Brief Commentary on Today's Nokia Bad News Day (updated 3x)

Today we have heard from Nokia about the news. 10,000 jobs will be lost in addition to the many thousands Elop had eliminated since he joined the company less than two years ago. My heart goes out to those who lost their jobs today or will soon hear of losing their job. This is a very hard time at Nokia. I wrote a little bit of advice a year ago to Nokia staff that were fired then, and reposted it with an update today here: Advice to anyone at Nokia who was fired today.

I will look at the rest of the news and do some very quick analysis. The firings are bad news but also kind of 'good news' in that it reduces Nokia headcount and potentially brings costs under control. I would assume that Nokia investors will like that. I am worried, that the cuts have already gone too far and too deep and now are cutting the meat, not just the fat. Nokia cannot remain a premium phone maker if it has a skeleton staff.

But lets look at the rest of the news. Elop is panicking. He fired three senior VPs which now means nearly all who were in senior positions before he arrived have either resigned in protest, or quit to join other companies, or been fired. That means he has ever less real world long-term experience to advice him at Nokia HQ. The newly promoted will see how quickly Elop fires people and will be very timid not to argue with the boss. This is all bad news at Nokia top management.

The worse news is the guidance about Q2 profit warning and Q3 smartphone sales problems, that was hidden in the story about layoffs. So before, in Nokia's profit warning, Nokia said it will have problems with the handset unit profitability (producing a loss) in both Q1 and Q2. The losses for handsets in Q2 were supposed to be similar to Q1 ie -3%. Now we hear that Q2 losses will be bigger than 3%. This is VERY BAD NEWS. It really means that Nokia is falling into the hole and the rate of the fall is only increasing.

And even worse - is the news that Nokia smartphone profits in Q3 will also be negative ! So there is no silver lining. Nokia is dying. I warned when we first saw the Lumia series introduced, that Elop had one chance to make that risky Windows Phone strategy work, and the first Lumia models were not up to the task. Now we see Nokia guidance to the third and fourth quarter of smartphone sales - that both quarters are worse than Nokia previously thought. And this, Lumia launch, was what Elop just recently said was 'below expectations'. This, Lumia series, as Elop admitted to the Nokia shareholders - is being rejected by the carriers, some carriers even refuse to sell any Windows Phone based smartphones because Microsoft bought Skype. (Currently Lumia does not come with Skype preinstalled, this gets even worse with Windows 8 when Skype is integrated).

UPDATE - I learned from the comments before had time to research it myself, that the Ulm Germany unit was the place where Meltemi was being developed. This means Meltemi is now dead (and is partly why Mary McDowell was fired, she was a vocal supporter of the Linux based Meltemi OS project for low-cost phones like for Africa, at price points and basic tech, where Windows Phone is not suitable). This is VERY bad news too. Meltemi could have saved Nokia's featurephone business in Africa, India etc but now that is dead. Elop is killing all possible ways to save Nokia. He is actively ruining the company. And a quick comment came on Twitter by @bleeters that killing Meltemi is a victory for Samsung (whose bada is the best OS out there currently for low-cost smartphones, far better suited for it than Android is).

UPDATE 2 - (sorry I forgot to write about this the first time around) And if you thought things might be getting better with Windows, Nokia's Lumia series, and after Elop has completed his strategy, the worst news of today, considering Nokia ability to recover is this - Chris Weber named global sales boss. A Microsoft dude who never sold a phone before in his life before he joined Nokia a year ago. Elop's ex cronie. Why is this so bad news? Microsoft current and ex staff has explained that the carrier community didn't like Microsoft before it bought Skype last year, and the carriers have become even more hostile (there is a sales boycott against Microsoft Windows Phones, admitted by Elop himself at the Nokia shareholders meeting). Elop has separately complained many times that the retail channel is not supporting Nokia overall (after his Burning Platforms memo) and specifically, not supporting Windows Phone sales - again, this was something he re-iterated at the Shareholders meeting last month. Microsoft's attitude to sales has been bullying and intimidation. Nokia old trusted top sales guys left or were fired - the ones that gave Nokia over 30% market shares. Elop replaced the top guy now with Chris Weber the ex Microsoft guy. He knows nothing about Nokia carrier relationships, or about Nokia phones, yet now is top dog? This will not make the carriers happy or trusting of Nokia. This makes matters worse for Nokia handset sales in general - those carrier relations are built over decades - and makes Nokia Lumia Windows Phone strategy even more ruined. This is a boneheaded move if Elop wants to repair the damaged carrier relationships and bad retail support of Nokia. This is madness. But Elop wants a buddy to be on the top with him, someone who is a Microsoft Mafia member. This is the worst news in the short term for Nokia. Nokia's handset sales, featurephones and smartphones - will suffer because of this change.

