The Nokia deal to sell the handset business to Microsoft in 2013 was when Ballmer was the CEO of Microsoft and Elop was CEO of Nokia (the two by the way were by then rated the two worst CEOs in corporate governance and both would be gone from their companies in less than a year). It was worth 7.2 Billion dollars. Now most of the value of that purchase has been written off by Microsoft. The new Microsoft CEO Satya Nadella is not afraid to sell businesses that are not essential to its business. Nokia new CEO Rajeev Suri isn’t afraid to buy loss-making businesses in industries Nokia knews well, he bought loss-making Alcatel-Lucent. The new Microsoft CEO says Microsoft no longer wants to compete in handset wars. The new Nokia CEO says next year Nokia will return as a smartphone brand. Is this not an obvious match made in heaven?
Why not sell the remaining handset business at Microsoft - all of which used to be owned by Nokia so they are all Nokia people who know Nokia values etc - back to Nokia. As long as the price is right, why would Nokia not be happy to buy? Its not that far-fetched an idea, especially as both culprits of the previous deal, Elop and Ballmer are gone, and as Nadella himself is known to have been against the Nokia purchase from the start. And now the just-announced write-off of most of the book value of the Nokia deal has been done. Why on earth not. So lets explore some Hollywood Ending scenarios what this deal might mean and what it might cost. And note, I have absolutely no insider knowledge that anything like this might be going on, this is just idle speculation for a weekend blog..
THE TWO WORST CEOS
Its rare that there is such a total break by both parties of a big corporate deal. Ballmer wanted this deal (not because it made any business sense, he wanted it to hide his mistakes). Elop needed this deal because his secret CEO bonus clause worth 25 million dollars was stipulated on that deal being very specifically to Microsoft, not any other possible buyer of the handset business. Ballmer knew perfectly well that the Nokia business he was buying was not worth anything near $7.2B and he was bullied into taking that deal by Nokia’s Chairman Siilasmaa who threatened Nokia will launch Android smartphones if Ballmer didn’t pay. That would have been the ultimate slap in the face of the still-existing Windows World Domination plan by Ballmer, if his biggest handset provider so publically abandoned that vision. That is the only reason the price was so high. Smart by Nokia.
Equally Elop, the worst CEO of all time of any industry. He deliberately actively and consistently sabotaged Nokia smartphone business for two and a half years, to push the Nokia share price to the bottom and get all credit ratings to junk, only so that he could get that Microsoft deal, which activated his secret 25 million dollar bonus payoff. When it was finally obvious that there was no rescue of the doomed Lumia project by Windows 7.5 or by Windows 8 etc, and it was truly smashed beyond repair, by that time Nokia’s smartest play was to force a sale of the wrecked business to Microsoft. At least they got something out of the deal (and with that money Nokia could go buy Alcatel-Lucent with plenty left over). If you weren’t paying attention, the networks-business oriented Nokia is happily profitable and growing.
Ballmer clearly didn’t play fair and square as Microsoft CEO, the Chairman Bill Gates saw that and even reprimanded Ballmer in public. Ballmer was fired ie he voluntarily stepped aside. And Elop? He was stripped of power by spring 2012 and wasn’t even allowed to attend the negotiations of the Nokia deal, and he was immediately removed from the post of CEO when the Microsoft deal was signed. He was then humiliated in public forced to push Nokia’s non-Microsoft non-Windows new smartphones running on Android the Nokia X Series at the world’s largest telecoms trade show in Barcelona before he was sent to Microsoft. And as we noticed, he was fired there just a year after returning to his old home. So much for the two clowns who brought us this mess.
A NEW DAWN
The Nokia deal with Microsoft had a relatively short exclusivity period for Microsoft. Nokia was allowed to sell other gadgets under its brand, so Nokia already launched a tablet running on Android that is very popular in China for example. And Nokia is allowed to return as a phone brand, on smartphones only, not dumbphones, next year. That is still a restricted return, Nokia can’t sell or make the phones, but Nokia brand is allowed to be licenced for third party manufactuers to make and sell. And as we heard from new Nokia CEO Rajeev Suri, that is what will happen next year. So Nokia is definitely coming back, on Android, into smartphones, next year. Definitely. Microsoft cannot stop that.
