Picture Tells it Better - first in series of Nokia Strategy Analysis diagrams, how Nokia smartphone sales collapsed

So yes. Yesterday I wrote the long blog where I only focused on Nokia's own risk assessment, in the SEC filing Form 20-F for the NY Stock Exchange from March 2011. And I found 20 major risks that had come true, and why Nokia's Windows Strategy is utterly failed and doomed. But its a very long tedious blog. Now I will embark on a series of single-topic blogs about the Nokia strategy failure, illustrating each failure by one graph and related stats and/or analysis.

Lets start with the obvious. How did Nokia's strong smartphone unit sales growth turn suddenly, instantly, into a suicidal collapse? This is how it happened:




This graph may be freely shared

Note how Nokia had steady growth from each year-half to year-half. Here is the data by year:

NOKIA ANNUAL SMARTPHONE SALES BEFORE AND AFTER ELOP EFFECT
Year 2009 . . . . 68 million smartphones
Year 2010 . . . 103 million smartphones
Year 2011 . . . . 77 million smartphones
Year 2012 . . . . 35 million smartphones
(Year 2013 . . . . 25 million smartphones, TomiAhonen Estimate)
Source: Nokia Quarterly Data up to Q3 2012, after that TomiAhonen Consulting Estimate
This table may be freely shared

Nokia smartphone sales grew 53% from 2009 to 2010, until they turned instantly into catastrophic decline. From its peak sales in Q4 of 2010 when Nokia sold 29 million smartphones, exactly 12 months later that was down to 14 million per quarter - a fall of half, and now for Q4 of 2012 we expect sales at the level of about 7 million (my forecast is 6.8 million) which is again a collapse of half in just 12 months. Never in the history of mobile phone handsets, has any leading brand fallen this fast, not Siemens, not Palm, not Motorola. This is a world record collapse of a market leader. Bear in mind, while this happened, the global smarpthone market grew by 50% in 2011 and 40% in 2012. Nokia was the only major smartphone maker to actually see decline in unit sales while the industry grew so strongly over the past two years.

The Nokia strategy in 2010 had the industry-leading growth in absolute numbers, Nokia smartphones grew in unit sales more than Apple's iPhone or Samsung's smartphones or RIM's Blackberry. Nokia was also profitable doing this, and Nokia profits were increasing.

Every published mobile industry expert organization who made a Nokia-related forecast during 2010 was convinced that Nokia would continue as the world's largest smartphone maker into year 2011 and 2012 - that ws the consensus view, not one dissent! And every one of those industry experts, when considering Nokia using Symbian and MeeGo based smartphones, projected strong GROWTH in Nokia smartphones through 2011 and 2012. Every one of those experts was convinced that still today at the end of 2012/start of 2013, Nokia would be safely the world's largest smartphone maker. (that is the blue dotted line in the diagram)

That was before the Elop Effect happened in February 2011, and CEO Stephen Elop's ill-advised Microsoft strategy that caused instant Ratner Effect and instant Osborne Effect, which collapsed Nokia smartphone sales and plunged Nokia's smarpthone unit into ever bigger loss-making from which Nokia has not recovered. In fact, by Q3 of 2012, Nokia was reporting a massive 48% loss per smartphone sold, while the smartphone sales were vanishing.

When Elop announced his new strategy, he did not promise the previous growth rate of Symbian/MeeGo. But Elop did promise his new Windows strategy would achieve a 1-to-1 transition from Symbian to Windows Phone (that is the horizontal orange line in the diagram). His strategy had a two-year time span. That is now coming to a close on 11 February, 2013. So for Elop to 'achieve' his stated strategy, he should be able to deliver about 103 million smarpthone sales per year, now in 2013, all those migrated from Symbian to Windows Phone. In 2012, Nokia only managed to sell 35 million smartphones. That is likely to still fall further in 2013, to about 25 million for the full year, and about 2.5% market share. Nokia held 29% market share when this mad Microsoftian Misadventure was announced two years ago. This is comprehensive strategy failure.