There were other news from Nokia. Nokia announced it sold the Vertu unit. It also bought a camera imaging company Scalado of Sweden. I would argue, that if Elop is struggling to run his company and is forced to fire - 10,000 - people, now is NOT the time to buy other companies that have to be integrated to Nokia. But you be the judge of that. At this point I report on the news.

UPDATE 3 - I should have mentioned this before, but yes, obviously, I will do a full analysis of what this means to Nokia. My quick vibe means, that my very pessimistic forecast for Nokia smartphones this year turns out to have been too 'rosy' ie I have to downgrade that. The overall sales of all Nokia handsets will also decline and Nokia's competitiveness suffers even more with chaos, layoffs, horrid employee morale, the boss cutting all corners, bullying the retail channel and pursuing a dead-end strategy. Yeah, Nokia is far worse after today than it was yesterday. And we are now at that point from which there is no recovery possible. Even if Elop was fired tomorrow and all of his announced strategies instantly cancelled, I do not think Nokia can survive - it will be sold to some buyer very soon as the share price continues now on its downward death-spiral. Whether Elop has a career, depends 100% on whether Microsoft buys Nokia (or the Lumia unit) - in that case Elop will be President of Microsoft Lumia. Else whoever else buys Nokia, Elop will be fired and become unemployable as the most incompetent executive of all time. But yes, I will write a full analysis of what and how and when this all means from today. I hope to do that blog for you soon (maybe even tomorrow) but stay tuned to this blog...

I wrote an analysis of how Nokia got to this disasterous position. The article has five graphs that may explain the situation rather fast for you, if you would like to see why Nokia is so much in trouble today. Read the blog: Snatching Defeat from the Jaws of Victory. 

UPDATE 15 JUNE - I have now written the full analysis version of what all happened yesterday (this issues and more) and what we now know about Nokia strategy, current situation and Elop's intended remedies (some are actually inherently contradictory) Read full analysis of Nokia news.

And if you are interested in specifically the smartphone side of Nokia's business, the part most in trouble and where Nokia is losing to Samsung, Apple etc, you might enjoy this blog article also with good diagrams to summarize the market situation: understanding smartphone wars 2012.

Some resources for you. If you are just interested in mobile, I have a great free resource for you, the 2010 edition of the annual statistical report, TomiAhonen Almanac 2010. You can download the 2010 edition at Lulu and share it with your colleagues, the pdf file is not copy protected (the 2012 edition is a paid ebook at 9.99 Euros at my website). Get your free TomiAhonen Almanac 2010 here.

If you are interested specifically in the mobile phone handset industry, I publish every 2 years the TomiAhonen Phone Book. The new edition will be out soon but there is a special deal, you pay 9.99 Euros and get both the 2010 edition and the new 2012 edition for the one low price. Get yours here: TomiAhonen Phone Book 2012.

And for those serious into the industry, if you want the four-year forecast of the mobile industry, covering 110 data points (440 data points forecasted in total) by the most accurate forecaster of this mobile industry, check out my TomiAhonen Mobile Forecast 2012-2015. Its not cheap but its far far cheaper than most other industry analyst forecasts haha, and likely you'll get better data too. See full table of contents etc at TomiAhonen Mobile Forecast 2012-2015 

Comments

[Meltemi]

Just to correct my earlier posting. Total Meltemi org was a bit over 1000 people. This included HW guys too. So # of Meltemi SW developers was less. Still 100s though + subcontracted guys.

[zlutor]

Is there any official info about ending 'next billion & QT' strategy? Or any official info about Meltemi?
They were planning to release two devices within months, weren't they?