And Microsoft? We just saw Elop fired, we saw new CEO Satya Nadella write off 90% of the handset business book value (and write off more than what Microsoft actually paid Nokia in cash) and in three rounds of layoffs, Nadella has already fired 80% of the staff that came over in the Nokia deal. He further told about the future of the business, that Microsoft no longer is pursuing the handset business as an end, but only as a supporting function of its core businesses in the enterprise and cloud etc. Because Nadella has already sold some businesses, why not sell this phone business too. Now that the accounting value has been reduced to a tiny fraction of what it was, that deal would become far easier.
Nokia was a phone maker. It sold the phone business away under the old CEO. It has a new CEO. The new CEO said he wants to return to the phone business. And he will do so next year. And this CEO has already paid big bucks to buy a loss-making business.
Microsoft was not a phone maker. Its bought a loss-making phone business under the old CEO. It has a new CEO. The new CEO said he doesn’t care about the phone business. And this CEO has already sold non-essential businesses. Is this NOT a match made in heaven?
SO SCENARIO ONE - JUST THE DUMBPHONES
So lets start with the ‘no brainer’ deal. Sell at least the dumbphone business back to Nokia. The dumbphone (non-smartphone basic cheap phones) is an industry that will disappear in five years (I say in four years but lets go with the consensus industry view). So by 2020 there is no more a dumbphone market. Its now obvious like say it was for black-and-white TV sets or for Video Cassette Recorders (VCRs) or for fax machines. The dumbphone business was the size of 900 milloin units sold in 2013 when the Nokia deal was announced. It was of the size of 600 million last year when Microsoft took over the Nokia handset business. It will be the size of 450 million this year and less than 300 million next year. And yes, by 2020 there are less than 20 million dumbphones sold worldwide. It is a disappearing business.
And for Microsoft there may have been some element of ‘synergy’ in that fantasy that Steve Ballmer was selling in 2013 when he justified this deal, that Microsoft could sell 300 million smartphones with 15% world market share in 2018. Then yes, maybe that part of the ultra-low Nokia branded featurephones, maybe some could be migrated to Windows ecosystem as they upgraded their phones. An iffy part of his plan in any case but like the snake-oil salesman he always was, he was selling it.
Now we know from Satya Nadella’s new reorientation of the remaining handset business, there is no mass market share that Microsoft can pursue, so the cheap phones end is utterly useless to Microsoft. There is no synergy with the remaining premium smartphone businesses nor the cloud nor with Windows nor with Office Suite nor Hololens etc. No synergy. It is a useless part of the Microsoft empire that doesn’t contribute to the common goal. And it is slightly profitable but even its profit margin is less than Microsoft average, so on a financial evaluation basis, it is reducing the value of Microsoft shareholders out of ongoing business. And that business is not going to ongo far longer. It will be ended before this decade is done. Why on earth not sell it for anything, if there is a buyer.
So why would Nokia want to buy this unit? The business is gone almost the day they would take hold of the employees and factories. This deal indeed makes no sense at all, except under one condition. If Nokia is simultaneously released from the restriction under the previous agreement, that Nokia cannot make or sell smartphones. So Nokia returns next year as an Android smartphone brand, but that is made by someone like Foxconn and sold by them. That is the current contract clause. If Microsoft included this release in the new contract. Nokia buys the dumbphone business and from January 1, 2016, Nokia is free to sell and make its own smartphones under any software. If you toss in that change to the contractual arrangement between Microsoft and Nokia, Nokia would suddenly be very interested in buying the ‘dying’ dumbphone business.