Obviously, if you as CEO introduce a strategy that results in a world-record collapse in your market, then your strategy has failed and you have presided over a world-record in management failure. That means, obviously, that you as CEO are a total failure. Arguably, a world-record fool as CEO (but we'll get to that, one picture cannot yet prove Elop is the worst CEO of all time, although this first picture gives him a strong start in that race). And yes, Nokia's Board is complicit in this too - for them to tolerate the Microsoft Muppet and the Mad Microsoft Misadventure, the Board is also incompetent (or worse, in collusion with the delusional CEO) and must be fired.

I will return with more pictures and analysis of Nokia's smarpthone strategy fiasco in the coming days and weeks. 

UPDATE - second picture in this series is about Nokia and competition, and how Apple's iPhone and Samsung branded smartphones did in the race against Nokia smartphones under Elop. See here Greatest Individual Management Mistake Ever Made - Nokia vs Competition in One Picture. 

Comments

[Tester]

@Ninvestor:

I'd agree with most you say, except this bit:

>> Nokia could not EVER compete against iPhone and Galaxy/google with ... Meego.

I think giving it the right push at the right time with up to date hardware, they would have stood a chance.

Had they not prematurely destroyed Symbian their marketshare would still have been sufficient to have some power and convert their users if their new offering had been any good.

No, the N9 wasn't it. It was too little, too late, already running on outdated specs at the time of release - but most of it was due to lack of interest in pursuing this path seriously.

>> Tell us Tomi. What were Symbian Sales in the USA? In Japan? In the UK? In Germany? Weren't they declining already or had already collapsed in 2010?

I don't have any sales numbers ready but I had a quick look at statcounter's Mobile OS stats for some countries.

Symbian went from 17.19% to 8.62% from Dec 2009 to Dec 2010 in Germany,
from 10.59% to 6.82% in France, from 12.48% to 4.54% in the UK.

Ok, I know we have to consider overall market growth as well, but these kinds of declines in use do certainly not suggest a healthy system.
I'd say without Elop Symbian would still be there today, slowly fading into obscurity, just like it currently happens with the old Blackberry OS.

[rich]

So how long has elop got before the board vote him out?

[Tomi T Ahonen]

To Tester

You asked me explicitly. First, just so you know, you are truly borderline from that comment being deleted. The graph CLEARLY shows NOKIA smartphone sales GROWING. IF you want to argue it wasn't, you have to at least acknowledge you read the blog and why you find it relevant to quote other non-related stats (Statcounter) on non-related metrics (Symbian) on non-related subsets (individual countries) without at least acknowledging the big picture as fact - or that you have countering facts.

If it were to be true, that Nokia sales in Germany, Japan, UK and USA did fall, but correspondingly grew in China, France, Italy and Mexico - and the growth was greater than this decline, your point is already moot. The graph in the above is based on Nokia quarterly data. If you feel that is not trustworthy, tell us what is better data.

But I know you are here often, I will give you the benefit of the doubt, that you are simply curious why this 'discrepancy' on the data you found.

First, Symbian in 2009 was not equal to Nokia. Today Symbian = 100% Nokia. But in 2009, Symbian included handsets made by Fujitsu, LG, Panasonic, Samsung, Sharp, SonyEricsson, Toshiba, and many more. Many of those were shifting away from Symbian during 2009 and 2010, especially LG, Samsung and SonyEricsson, the biggest of this group. That is why Symbian sales fell, while Nokia smartphone sales grew. Don't confuse Symbian of 2009 being Nokia. It was much more. Nokia smartphone sales grew as you see in that graph, it is directly from Nokia Quarterly results, there is no better measure of the numbers.