[incognito]

@zlutor, nothing official from Nokia PR (then again they never officially said they are working on it), but Naren Karattup, Eero Penttinen and Felipe Contreras confirmed it on Tweeter - all of them work at Nokia, directly on Meltemi or close to the Meltemi project.

[Meltemi]

@zlutor, why would a company provide official info on killing something that never existed officially? Maybe 'M' was just a big internal joke to make people believe there was something to replace S40 and keep Qt guys busy. Instead they made S40 full touch :-)

[Spawn]

@zlutor

For two devices: Yes, the project was close to deliver but compared to Meego there is no contract with another company what means we will never ever see the results.

That is very sad. From what I know Meltimi was Meego but with lots of performance-optimizations for low end hardware and yet a full Linux with all the applications.

RIP Nokia.

[Earendil Star]

NO NEWS HERE!

Everything is going on according to plan.
Non WP relevant parts are regularly being divested and got rid of. THT Elop is continuing the Dark Lord's plan, as was clear from the beginning.
The spoils of Nokia will constitute the core of the future MS WP unit.
What MS got for free: patents (-> Mosaid & co.), Navteq (now that iMaps are out, do you think it's worth something? That's why it was immediately integrated into Bing Maps in 2011... ooops, what a coincidence!), SW & HW know how (yes, Nokia's own SW was years ahead of MS', let alone HW), carrier relations, brand recognition, you name it.
Why buy something out, when you can have it for free? Mafiosos don't pay, they take.
Everything looks really sketchy, but in the current day and age, regulators do not seem to mind any longer.
Slowly WP, the REAL BURNING PLATFORM, is being salvaged. And one of its most formidable competitors, Symbian/Meego, annihilated. That's the real story.
No, my friends, Symbian and Maemo/Meego were not burning at all. They were just a competitor that had to be destroyed as quickly as possible. And that's what THT Elop did. Mission accomplished!
The feature phone unit of Nokia a drag? For whom? Well... as usual... MS! Clearly, Meltemi was just one part of the mis-information campaign raging.
Nokia based its fortune outside the US? So? Why bother? Let's ditch the rest and let's gamble to gain a foothold in the US.
Yes, it will take time for WP to gain ground, but MS has plenty of cash coming from its PC monopoly. They will go on with their plan.
Lumia's are ALREADY outdated and won't be upgradable to WP8? Who cares! Just don't tell customers. That's why the specialized press and blogs are being paid for!
And if that does not work, there's astroturfing!

The only funny thing is that life's getting harder and harder for the usual trolls. But I'm sure they won't be discouraged.
They'll go on with their propaganda as if nothing had happened. Well, too bad. Then, we'll keep going on uncovering them.

[Spawn]

@Tomi

One more thing. Nokia denies it's developers to contribute to opensource-projects now and are re-evaluating there patent-pool and IP-situation.

We may see soon an announcement that Nokia will be split with the patent-pool being purchased by Apple and Microsoft. Google's Motorola patent-pool is not enough to protect from that.

[Roninho]

Didn't Eldar mention a while ago that Meltemi was just smoke and mirrors to keep people employed and that it would be canned quickly? It looks like he could be right on this occasion.

[Roninho]

Here is the link to the Eldar tweet that I mentioned in previous post. https://twitter.com/eldarmurtazin/statuses/119321178547564545

[Spawn]

If my forecast is correct then google was a fool to not put more money and resources into Nokia adopting Android. They will pay now a way higher price to keep Android in the market. Patent War 2.0 is going to start. I am just sorry Nokia had to die for that.

[zlutor]

@Spawn: sad thing about Meltemi devices. Thanks to Inter for my N9... :-(

[Otto]

Have you heard rumors spreading on the Finnish discussion boards about the Nokia-Microsoft contract? Based on the authors, Nokia has signed an exclusive agreement where it will not start any other smartphone projects in the future than based on the Windows Phone. Current projects, which can be useful for the Windows Phone platform will be completed, but the products will get minimum marketing. This has been (based on the rumors) the requirement for the platform support from Microsoft.