Why? Because of three critical elements that Nokia wants. First off, most difficult, the sales organization. The dumbphone business under Nokia brand both under Elop at Nokia and under Microsoft is profitable, has been most of the time (only a brief Ratner Effect caused by Elop’s idiotic Burning Platforms memo, in 2011 that was over by Christmas). The Nokia handset sales organization (dumbphones and smartphones) is the best in the business and has the deepest contacts and trust of the carrier community. They hate Windows so they won’t buy Lumia but look how well the non-Windows basic dumbphone business has done all along. Brilliantly. It is still today the bestselling dumbphone brand on the planet. The wholesale sales of a dumbphone is the same as the wholesale sales of a smartphone. Same buyers, same distribution channel, same terminology, same practices. And Nokia was and is best at this. And there is no material difference between selling the dumbphone or selling the smartphone. Yes, there are vast differences in the SPECS of the device, but it is a handset. How many handsets do you want with x size screen, y capability camera, z brand processor, etc.
Nokia CEO does not want to pay anything to buy the dying dumphone business. But if he has Microsoft release Nokia from limits of selling and making smartphones, this Nokia brand dumbphone sales organization that runs decades long true-blue Nokia-to-the-core, they are literally the best of the best, and they have the only platinum-level carrier buyer contact base, they know personally every handset buyer in almost every country on the planet. Nobody, not Samsung, not Apple, nobody has that depth of contact, as the DUMBphone side of what Microsoft now owns. Even the smartphone Lumia sales team is less trusted or capable as they are far more polluted with Microbrains who have wrecked carrier relationships.
And these die-hard Nokia salesreps, would they love to sell real Nokia Android smartphones to their clients - who have been begging for them for five years? Absolutely yes. Because a Nokia-designed, Nokia-manufactured Android smartphone would be everything we always trusted Nokia to be. They would be bulletproof, they would have batteries that are removable, and last. They would have great tech. They would have all possible connectivity from unrestricted Bluetooth to microSD cards. And the same Nokia salesdude or salesdudette who has reliably sold Nokia brand from before smartphones existed, when he says, we will cover the repairs, the returns, the marketing, etc - all that will be trusted. Because of a decades long relationship of trust. And now no possible Windows Lumia baggage.
This is what would happen. If that deal was announced, that very day the middle-aged senior Microsoft salesrep of the dumbphone Nokia brand, would go home, go to that old shoebox, dig out his 23 old Nokia business cards he just kept as mementoes, and then he’d go buy with his own money the tickets to today’s game of cricket or rugby or ice hockey or whatever is the local sport, best tickets for two, and bring his best customer top handset buyer senior exec to that game, just the two of them, and at that game, he’d hand over his old Nokia card, and say, we’re back. I’m no longer with Microsoft, Elop the cancer is gone, there won’t be any Windows or Lumia in our lineup, I will sell you the Androids you always wanted, and today lets enjoy the game...
Its the hardest thing to build in business. A customer relationship. The Lumia Windows smartphone salesreps have had many bridges burned when Elop came himself to meetings and worse, in some cases even Ballmer joined the meeting to bully and yell at the clients. Threatening them. And destroying years and decades of patient sales effort. So the smartphone sales side of ex-Nokia ie Lumia at Microsoft is not all perfect, but the dumbphone side? Those are the best phone salesreps, as a group, that money can buy today. And Nokia would take them back in an instant, if only Nokia was also allowed to use them to sell Nokia smartphones on Android.
Why would Nadella want to keep them? The dumphone business is gonna die and their organization is way too large to suppor the trivial niche market size of the re-sized Lumia business into the future. This is deadwood for Microsoft. And Nokia wants to buy them back? Why not sell them and yeah, if Nokia is coming back anyway as a brand in smartphones next year, its not much of a concession by Microsoft now, to allow Nokia to sell those smartphones too.
And its not just the sales organization. Its the factories. The dumbphones are made in highly automated super-efficient huge plants that have massive capacity. Capacity that maybe could have been used if Ballmer’s silly dreams came true, but now will never be utilized fully. So sell them, the ones making dumbphones. I have no idea of how many are left from the original deal, nor how they are split, but its probably about 6 factories. So lets say that two of the six, that do only dumbphones, the biggest ones of that, would go with the deal. And Nokia obviously would now have permission to retool those factories at its own leisure whenever it wants, to smartphones.