Statcounter measures web page views. In 2009 the iPhone was hitting significant market presense (launched 2007 in USA, 2008 most of Europe, 2009 in Japan). Statcounter cannot tell difference between iPod Touch and iPhone, nor difference of WiFi or cellular access. Very much of iPhone/iOS traffic in this time was used by WiFi or 'all-you-can-eat' data plans, so iPhone users had FAR higher data usage, per device, than most other smartphones. In 2009 and most of 2010, Nokia had very few usable touch screens or large-screen non-touch screen smartphones in its portfolio and had a FAR lower usage level, per device. So the growth - as you can see in Statcounter - of iPhone use is FAR in excess of Apple's actual market share. With iPhone over-counted, it means others are under-counted. Statcounter is a good measure for short-term trends WITHIN one brand, but NOT a good measure to compare different platforms against each other.

I have some random metrics from some countries but they are not consistently reported and not enough to be representative to show any trends. But if Nokia total smartphone sales grew 53% in 2010 and grew more than the iPhone or Samsung - then Nokia was OUTPERFORMING its rivals in 2010. In some markets it may have been down in some quarter, and up in another. The big picture is in that diagram I drew.

If your contention is that Symbian was headed to a slow death decline like Blackberry today - then that argument is 100% against the facts - in the global smartphone market, Nokia's gap to its rivals was growing in 2010, not shrinking. Nokia was pulling away from Apple's iPhone and Samsung, not them catching up (up to the Elop Effect, obviously).

Tomi Ahonen :-)

[Louis]

Ironically, since Tomi thinks that Skype killed WP, apparently WP8 can't even run it properly:

http://www.theverge.com/2013/1/2/3829072/skype-people-hub-windows-phone-8-integration-disabled

Personally, I think this gives more credence to the "it's just not that good" theory of things. Skype works great on the iPhone. And probably there isn't even FB Messenger for WP8 at all

http://www.theverge.com/2013/1/3/3832250/facebook-messenger-voip-calling

[Tomi T Ahonen]

Second comment to Tester

MY BAD !! I am VERY Sorry. I meant to delete Ninvestor's comment (and did) but accidentially deleted your reply to him/her. I am VERY sorry, I didn't mean to delete that comment, it was fine. If you want to repost it, feel free (but as Ninvestor's silly comment is gone, you may not want to)

Sorry, its a bit late in the night, my time....

Tomi :-)

[Interested to know]

@duke
Thanks, I just read that article and thank you again.

But I do think Microsoft understands the internet to a large degree. They've been very successful in the past presenting a fake reality that people have really bought into. I think their problem is that they are becoming so unsuccessful now that the gap between actual reality and their projected reality is too large for their astroturfing and slander campaigns to bridge.

So much of journalism and blogs today consists of nothing more than simply reprinting press releases. It seems to me that Microsoft has understood, manipulated and exploited this "better" than most. In fact, contrary to what Microsoft asserts, most other tech companies won't engage in this type of deeply subversive PR.

It amazes me how many of the major tech blogs were praising Nate Silver's data driven analysis of the US presidential campaign while at the same time ignoring this type of analysis in relation to Windows Phone and Windows 8.

I hope Tomi's eventual book on the destruction of Nokia [I suggest "Zero Billion Dollars" as the title] examines some of the other recent wars Microsoft engaged in so he can show the atmosphere of manipulation that was prevalent in their culture.

Microsoft used these same tools in the Bluray vs Hd-Dvd war. They were really successful making huge groups of people *hate* Bluray and Sony. They even got movie studios and CE companies to sacrifice long term business for (extremely) short term payoffs. Hd-Dvd eventually lost but the long-term damage to Blu-ray was practically fatal as well, which was all Microsoft really cared about. And of course, the entire time Microsoft was waging this war, it took its eye off of Apple who was busy establishing iTunes as it's entertainment hub.

But in Nokia's case, I think Microsoft and Nokia have gone beyond the scope of a PR war and have engaged in illegal activities. The muppet CEO transferring valuable patents to help Microsoft at the expense of Nokia will eventually lead them to court unless they can find a way to bury this.

