Nokia Can You Hear Me? The Tale of the Deaf CEO and every single downgrade with only one message to the company

The Financial Times just wrote a story about how Nokia is now pursuing a new strategy in attempting to achieve exclusive deals with some carriers, who are famously hostile to supporting the deeply flawed and unloved Nokia Lumia smartphones, running on Windows Phone. I was flabbergastered. I wrote a rant quite angry and hostile, even by the standards of this blog with often a sharp-tongued edge. The Finnish business weekly, Taloussanomat entitled its story about my blog story as me freaking out so badly as having gotten what they call a 'hepulikohtaus' in Finnish. That is a difficult term to translate, but I think a close meaning is with the American term 'conniption fit' (my Finnish readers, feel free to suggest better translation haha..). I couldn't even imagine anything similar in the Queen's English (haha, the British would never stoop to such level of loss of self-control and respect).

Is it just me? Am I wrong? Or is it truly madness, for Nokia now, to pursue a strategy that reduces sales and increases losses to its handset unit? So lets not listen to Tomi. Lets listen to the experts looking after the interests of Nokia's owners, the shareholders. What did the three ratings agencies say when they advised Nokia on when they cut their ratings over the past 15 months or so, since the Elop Effect.

Did the ratings agencies, Moody's, S&P and Fitch, call attention to the troubles at the NokiaSiemens Networking unit, one that is perennially a risk of producing losses. Or did they downgrade Nokia due to bad naming of Nokia products. Or because Nokia doesn't have enough imaging software competence? Or did they downgrade Nokia because it didn't sell enough of its factories, or hadn't fired enough of its staff? None of these were even once mentioned as the most important reason which is driving Nokia's owners - the shareholders - to lose the value they have invested in Nokia. These were, however, activities that Stephen Elop has engaged in. He was hired to fix execution, he has not done anything in that area, rather he's made Nokia execution dramatically worse - each of the four Lumia phones for example shipped with major mechanical and software bugs, some so severe they required total reinstalls of the operating system etc (losing often valuable content and stored files).

Lets see what the ratings agencies told us was the primary reason for each of the downgrades. Remember that the ratings agencies loved Nokia under Elop's first 5 months, and Nokia held the level of one notch below perfect by each of the three agencies at that time. So lets listen. Elop, can you hear me? Nokia Board, can you hear me? Nokia institutional investors, can you hear me? Nokia consumer investors, can you hear me?

THE TALE OF THE ENDLESS ECHO

On March 30, 2011, S&P downgraded Nokia giving as its reason "Nokia’s smartphone portfolio will make further significant market share losses"

Moody's downgraded Nokia on April 7, 2011 telling us that "The rating downgrade primarily reflects Nokia's weakened market position in its core business, mobile devices"

 

Fitch on June 7, 2011 downgraded Nokia and explained "The pace of deterioration has picked-up since Nokia decided to switch to an alternative operating system, and it appears consumers are deserting these legacy handsets for cheaper Android versions or high-end Android or Apple smartphones"

Moody's Downgrade Nokia again on 27 July 2011 (two notches at once) and gave the reason for this extraordinarily big drop: "Visibility for Nokia's future operating metrics such as mobile phones sold or average selling prices is currently very low."

 

S&P downgraded Nokia again on August 2, 2011 "primarily due to lower revenues than previously anticipated for Nokia's Symbian-based smartphone portfolio and declining revenues from traditional mobile phones because of continually fierce competition."

S&P downgraded Nokia further on March 2, 2012 telling us "The rating action reflects limited earnings visibility in Nokia's smartphone sub-division"

 

Moody's downgraded Nokia once again on April 26: "due to a severe decline in Nokia's mobile phone sales"

 

S&P told us the reason for their April 27, 2012 downgrade "The rating action reflects a downward revision of our expectations for revenues from Nokia’s devices and services division"

Fitch explained of its July 20, 2012 downgrade of Nokia "Fitch had previously guided that it would take a negative rating action if it was not convinced that Nokia could stabilise the revenue declines and be capable of generating positive single digit operating margins in its Devices and Services division. The release of Nokia's Q212 results indicate that the company is currently not near this position and Fitch is not convinced that this can be attained anytime soon"

 

And now, Moody's on July 23, 2012 downgraded Nokia a further 2 notches because "Nokia’s transition in the smartphone business will cause deeper operating losses and consequently cash consumption in the coming quarters than we had previously assumed"

WHAT AM I NOT HEARING?

Nokia was one notch below perfect in early 2011. Then came Stephen Elop and the Elop Effect. Today each of the three ratings agencies have downgraded Nokia so much, they all now rate Nokia stock as 'junk'. Elop could have fixed things, if he had focused on 'execution' but rather he played around with Ballmer, plotting about buying RIM and Elop sold some factories and bought some sofware houses, and signed up patent trolls and sold some assets. None of these were the causes of Nokia's catastrophy.

