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« Another Death in Smartphone Bloodbath - Windows Phone strategy so failed, now Nokia handset unit sold - to MIcrosoft | Main | Thank You For The Smartphone - Some Abba Lyrics Revisited on a Nokia Theme »

September 03, 2013

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So Vatar

There is a tech rally today on the Nasdaq, but Microsoft is down another 2%. Looks like MS investors do not like the Nokia deal, or start to doubt the rosy prediction of a 15% market share within a few years.

This deal is far from settled, Microsoft might bail out. If this happens then Nokia in its current condition is really in deep sh*t.

Since the announcement to buy Nokia's handset business Microsoft's share price is down more than 6% at a loss of more than $18B market cap. Sure, I know short term share prices can be influenced by many factors, but I think it is fair to say that the market does not exactly applaud Microsoft's decision to purchase Nokia's handset operations at the terms disclosed.

logic001

just throwing it out there .. would love to see the original alliance contracts between Nokia & Microsoft Microsoft were to pay Nokia 250M per quarter. Did the contracts include an inclusion to suspend such if Nokia were bought out. Otherwise the 250m should continue !!

So Vatar

@ Baron
Nokia's gross cash position was EUR 10B, net cash was in the vicinity of EUR 4.5B last time I looked. Take out 1.2B for NSN and their net cash is close to EUR 3B.

Idk what their debt terms are (i.e. when they have to repay their debt instruments), however EUR 3B Net cash for an operation with about EUR 6B net sales per quarter AND junk status on their debt (making it hard and expensive to get credit) is not much at all.

So yes, Microsoft's cash for the devices unit combined with cutting the eternal loss maker (Lumia line) leaves rest-Nokia in a financially much better position.

If NSN is worthless or not has to be seen, however it is definitely of no interest in the context of Tomi's blog. Nokia the consumer company is gone.

Sra1

Microsoft never accepts open source that is the problem.
If they give permission to file explorer.. damn! They will be No.1 in 2 years.
Because here in India only less than 30% people know about mobile os and how it uses.
Remaining people only use mobile for calling and camera and entertaintment.

Earendil Star

Again on "conspiracy". There is no such thing as "conspiracy theories" in this Micronokian saga.

Saying that MS wanted to destroy Nokia is not necessarily ludicrous. Possibly they did not want to destroy the company itself. Their first aim was to carry out a covert acquisition at 0 (zero) US$, and hoped to convert Nokia's position in mobile into WP position in mobile instantly. This plan failed completely because:
1) THTRH Flop is an uncapable moron
2) WP7 was an unfinished (P)OS, with terrible ux, which was eventually ditched by MS few months after Nokia adopted it as its ONLY OS. [Historical note: this (P)OS was at the time described by the usual astroturfers as ok, while Maemo/Meego "not ready", yeah, ok... what a laugh: WP became more or less ready just with WP8...]

Yet, they certainly wanted to kill the first smartphone ecosystem worldwide (Nokia's) and replace it with their own. Nokia could have been left alive, albeit a shadow of its former self: with a future of a zero margin captive OEM. Or becoming a MS division, as I had repeated time and time again. Go back and read my previous posts. And certainly there was also no concern at all for the fate of Nokia. It was an expendable aid for MS and WP to reach success in mobile.

So: MS did not necessarily want to kill Nokia as a company, but it certainly wanted to kill its soul, its ecosystem. I'm not sure there is such a huge difference between the two. The latest events just vindicate my view.

Then, the theory that what THTRH Flop did is just an endless row of bad business decisions is simply unbelievable. I could have accepted it if he had no previous tie to MS. I could accept it if he had now been fired and ended up searching a new job somewhere in the wild, like becoming a fast food teller operator, after his appaling tenure at Nokia. I could accept it if he had taken ONE -I repeat- ONE decision that in some way could have been detrimental to MS, or had an appearance of being balanced when evaluating non MS options. But no. All he did centered on MS, which was ALWAYS the beneficiary of any decision he took. Whenever he said something, his focus was MS and WP, never Nokia. Suddenly, competition was no longer Samsung (which incidentally got Nokia's Here Maps for free through WP8 in its Ativ devices) but Google. Success was important for WP, not for Nokia smartphones. His words, not mine. He was always to be seen with Ballmer. He badmouthed Nokia's own products while having no alternative ready for months.
Should I go on? I could list dozens of other examples and reach Tomi's post length in this reply, but I'm not sure readers would appreciate, hehe.