[bjarneh]

@duke: nice article :-)

Tester> No, the N9 wasn't it. It was too little, too late, already running on outdated specs at the time of release

this was not the case IMO, there is nothing outdated about this device apart from Nokia's leadership. it can run Android 4.1 just fine, and if you throw out the virtual machine (Dalvik) and run native apps on it (Meego), you get MUCH better performance, not to mention much less power-consumption, i.e. longer battery life or smaller devices; two very nice features. many of the apps i've downloaded for my 2 N9's use PySide, yes they are basically Python apps, still they run just fine (NOTE: this is an interpreted language which runs on a virtual machine, not exactly an optimal situation in terms of performance, much worse than running Java apps on the Dalvik virtual machine, i.e. Android).

dual/quad-core etc. makes a lot of difference when you have many applications running at once (especially if they behave badly as background jobs), but most programs written are standard single-threaded apps, if you ignore the rendering (GUI) which really boils down to the GPU (which is a separate issue). the N9 GPU does fine with very complex games, we are not talking angry birds only here..

breaking up problems into multi-threaded solutions is just never done, it's way to complex, there are no good tools for it. programming-languages has never been able to address this problem in a good manner, numerous attempts have been launched, pretty much all have failed. i.e. a dual-core CPU gives you very little performance gain unless you have background jobs going nuts. all these smart-phones (including the N9) have dedicated CPU's for heavy tasks such as screen input, signal processing and so on, for some reason these are never mentioned when phones are sold...

NOTE: i'm not saying that a dual/quad-core N9 would not be better, i'm just saying the this argument is less relevant than other issues, like for instance: DOES ANYONE WANT TO BUY YOUR PHONE?

==== back 2 topic ====

the problem that Tomi addresses (and many others as well), is that the Meego system never got a CHANCE, it was orphaned by its own parent in favor of Windows Phone. what kind of lunatic gives up his own child for adoption in order to adopt a stepchild? this does not make sense for Nokia, it only makes sense for Microsoft. Nokia employees had worked for several years on Meego/Meltini, and now all of a sudden they must be abandoned in favor of Nokia's new favorite stepson? Nokia did not even allow Meego to compete HEAD TO HEAD with Windows Phone; launching the N9 in "selected markets" at an insane price ($1000 in Norway, $100 more expensive than the iPhone at the time).

to those who say that there was no alternative, and that Symbian and Meego could not compete against Android/iOS, and that Microsoft gave Nokia a huge pile of cash to sweeten the deal.

1) there was no pile of cash, the money they got from Microsoft was basically "free" Windows Phone licenses, they could just as well have gotten fresh fruit, these licenses are worthless. and the "free" promotion did nothing as we have seen, the product was not competitive.

2) Nokia HAD Meego/Symbian devices, they had no Windows Phone devices; and even when they got Windows Phone devices these should be placed next to each other in the stores to let the best man win. this is a competition Nokia could not loose, i.e. finding out which of their platforms was most likely to sell, that kind of thing matters when you are trying to SELL products.

i do not always agree with Tomi but he certainly has told the truth regarding Nokia's failed Windows Phone adventure, Meego/Tizen had/has a chance to compete, Windows never will. the reason Windows can't compete is that the brand itself is tarnished, it's not that the Windows Phone devices sold now are horrible; it's that they have been horrible for so long nobody will ever trust that brand in cell-phones again, this CANNOT be fixed short term, it will take years to rebuild that trust, by then it may all be over..

[vladkr]

@Tester :

The lack of marketshare for Meego is only due to the fact it wasn't marketed at all... and considering that, the OS (and the device, aka the N9) did perform quite well.

I agree that it can be a waste of time developing for Meego (don't forget that many development tools for Meego can be used for other OSes... so it's not such a big waste of time), but it's not because of the OS or its performances. It's because it was killed in the eggs. You'll see with Tizen and Jolla that the OS is indeed competitive and attractive to developers.