Every single downgrade - every single downgrade - has mentioned directly market share, or sales, or revenues (as coming from sales) of not networks or navigation or services - but of the handsets business!

When Nokia handset business sees a decline in unit sales, it means a decline in market share, it means a decline in sales revenues. And EVERY TIME when Nokia has been downgraded, it has been the primary reason why. EVERY TIME !!

Now Nokia CEO is pursuing a 'new strategy' of shifting away from selling on as many carriers/operators as possible, and going to an exclusive deal with only one carrier/operator. This is exactly the same strategy that Apple wanted desperately to get away from and has grown strongly in every market where it broke away from this path (in some markets Apple immediately was offered on all networks). This is a path that Samsung wisely is avoiding. This is a path that killed Palm. And Nokia's CEO now looks at ten - TEN - separate downgrades - TWO of them so severe, that Nokia was dropped two notches at once. And every SINGLE time, the primary, often the only reason was the declines in handset sales and market share (and related handset revenues).

I told you, this is the biggest error Elop has made yet. Please if you do not trust me, read through those statements and go to the original sources (I'm sorry I don't have links for them, as I have been collecting this stuff to a word doc file ever since the Elop Effect, but am sure if you Google the date and ratings agency, you get that downgrade immediately). If not once, not twice, not three times a lady, but ten separate times over the past 18 months, that Elop has been given a warning by those interests that protect Nokia shareholders - Elop's bosses - he has been told, focus on the market share! Focus on unit sales! and he refuses to do that, he plays with all sorts of other things he'd rather do. And now we hear of this madness. An exclusive deal? To then cut Nokia sales dramatically again! As Public Enemy asked in its famous rap tune, How Low Can You Go? Please Nokia Board, fire this Microsoft Muppet Now!

If you still are not sure, here is my rant that I posted earlier today, in my 'hepulikohtaus' state of a Conniption Fit. And if you still are not sure, here are the Nokia Q2 results as an overview, and here is the true dirt of how bad it is. And finally, here are the 19 strategic mistakes Elop has already made, earning him the dubious title of worst CEO of all time, not just in mobile or tech, but in any business. 

 

Comments

[Sid]

Sometimes I wonder how Elopologists can continue defending him despite all these FACTS ?
I guess Nokia Board is to blame for all this.

[vladkr]

@Tomi:

I remember when Stephen Elop was hired by Nokia, you used to say that he got a dream job. Indeed it is!
When he arrived, he got 6M Euros "Welcome" bonus atop his 1M Euro salary, some say he was paid over $10,5M for the whole year 2011 + all little attentions to make his life in Finland easier and sweeter.

All this money and advantages to do... nothing good. Yes, it is really a dream job. If only I was offered the place...

(Sorry, I was to lazy to write a different post)

[ejvictor]

10+ Tomi... I liked the rant :) Is the Finnish sand very dense? How far has the ostritch buried it's head? Well all I have to say is that I am at least glad that Elops actions have resulted in some Jem's - an 808 to play with until Jolla comes out with a device.

[Antti]

I read the article in Taloussanomat and came here to find your post.

I don't know who is running this company anymore. Is it Elop? Is it the board of directors? Ballmer? Who? I mean... How can anyone, even Elop, witness this kind of destruction of Nokia? He is afterall the CEO and should take actions.

Tomi, what do you think? Why is Elop still the CEO of Nokia Why is he not fired? Why is the board asleep? We all see what is happening, but WHY is it happening? And who is to blame?

[Winter]

I read the term Elopcalips somewhere. Seems appropriate.

[vladkr]

From YLE.fi :

"While we are disappointed with Moody's decision, its impact on the company is limited," Nokia's Chief Financial Officer Timo Ihamuotila said in a statement.

If every bad news has a limited impact on Nokia, everything should be fine then, why do we worry?

[Spawn]

The start to believe that this action is a move to sideline Lumia and the Windows Phone only strategy.
Nokia may not able to just abort cause of contracts made earlier with Microsoft but then can try to move it out of the way for a plan B offering. Maybe as direct consequence of key carriers like AT&T making clear, that they wan't take the Lumia running WP8.
Maybe Nokia is already in the move to bring alternate offers to all those carriers in a similar way they did for China Mobile.
Maybe the BOD did split off the new strategy to give it room to act outside of Elops influence to finally have an alternate they can bring to market before Elop is killing it off.
Maybe cause of contractual bindings they cannot shutdown Lumia. Maybe that is why Elop is still in the game as long as Nokia keeps plan B secret to prevent future osborning Lumia.
Maybe... or the plan is to have Nokia done.

[incognito]

"These were, however, activities that Stephen Elop has engaged in. He was hired to fix execution, he has not done anything in that area, rather he's made Nokia execution dramatically worse - each of the four Lumia phones for example shipped with major mechanical and software bugs, some so severe they required total reinstalls of the operating system etc (losing often valuable content and stored files)."

Allow me to disagree with you there. Not only that he has done everything in that area - he executed Nokia quite expertly. A bona fide Terminator would stand in awe watching Elop's execution of Nokia.