This may be the reason why Nokia did drop the support for the N9 phone. It had an agreement with Intel to make at least a one developer device with keyboard (N950) and a touch screen consumer model (N9) to several countries. This phone has been discontinued now. Also Pureview Symbian phone has been released too, because the project was very expensive and cannot be inplemented in the Windows Phone OS in a short time. Other new phones are S40 based (like Asha) which are considered as feature phones and may not risk Windows Phone platform success. N9 design was copied to Lumia 800/900 (+ part of the look and feel to S40 Asha) and Pureview is promised to be part of the Windows Phone 8 platform.

This agreement is rumored to be five years. If this this true the company has painted itself into a corner and cannot make Meltemi like products (which would be considered as smartphones), more MeeGo products (definitely smartphones) or develop new Symbian phones (which are smartphones). To make an Android phone, Nokia should pay all the platform support back to the Microsoft and maybe there is a fine multiplier too in the contract.

Some rumors also state that the Windows Phone channel is full of phones now and operators are not willing to take any more until the current ones are sold to the consumers. For example LG has not made any Windows Phones this year and they are still available in many countries.

The WP7/7.5 platform is based on the Windows CE and the new WP8 platform will be NT based with the new hardware. They are not upgradable from 7.5 to 8. Current OS will get a feature pack, but not full support of the WP8 features. The applications will be compatible from the previous version to WP8. It means, to get the WP8 features (like multitasking), you need a new phone. An ice cold shower for many users.

There may be only 3.5 million devices sold to the consumers until Q1/2012 during the WP lifetime (Google: "Microsoft Has Only Sold 3.5 Million Windows Phones To Date"). For example Samsung sells more Bada devices in a quarter and Google activates the same amount of Android devices in a week. This may be true if you look at the number of the Facebook application users. It has only 2 million users and the amount has increased very slowly according to the WMPowerUser stats. And these stats consists the whole Windows Phone platform, not only Nokia Lumias.

Nokia did bet on the dead horse.

[Split Nokia]

There is a way to get rid of that agreement. Split the company into pieces and keep Nokia Corp as pure Windows smartphone entity. Microsoft then needs to make a call if they want to keep it alive (=buy it for a premium). Refocus feature phone newco to Android / Mediatek and spin it off with capital injection from PE or from public offering. Sell Maps/Navteq separately. Sell patents separately (except the once you need to protect feature phone biz). Then you could build a competitive Android/Mediatek biz based on feature phone team. Huawei and ZTE would be happy to buy it.

I am really starting to believe best thing here is to split Nokia and sell the assets to the highest bidder. Much better than waiting for cash to dry out in a desperate push to compete in WP market against Samsung which will subsidize its WP offering with huge Android profits.

[incognito]

NYSE just opened, instant 13% share price drop! Reminds of the fateful Feb'11... Sad...

[LocalGuy]

the fools!!! Royal Dutch Shell should definitely fire Jorma Olila as chairman of board-- before he shows his incompetence there also-- and finds a way to sell out to microsoft.

also, Finnish parliament should put stronger corporate governance laws in place-- I wish some political party takes this as a election promise to prevent another Elop from destroying Finnish industry.

[Dared]

I really don't understand why Nokia would have allowed Elop to strike such a deal? Microsoft was the company in DESPERATE need of help, not Nokia. Nokia should have called all the shots - no contract, rather an agreement that Nokia would develop SOME windows phones. Ability for Nokia to work on other OS's. Essentially, Nokia should have been the ones calling the shots!

[zlutor]

-17,5% http://www.nasdaqomxnordic.com/shares/shareinformation?languageId=1&Instrument=HEX24311 :-(

Nokia is willing to sell patents: http://www.4-traders.com/NOKIA-OYJ-1412498/news/Nokia-Prepared-to-Sell-Patents-if-Price-Right-14370288/

Is the Q2 situation so bad?

[Dopey]

Tomi is again quick to jump to conclusions with nought point something data points, but this time he did get one thing right: it is a sad, sad day.

[Spawn]

@Dared

> I really don't understand why Nokia would have allowed Elop to strike such a deal?

I think it's about investmentfonds that put lots of money into Microsoft and Nokia. The idea was to make WP a success using Nokia and maximize profit. Somehow those investmentfonds where able to influence the decisions-making processes in Nokia.

[HangElop]

Is there a death penalty in Finland?