[Tomi T Ahonen]

to all in this thread, Part 2 in this series is posted, you may like it, its about the competition and Nokia, with a nice picture :-)

Tomi Ahonen :-)

[Sander van der Wal]

@Tomi

In the Form Nokia managements states that they are switching strategy *because* they are loosing in *key markets*.

If Tester presents some evidence that Nokia was indeed loosing in key markets, then that is relevant to the discussion indeed.

If Nokia was only selling more smartphones in markets were iPhone and/or Android were absent, and if Nokia sales were collapsing as soon as iOS and/or Android were introduced in these markets, then that is a clear sign that Nokia had completely lost the smartphone platform war with Symbian.

Their global increase in sales were then only because there was nothing better, and as soon as something better would came along, their local market size would disappear immediately.

I am happy to entertain the theory that the Memo caused sales to collapse more than without it, but the notion of it being the sole cause of the collapse is simplistic, and it does not at all explain why Symbian market shares in certain countries were already in the single digits before the Memo.

[Tester]

@vladkr:

>> The lack of marketshare for Meego is only due to the fact it wasn't marketed at all... and considering that, the OS (and the device, aka the N9) did perform quite well.

Of course. I know that. But that's not the point. If I have to make decisions what platforms to support it's about potential customers, not favorizing the platforms I'd like to develop for.

I'll be honest: I hate developing for Android. Its tools are crap. Not as bad as old Symbian tools but certainly far inferior to Apple's and Microsoft's offerings.

But such considerations don't mean much when deciding what platform to target. It's obviously iOS and Android because that's where 95% of the money is.

I'm not in the charity business and can't afford to target a platform like MeeGo with currently no significant market share.

@Sander van der Wal:

There's 2 things that need to be considered:

- future performance of Symbian
- future performance of Nokia

For Symbian, yes, the decline was already showing in some key markets. And had Nokia stayed with Symbian alone I have no doubt that this would have been the end of growth. Maybe not immediately but 2 or 3 quarters later. This would have ended like Blackberry who are still stuck with their ancient OS and the successor still not ready.

But this wasn't the case for Nokia. They had MeeGo - and they were able to bring it out in time to replace Symbian before it had a chance to become toxic. It was competetive with the other OSs. Had they seriously pursued this route it would have put them back on the map in the high end market.

Yes, the mismanagement and execution failures delayed MeeGo for far too long - it should have been ready in 2010, but had they stuck to it instead of going Windows they would have only lost some marketshare in 2011 but after that would have stabilized again, once the new devices were out. Just from the overwhelmingly positive reaction to the N9 I just can't imagine that this system could have failed. It would still have had the big Nokia name behind it to give it credibility in the market.

[Jagjit Dusanjh]

Tomi, your estimate for nokia is 25 million smartphones for the year 2013. I think you're being kind dude. I'm challenging you right here, right now.

20 million.

P.S. I don't know if I want to be right or wrong.

[Sander van der Wal]

@Tester

MeeGo. Sigh.

Nokia have been working om Maemo since 2005. At some point in time they rebranded it as MeeGo. Released a couple of devices only hardcore linux geeks loved. They had plenty of changes to make it work, but the Maemo division was never run as a proper business unit. It was run as the playground of a bunch of hobbyists. Completely detached from the real world, the conversations I had at the developer forum we completely insane. People did not have a clue, basically, no understanding of what makes a succesfull, money-making software business at all, and no desire to even venture that way.

[bjarneh]

Sander van der Wal> Released a couple of devices only hardcore linux geeks loved.

the N9 got great reviews, this was by no means a hacker-phone for Linus Torvalds and a few of his close friends to play around with..

Sander van der Wal> the Maemo division was never run as a proper business unit.

there is no such thing as a "proper business unit". what would that even mean? as a company trying to make money? as opposed by companies trying to loose money? by that standard, Nokia has moved away from being a "proper business unit" by now i guess..