[vladkr]

The only winner in all that is... Samsung :
- They became #1
- they acted as saviours, hiring former Nokia-success makers, that have been fired by Elop
- they hired talents from Nokia
- they stimulate developers' communities promising what Nokia failed to offer when Meego was killed
- their reputation rises as Nokia's dives.

[MarcoAustria]

@tomiahonen, you forgot one downgrade ;):
Since December, 2011, users graded Lumia as "junk" giving as its reason "The product fails Nokia users in every way possible!"

[Rune]

Nokia's smartphone business is lost beyond any possible recovery.

So what does it matter whether they don't sell any phones through all carriers, or don't sell any phones through one carrier?

We are at the point where Nokia needs to realize that its days in that business is over. And close it down. (Keep a symbolic presence just to stay within the MS contract). Maybe rebrand a few Huawei phones just to see if they sell.

Elop needs to cut ALL the expenses in that division, and stop worrying about sales. Instead try to see if the other parts of the company can be made sustainable. If not, he should wind the entire company down, rather than causing more losses for creditors.

[MIP]

I posted this a year ago, but it is every bit as relevant now, unfortunately...:

http://www.mobileinfoplanet.com/2011/08/11/stupid-has-a-new-name-now-and-a-face/

[m]

Yes, I think you're wrong. Nokia needs a carrier to push WP8. As you've pointed out many times, though Nokia pushed Lumia a LOT with advertising and wasted money, they didn't have carrier support and the result was bad.

One carrier pushing WP8 is better than all carriers ignoring WP8. Nokia can't buy off all carriers, and then let them stop pushing the phones as soon as the money stops.

Exclusivity would allow some hypothetical carrier who is willing to bet on WP8 Lumias, to profit from it. Then such a carrier would actually push WP8, because doing so would benefit themselves.

With WP8 on all carriers, you could have a repeat of Lumia 900 situation, and then none of the carriers would bother to push it and Nokia's downfall would be finalized quickly.

[TimoT]

Nokia BOD is basically useless and clueless, it has been "americanized". One is an oil man (Statoil ASA), one from cosmetic industry (L’Oréal Group), one from a paper mill company (Stora Enso), one even from Procter & Gamble (personal care, household cleaning, prescription drugs). They got until recently even former prime minister of Finland, Esko Aho on board. That demolition demon squared almost collapsed Finland's economy in the early 90's.

They got their (very busy) day jobs in industries totally different than mobile phone business. There is no synergy, they do not bring any relevant expertise to the table. They just say yes to whatever Mr. Elop says in their quarter meetings and hurry back to airport to catch a plane. Could you imagine that kind of very odd board in a big family owned company?!

It is the same in many big American companies too. One American investor said few years back that he does not need to watch any TV-comedy shows anymore, clueless board meetings are quite enough for him. :)

[Zarko M.]

There should be resistance on the current Nokia management from Nokia insiders not only outsiders. Especially from employees, they can sometimes "smell" bad scenario better than investors and BOD. Employees on key positions can also impose conditions if they organize themselves well. Where is their voice and reaction? They are too quite in such delicate moments where mistakes cannot be afforded anymore.

I live in Macedonia, I'm not Fin, I'm not Nokia employee and while I work in the telecom industry I'm not influenced on any level by Nokia's future. I'm just a fellow Nokia user who has a hard time seeing Nokia going down.

[BB]

I think the English word you are looking for is 'apoplectic' - an apoplectic fit.

http://en.wikipedia.org/wiki/Apoplexy#Non-medical_usage

There's an anagram not far away.

[tired]

@m You ASSume that WP7.5/WP7.8/WP8 is desired by consumers. At The rate the lumia is selling, quite clear that it is unwanted by most ppl. whether Because it sucks or ppl hate msft, your guess is as good as anybodies.

[Arnt Karlsen]

..engineering firms were hired to streamline the gassing process lines in e.g. Auschwitz-Birkenau, which _is_ a way to "fix execution." So, it appears the Anders Behring Breivik of telecom is delivering "fix execution."

[KM]

>> whether Because it sucks or ppl hate msft, your guess is as good as anybodies.

If Microsoft actually thinks that people like their products they are sorely mistaken!

I think the vast majority just uses them because they have no other choice. Clearly with such a customer satisfaction they can easily transfer their user base to Windows Phone.

I think many are glad that they don't have to bother with MicroShit on their phones... :D

[togga]

What you miss Tomi may be that Nokia is trying a new hip 'cloud management' strategy. The results we see is a consequence of Elop sitting in a cloud of bullshit produced by the Microsoft propaganda-machine in which the whole world is defined by Microsoft products. Some people may literally live in this cloud of bullshit (analog to the people in the movie "the Village").

I also think many people just silently are waiting for this infected branch of MS to die (which will bring a feeling of freedom since Microsoft represent years of a Soviet-communist-regime-like situation with 3-year-plans in the IT-sector).