dilemma" first.

Disruptive collapse can not be seen on graphs like the ones shown above! Or rather: you can see it - but only when it's late, way too late. In fact by the time incumbent is basically walking dead it STILL increases sales and STILL makes healthy profit. Right till the point when it loses all the userbase and sales drop to zero.

"The Innovator's Dilemma" includes DOZEN of cases and MOST of them looks like the graphs shown above: incumbent is much bigger and grows steadily, disruptor grows faster in relative term but is minuscule in absolute term and then at some point incumbent growth is slowing and then collapse is happening.

If you want to see "fate of Nokia without Elop" then you have textbook case: RIM. Sure Elop, caused premature collapse, but it was inevitable anyway.

In fact in the end of 2009 it was obvious for a lot of people. Looks here

http://communities-dominate.blogs.com/brands/2009/12/us-west-coast-drunk-on-iphone-yes-but-android-is-not-the-answer.html#comments

When Tomi was preaching that Android is useless superluxury product some people said that Nokia is doomed already because it changed the game.

Direct cites:

Tomi: If Apple is the Cadillac as a niche luxury product, then Android as Maserati, is a far far more niche, more rare luxury product.

Andrew J Scott: Android is license free, it has multiple operators and MNO's backing it. It's reach will rapidly become very big indeed. It will overtake iPhone in 2010, it is seriously challenging incumbants; and I'd expect to see a Nokia phone running Android within 3 years (if they are still even building hardware then! ;-)

THIS WAS SAID IN THIS BLOG'S COMMENTS so please stop saying that it was impossible to see or predict. IT WAS IMPOSSIBLE TO PREDICT USING VOLUME NUMBERS - sure, but this is nature of disruptive technology: it's growth speed depends not on the marketing or other similar things, but on the percentage of users which can use it (afford the hardware in the case of license-free Android).

First Nokia lost luxury sales (this was actually achieved without Android: iPhone did that), then, as price of Android phones went down cheaper and cheaper Nokia/RIM models stopped selling. When Android reached $100 (unsubsidized price) the game was basically finished. Blackberry may survive for some time on the strength of the Enterprise (it's too conservative to abandon RIM easily), but Symbian had no such protecting. Nokia can stump along for some time on the power of cheap dumbphones, but I'm not sure they are enough to keep it alive.

Elop expedited the natural process by about half-year at most. And it looks like the second alternative (if they [Nokia] are still even building hardware then) will materialize. Pity, that, but hey, it was predictable years ago.

P.S. The most poignant example of disruptive collapse shown in the aforementioned book are excavators. There are detailed process which explains how and why hydraulic excavator firms killed the cable-operator firms. How Caterpillar killed Bucyrus, basically. VERY similar to what happenes today in mobile space. Bucyrus seen the writing on the wall early and tried to adopt the new technology, it failed repeatedly and eventually Caterpillar (which had nothing to do with excavators in it's early years) killed and bought it. But there is striking difference: THE WHOLE PROCESS TOOK OVER FIFTY YEARS! It's easy to say that Nokia failed because of Elop's mistakes which led to disaster in fast-moving mobile world. But excavators show that problem is deeper. Actually Tomi himself shows that problem is deeper: he still does not understand that era of mobile smartPHONE is over. Finished. No more. Era of mobile smart COMPUTER is before us. We'll see if WP8 will play a role in it or not, but Symbian and Blackberry was not even a contender. They were relics of the previous era.