Sander van der Wal> It was run as the playground of a bunch of hobbyists.

a playground for hobbyists? sure, out of Nokia's 120.000 employees probably 3-4 hobbyists (hardcore Linux geeks) sat down and created the N9 and Meltini etc. this is exactly how it works.. the rest sat and waited for the long awaited Windows Phone 8..

Sander van der Wal> the conversations I had at the developer forum we completely insane

that i can believe, did you tell them how to build a proper business unit?

Sander van der Wal> People did not have a clue, basically, no understanding of what makes a succesfull, money-making software business at all

sure; there is only one way to do that. Rovio is exactly the same as Facebook, Google, SAP, Oracle; you name it. those fools were probably most interested in loosing as much money as possible, stupid hackers who did not understand proper business units!

[Tester]

@Sander van der Wal:

Yes, indeed, they had problems. Yes, it took far too long to develop Maemo/MeeGo. Yes, they made a catastrophic mistake when they decided not to pursue it seriously in 2005. Yes, the N9 was essentially a year too late.

However, these are all management problems, not indications of technological failure.

Any sane CEO would have cleaned house and weeded out the rotten parts of the affected departments, making sure they can again work efficiently.

A sane CEO would NOT close down departments that despite all the corporate infighting ultimately managed to show results, albeit delayed.

So where does that leave Elop? He's clearly not a sane CEO.

[Lasve]

Nokia consistently lost Market share since the end of 2008.

From Q4 2008 to Q42009 had achieved to keep its share, thanks to the mid/lower end devices
By Q3 2010 it was -6%:

It was going down EXPONENTIALLY (and those are data I collected from your site too a couple of years ago)

OF COURSE the numbers were up: the market was literally EXPLODING.
Nokia's sales grew roughly +30% in a Market that grew twice as much!!!
Ah, and of course Samsung was just getting started.

[Sander van der Wal]

@Tester

Nokia made software technology mistakes by the truckload. The Symbian API got worse and worse over time, their first attempt at creating API's for Symbian and Maemo was incredibly stupid, putting two different API's on top of Qt, the toolset became worse and worse.

In some sense, all technology mistakes are management mistakes. But being a heroic programmer on a deatchmarch doesn't in itself make you a good programmer.

[Tester]

Sure, but Elop's solution to toss it all out and replace it by something even less proven in the market is just utterly stupid.

Symbian was a nightmare to develop for, with that I fully agree, but more importantly - they STILL SOLD reasonably well, as strange as it might seem, considering how bad Symbian was on the inside. If something still sells you make sure it continues to sell long enough until you have something better in your hands.

That means, you quietly and persistently ready the successor and unveil it when it's ready so that it doesn't disrupt your revenue stream.

The irony is, that by the end of 2010 the worst problems were solved. With Symbian^3 which came with a Qt API, things really got better. Just a little more patience and it would have ended well. Nokia was late at that point, they hadn't failed yet, though.

[m whitton]

I think all the venom aimed at Elop and other Nokia management over past mistakes in Smartphones is a waste of time. Meego is dead, Symbian is dead, Blackberry is dying, WP is also dying at worst and crippled at best, iOS is proprietary to Apple, and Android/chipsets puts any manufacturer in the smartphone business today. Nokia needs to find some new businesses or it will go away like all the old stalwart mobile companies like Motorola, Ericsson, Sony, NEC, and Panasonic. The Smartphone business for everyone but Apple is the PC business: low margin, low differentiation, cut throat. The only people making money in Smartphones are the chipset companies, app companies, patent trolls, and advertising/search, just like Intel and Microsoft make all the money in PCs. Stop whining about the past and come up with some new ideas for the future, and forget about making Smartphones, its a fools' game.

[Sander van der Wal]

@Tester

By the time they were ready late 2010 they lost all developer interest. Developing for iOS was so much more lucrative, and Nokia's promises about Qt and Maemo because so long in the tooth that most developers had left and no new ones were entering the building.

That was the ecosystem bit Nokia management complained about.