If these are the two biggest and purely dumphone factories they currently produce about maybe 70 million to 90 million phones per year (combined) and they have probably maximum capacity twice to three times that. And they are hypermodern factories of very high level of automation and of adusting and capability so they would (should) be relatively easy to retool to switch from say making a T9 keyboard basic phone with small screen to a touch-screen device. Etc. Yes, the smartphones need to be designed and there may be some limits at each factory on exactly what they can do but a far bigger issue would be advance ordering of components than just the retooling part.
Nokia back before the Microsoft deal had highly efficient factories and less efficient factories. By now what remains at Microsoft are only the very most capable units. Nokia would love to re-acquire a couple of them. So lets say you toss in two dumbphone factories out of six into this package. These are factories that serve no utility to Microsoft strategy today and are of no use into the future. And if the Lumia smartphone business were ever to rebound, the remaining four factories would have more than ample capability to absorb any business that could be generated. These two factories are totally unnecessary at Microsoft today.
A handset factory takes a year just to build. A factory costs about a Billion dollars. This would be a steal but nobody, other than Nokia, would ever want to pay a penny for factories that make DUMBphones only. So what is the third part, the R&D of course. Handset design staff, highly capable, even if the dumbphone designers are working with very low-cost devices of limited capability, but they do know how to design successful handsets and understand regional needs of where Nokia sells best. This is highly valued talent that would take years to build from scratch. And there is no future for them at Microsoft.
So lets make it a clean break. All dumphone related business at Microsoft, probably 4,000 employees and 2 factories, including related sales and marketing, would be sold back to Nokia. And as the enticement for Nokia to take this dying business, Nokia would be released from any limitations to sell and manufacture smartphones, say from January 1, 2016.
What could that be worth? If the total handset business at Microsoft is worth, I don’t know what the current book value is exactly but lets say 1.5 Billion, then lets say one third of that could be the dumbphones side. 500 million. With that Nokia gets 4,000 employees and two factories and the related design, sales, marketing etc staff and offices that are selling dumbphones, and can start to retool parts of the plant and retrain part of the sales force to return to sell Nokia smartphones on Android (starting with the three X Series Android smartphones from last year that were so rapidly ended when Microsoft took over the business).
If Nokia was paid 7.2 Billion dollars to sell the handset business last year, and now buys back part of it for 500 million and can return to selling also smartphones next year, this would be greeted as a huge win by CEO Rajeev Suri. A masterstroke that all Nokia investors would applaud.
And if Satya Nadella was able to unload the no-future-whatsoever-left dumphone business that is branded Nokia, back to Nokia, while keeping the Lumia Windows smartphone side, and still got half a Billion dollars out of business that had at best 200 million dollars of income left in it, that would be seen as pure Jedi move by Nadella and Microsoft investors would applaud.
Microsoft can never make any possible contribution out of the dumbphone side of the ex-Nokia business. Nothing can be salvaged from that ever. But at Nokia, if they are also allowed to immediately put these people to sensible use, to switch from dumbphones to manufacturing and selling smartphones, this would be a far faster and more profitable way back for Nokia than licencing Nokia designs to Foxconn.
SCENARIO TWO - KIT AND KABOODLE
So Scenario Two is the Everything option. Just unload all of it. This is probably not how the first contact went or goes, but this is a logical next step to consider. Why, if Nokia wants to come back to smartphones, and Microsoft no longer wants to fight in smartphones, why not just sell the whole damn lot back to Nokia, all of it.
Take the book value, say 1.5 Billion. Take all staff who came from Nokia who are left. All assets, all factories, offices, everything. All the R&D, all the sales, all the marketing. All tossed in, price it at 1.5 Billion and in it obviously no more limits to what Nokia can sell and no obligations by Nokia to Windows or Lumia. Just take it all. Why not. Nadella never believed in this deal. It no longer serves any purpose at Microsoft. It is a huge drain to profits and provides a cumbersome useless detour to software development in that continuum thinking of Windows everywhere (why bother with Windows 10 Mobile when there is no future in Windows 10 Mobile, it would be FAR cheaper to only do larger screen sizes for tablets and the desktop).