So, sorry, no. It was NOT a series of unfortunate business decision. It was a consistent and systematical plot to favor MS entry in the smartphone arena. MS' WP, the real burning platform, had to be rescued, and the victim was found in Nokia, thanks to the complacency of its pusillanimous board.

Would anyone complain if MS had acquired Nokia at a fair price in 2010? Possibly some, not certainly me.
This is not what happened. Once again MS continued in its shady practices. Attempts to cover or disguise this undeniable fact with empty words must be countered.

For this reason, for having taken his free time to shed some light on this whole story, while MS astroturfers and trolls are ravaging, I am grateful to Tomi. Thank you!

Tester

@Earendil Star:

Repeating the same nonsense infinitely doesn't make it true.


I for my part am not sad to see Nokia gone. They were a shitty manufacturer when they were at the top - complacent, arrogant and producing devices with incredibly bad software. Then they completely missed the revolution but their arrogance made them ignore reality but when the finally saw what was happening they walked the most idiotic route imaginable because the alternative would have been to step down to the commoners (impossible, we can't do that!)

My own private prediction in early 2010 was that if Nokia doesn't wake up soon they'd be out of business. Well, they didn't wake up. They made a deal so ludicrously insane that it sealed their fate for good. No, the writing hasn't been on the wall since early 2011, it had been on the wall for much, much longer. 2011 was just the logical consequence of their previous failures and the inability to see what went wrong.

PS:
I'm starting to think that any continued discussion here is pointless because it looks like sane opinions have no place here, so I'm signing off for now.

Giacomo Di Giacomo

Nevertheless, the feeling I get from the people I know is that many of them would rush to buy an Android Nokia. The hardware is there, the Lumia 625 is fine, just change the silkscreen on the keys and port Android to it. Is this that hard? Has a market analysis been done on this? Do it and see how much you can earn from such a move. If the results are good, unilaterally break the deal with Microsoft and ship the device. Microsoft sues you and wants their money back? Give it to them. It is a small fraction of the damage that Elop has managed to conjure until now, and a small fraction of the present that Elop is doing to Microsoft in terms of underestimation of current Nokia asset values.

The Recusant

***

This follows the familiar pattern of Apple hype and corporate propaganda.

Apple's value is bombing -- for clear reasons which are readily apparent to investors and everybody else.

E.g. Apple's financial results are overwhelmingly dominated by, and dependent on, one product: iOS. But iOS is very old news, now, and consumer trends are consistent with a growing realization that there are superior products available at an equal and often lower price.

E.g. Apple is losing market share in by far their most important segment, mobile, which defines the company and it's success in recent year. And again, their quarterly results are dominated by mobile.

E.g. Apple is not an essential aspect of Apple products. Other companies like Samsung make their components -- all the cleverest stuff is from outside Apple. All Apple does is essentially put a shiny case on it and stamp on their designer-label before selling it to you.

E.g. Apple's success was achieved under Steve Jobs. He is now gone forever, and it is already abundantly clear that Apple is not the same company without him. Apple is no longer perceived as cool, except among the last remaining die-hard supporters comprising middle-aged men and women, Generation X and older Millennials. Ever since Jobs went, Apple has been making one serious mistake after another.

E.g. Apple is consistently the most expensive way to buy a product or service, from MP3 files and MP3 players with iTunes to tablets with iPad. Like its stock, Apple has been over-rated and over-valued, and a correction is long overdue.

E.g. Apple is stuck in the naughties, locked in a work-out pattern of releasing slightly upgraded versions of the same old products. Early fears that Apple has nothing more to offer the world are proving justified. Tech is moving on, leaving Apple behind. The company is now just ticking over -- it's boring to watch.

E.g. Apple engaged in unpopular and immoral practices, including avoiding $1 BILLION tax per week in the US alone, failing to create jobs domestically or even in its most important market territories, unacceptable conditions for off-shore factory workers, to anti-competitive practices, to patent trolling, etc, etc.

E.g. Apple has a track record as a fringe player. After all these years, Mac has still barely scraped past 5% market share against Windows.

Hence, recent estimates value Apple at a mere $200 share:

http://blogs.reuters.com/bethany-mclean/2013/02/06/should-apple-be-a-200-stock/

***

Sachin Shah

Now, If Elop become Microsoft CEO then in 2020, Amazon / Google / Ubuntu will purchase Microsoft.