Would Suri want this at this price? He wasn’t afraid to take the loss-making Alcatel-Lucent business. Nokia has a long history of turning loss-making telecoms business around (Siemens, Motorola) and half of the business (the dumbphone side) is already profitable to begin with. And Suri knows - the Nokia networking business customers are ONLY the carriers, nobody else buys network towers or base stations or telecoms switching gear haha - that the carriers are rejecting Lumia only because of Windows, if Nokia offered Android smartphones the sales boycott is instantly lifted. He even tested that theory in 2014, and saw how rapidly the Nokia X Series took off. That is why right after Nokia exited the phone business in 2014, the CEO already promised this year that Nokia will return in 2016 - on Android.
To pay 1.5 Billion dollars for a loss-making smartphone business that has 2.5% market share? Not a bad deal at all. And far better than that, there is the synergy of a global sales force on dumbphones, and Nokia has existing Android based phones already designed and initially marketed last year, that could be plugged into the factories and produced in a matter of months. Nokia X Series would be in the stores by January. And those new designs? They could be introduced at Barcelona next year and sold by say June or latest August. All running Android. The current Lumia Windows line would be ramped down and no new Lumia phones made. The designs in the pipeline that were intended for Lumia would be redesigned for Android. Give this unit one year of adjustment and Nokia’s smartphone unit, with no Lumia or Windows in the lineup anymore, would report a profit by the second quarter of 2016 and have a market share of at least 3% and growing. Nokia would return to the Top 10. By Christmas 2016 Nokia would have 5% market share and challenge for a Top 5 position.
Remember, the disaster at Nokia smartphones on Lumia and Windows Phone was not because the phones were bad (although early phones were). Its not because Windows Phone is bad (even though the early versions were). Its not because there aren’t any apps (even though most are bad versions and its nothing as good as Android). The ongoing disaster at Lumia is because the carriers put Windows smartphones on a global sales boycott in 2011 and that will never be lifted. So the moment Nokia sells smartphones on any other OS, even if they sold them on Blackberry or on old Symbian, they would sell better than Lumia does on Windows - because the CONSUMERS love Nokia and want it. (obviously in all regions except North America).
5% market share of smartphones by Q4 of 2016 would be about 26 million smartphones. And this would be back to black, a profitable business. Note how huge that is, Xiaomi the darling of the tech world today, sells less than that per quarter. 26 million per quarter today would qualify for 3rd largest smartphone maker! (But by Dec 2016 as the market has grown, it would mean fighting for 5th place). At say 150 dollar ASP it would add 4 Billion dollars to Nokia revenues. If the profit margin was say 5%, thats 200 million dollars of profit in one quarter.
Because of how thoroughly Elop wrecked the Nokia smartphone business, I can understand many would be very wary of going all in, but Rajeev Suri knows the one critical element to winning and losing in handset wars - the carriers. They have spoken to him. They have urged him to return the Nokia brand, but on Android. That is why the networking dude is returning to the volatile and risky handset business next year. He REALLY doesn’t have to. But he is DETERMINED to. Why? Because he knows. All his customers are telling him, as long as its not Windows, we WILL buy those phones. Please come back to handsets on our network, Nokia. We will buy the phones.
Microsoft cannot make this dead dog walk. But Nokia can rebuild an Android business out of it. And who is most fearful of this? Samsung. They are not afraid of Apple. The only company Samsung fears, is that Nokia would come back to smartphones and worst case, they come full speed, all-out, manufacturing and selling, all on Android. That is the nightmare scenario at Samsung.
Initially this would be seen as a shrewd play by Satya Nadella at Microsoft but next year, two years, three years later, he’d be seen as having sold the goose that layed the golden eggs. And I think he knows this too. Its unlikely he’d go for this scenario specifically because of that upside risk, Nokia, and only Nokia, might actually be able to revive the business and then, he’d look foolish. Rajeev Suri at Nokia would be the hero and streets in Salo, Tampere, Oulu, Espoo and Helsinki would be named in his honor. He would be thought of as the second coming of Jorma Ollila.