RottenApple

@The Recuscant:

While I agree with everything you say about Apple, the market doesn't seem to have realized most of it and neither has the US press which still shows an unhealthy focus on this one single company.

Still, Apple is clearly rotting from the inside. There's no great new products, it's all hype and expectations but no substance. All the existing buzz is merely hiding the ugly truth, making the inevitable crash only worse.

I don't expect any immediate crash, though, and last quarter's numbers even have shown increase in iPhone sales - my suspicion is that we see clearance of inventory of their old, to be discontinued, devices as preparation for the iPhone 5C launch as their entry platform.

But in a way they are in a comparable position as Nokia was in 2008/2009. Their product line is getting stale, they sell mostly based on past reputation than actual technical merits, the competition's products getting a lot better than theirs - and that includes BOTH Android and Windows Phone. As with Nokia, momentum is carrying them along but the crash will inevitably happen if they continue on this route. The new iPhone5S doesn't really look that promising. Sure, it's a bit faster than the last one but apart from that, same old, same old. It will certainly be enough to make their most loyal customer base upgrade but I really can't see this bring in many new customers.

You are right in another aspect as well: The iPhone customer base is aging. I rarely see younger people use an iPhone. They are proud owners of large screen Android phones and when seeing an iPhone in the mix it looks pitiful with its small 4'' screen.
The thorough customer lock-in also will eventually backfire. Right now it's enough to keep people tied to Apple but it also means that the more people use non-Apple phones, the less attractive Apple becomes because their infrastructure is designed to keep things inside the infrastructure, making sharing stuff with others impossible.

PS. The user comments in the linked article - as in any article being critical about Apple - are pure gold. Ignorance truly is bliss if you are an Apple-tard. So much similarity with past Nokia... :D

Katsyone

N8... Better camera... 1020? Are you kidding me?

Louis

Here is some reporting on how the deal actually went down:

http://allthingsd.com/20130904/from-can-we-talk-to-a-coffee-table-mishap-the-inside-story-of-microsofts-nokia-purchase/

http://bits.blogs.nytimes.com/2013/09/04/the-long-road-to-nokia-deal-a-bloody-ballmer-stalled-discussions/

"Nokia also made it clear that it had no intention of parting ways with a mapping service called Here, which Microsoft wanted as part of the deal. Microsoft had to come to peace with that, Nokia executives said."

At this point, Tomi really needs to correct his error about the sale of maps, but instead he will probably delete this post.

Julio

Kiitos Tomi,

As an ex-Nokian myself, I share your pain.

The past cannot be changed, so in these circumstances, I think this move is the best that could happen for the new Nokia (the one that does not move to Redmond).

An analogy: when you notice that your car is badly broken, you sit down, crunch numbers and decide either to sell it or fix it.

I think it was very clear for the board that the new strategy was going nowhere. They needed an exit. Nokia had a very good buyer for a very damaged organization that would cost billions to fix.

With all that cash they can afford acquiring Jolla, go for Sailfish with Android support, hire back FOR FREE all the talent that will escape Microsoft, and start afresh without any downsizing costs, any previous commitments, no old factories (if there is any left), trade unions... Microsoft will keep the luggage.

Nokia can recover its culture, build the best possible company and the best possible phones, while Microsoft sprints towards irrelevance.

Wishful thinking, probably...

benis

Hey guys, is it true that terms of sale forbid using Nokia brand in mobile? I mean is it 110% true???

If it isn't, then this shameful deal is not bad at all!

RottenApple

@benis:

There's a 30 month period in which the name Nokia cannot be used for producing mobile phones. But even in the unlikely case that Nokia will rebuild its business they'd need longer anyway.

foo

@Tomi

> Because either Ratner or Osborne effects by themselves will destroy the company, of course the Elop Effect will destroy the company, only faster.
> Why it took Nokia this long to die, is only because the company was so utterly dominant and strong before Elop issued his mad Burning Platform
> litany of lies.

There was also another reason why Nokia could survive this long, even after the Elop effect:

Microsoft's bribe of $250M/quarter was ecquivalent to the profit of at least 5 million Lumias per quarter.

Of course, this bribe was peanuts in front of the profit that Microsoft expected to get from the partnership. If Nokia managed to get 20% of the smartphone market they would be selling 200M devices per year, and paying Microsoft at least 200M * $10 = $2B per year.

In other words, this "partnership" was a no-brainer for Microsoft; but was a *terrible* deal for Nokia, who would be paying much more than what they got, and would give away the control over the platform. (Not to mention, kill existing business like Symbian, Megoo, Ovi, etc)

***

Now,

There is one small argument that you must address in this or another post: "Look at Blackberry -- they also collapsed!!!"

I would answer this in two ways:

First, Blackberry fall was not so drastic as Nokia's. (I don't have statistics right now, but you could add some charts to ilustrate the point)

Second, and more important: Nokia made the difficult decision of replacing the OS; and failed miserably in the easy decision, which would be choosing the new OS. They could choose between a tested, ready and popular OS versus an untested, unready and unpopular OS. And picked the wrong one!!!

Even at the time I couldn't see a single reason to justify the choice of Windows Phone -- other than helping Elop's former employer, Microsoft.

Cost: Android is cheaper

Time to market: Android was ready

Differentiation: Microsoft dictated the hardware and software, while Google was much more flexible.

And, finally: bargaining power of supplier.

"Bargaining power of supplier" is one of Porter's five forces in a strategic analysis.

Companies should strive to reduce the bargaining power of suppliers, since powerful suppliers can:

- charge excessively high prices for unique resources
- increase switching costs
- control the degree of differentiation
- impact cost or differentiation

If Elop didn't kill all alternatives, they would have at least some bargaining power against Microsoft.

With Android, Nokia would always have the possibility of forking the operating system, like Amazon did with their Kindle tablets.

***

Please consider including the above information about the bargaining power of supplier, since this is a basic concept in Strategy 101 (which CEO Elop should know).

foo

@V900

> Samsung, with their integrated production of everything from SOC/CPUs to screens would be a formidable enemy and competitor on Android

That's absurd, for two reasons:

1) If Elop believed that Samsung would beat Nokia on Android, how could Nokia win with an inferior OS?

2) If Elop was afraid of Samsung, why did he invite the company to join the "ecosystem"?

Jan

This is a story of an ego-maniacal slimeball. He climbs corporate ladder From CIO To CEO of a small company then larger and larger. Make no mistake, he is not Jobs, but despite his meager abilities he is driven to be on top. There are no spectacular management successes. However, He eyes the biggest price, be head of the.... biggest corporation in the field. He wants to prove everyone that he is the best (usually people with average abilities are like that). He is a skillful manipulator and he is very good in persuading people about something which is not their interest. He becomes CEO of the large company, just one ring of the ladder under his holy grail.he feels that his ambition is about to be fulfilled. Finally ,he does not sell his house at His BIG corporation, he knows that he was going to be back. How can he advance his claims for his holy grail Of CEO BIG company ? He pushes their products, destroy whatever competing products currentcompany have . He is focused on himself, even though he would never admit it. His preference for BIG company products is byproduct of his ambition. He does not think twice destroying jobs, hopes of a little country. He persuaded himself that everything is in their interest. Maybe he is not Trojan for the BIG corporation. He is Trojan for himself.

ChrisG

It is quite hilarious that there are people who are willing to defend the corporate ineptitude of the Nokia management of recent times that has brought the company to its knees. It is disingenuous and really rather shabby to accuse critics of Nokia management of foul play - you know by spouting all those conspiracy theories. What harm have the poor conspiracy theorists done? Did they bring Nokia to its knees? You're going to need a stronger rhetorical strategy than that. Hmm... I know, why not claim Nokia had to go through these troubles - lo and behold I've seen that argued here to! That argument doesn't really end up carrying conviction either because it relies on the logically difficult position that says in order to continue to be profitable Nokia must first become unprofitable.

At this point I would like to make it clear that I am not accusing Nokia management of conspiracy I am accusing them of ineptitude and a failure to fulfill their fiduciary duties. They were shuffling deck chairs while the ship was sinking. But should anyone go before a court just because they are stupid? Because they can't seem to understand what they are supposed to be doing? Because they find it hard to tell the difference between correct conduct and misconduct? Of course they should! If justice was to be done Elop and the Board would all be facing malfeasance charges. I hope the relevant statutes exist in Finland and that they get firmly applied.

Pauli

Awesome article, well written and thought. Spot on. Congrats.

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