OPTION THREE - LUMIA STAYS
So lets do the split. Why not give to Nokia what they want, and leave with Microsoft what logically they could still use. Keep Lumia with Microsoft. So in this scenario, we sell Nokia the dumbphones business, and about half of the smartphones business, and the Nokia brand rights on the smartphones and half of the smartphone factories. But keep with Microsoft the Lumia brand and two factories and some R&D and some sales and marketing. An easy split would be looking at the new segmentation just announced. So what is the synergy part of new Microsoft handset business? The enterprise business. There is a logical overlap with Surface and Office Suite and secure enterprise stuff. So take that part of the Lumia business which is targeted at enterprise ie business users, and keep that with Microsoft. And the ‘hero’ flagship Lumia, which is clearly consumer oriented, dump that heavily contested, impossible-to-be-profitable and totally dependent on carrier support (and consumer apps) business? Dump that loss-making albatross back to Nokia. And obviously let Nokia do with it as it will, ie switch immediately away from Windows to Android.
First off, Nokia doesn’t want an Windows anyway, but some at Microsoft - including to some degree Chairman Bill Gates - want Windows 10 Mobile and a mobile future. Nokia could not be trusted to give any wholehearted support to that because of the past, so keep the Lumia side, but only the enterprise focus of it, that keeps Windows and Lumia alive, as a niche play, alongside Surface. If Microsoft keeps 2,000 staff and two factories and mostly those sales reps who served other PC channels like Microsoft VARs (Value Added Resellers) but release the consumer side of Lumia to Nokia, this is not a clean break but one that is pretty sensible nonetheless.
This way Microsoft can continue with the Lumia and Windows 10 Mobile into the near future with truly a modest investment and involvement. If it fails, it can easily be absorbed into Surface with really no meaningful layoffs. But if it succeeds, there is ample capability to design, manufacture and sell Lumia in the 1% market share level and probably do it profitably too. And as a Jedi Move here, Nadella could even rebrand the Lumia to Surface smartphones, because Lumia looks and sounds a lot like Nokia, but Surface has a pretty good reputation in the tablets space and is clearly associated with Microsoft. So for example, as Surface has keyboads and Lumia never did, if they now bring in enteprise-oriented smartphones on Windows Phone 10, that look like old Nokia Communicators with QWERTY slider/folder keyboards, this could be a good point to extinguish the consumer-oriented neon-colored Lumia that seems so Eloppian and Ballmerian, and go formal, business-like, metals, dark colors, blacks and rebrand to Surface. Just a thought.
And now Nokia gets the consumer-facing Lumia business and the dumbphones business. For those who remember old Nokia smartphone model lines, this is like splitting Nokia old smartphones into N-Series consumer smartphones and E-Series enterprise smartphones. Nokia now gets to see the return of N-Series while Microsoft gets to keep the E-Series. A logical divide, if we want to go by Nokia history and also, a logical divide by Nadella’s new segmentation split. So lets say this package shifts to Nokia four out of six factories and roughly two thirds of the remaining sales force and most of the R&D. Nokia would ramp down the the Windows Phone smartphones, rush the X Series into production and bring the new designs into the market by next year.
The logical price for this scenario would be something like 1 Billion dollars. Again, a bargain both ways. Microsoft gets to ‘keep its cake and eat it too’ ie it gets to keep Lumia and Windows smartphones, while being paid nearly its full book value by Nokia who take the dumbphones part and only a ‘small part’ of the smartphones business. As Nokia was coming on Android next year anyway, why not collect a ‘tax’ out of that. And Nokia could easily commit to say no Android phones before January 1, 2016, so Nadella gets some cover as that is the year that Nokia was coming back anyway. And Nokia can’t turn on the Android production and sales overnight anyway. Nokia market share and profit development would be identical to the above. A significant choice in employees would be that all old Nokia staff would go back to Nokia and all the recent hires into the Windows Lumia world of smartphones would stay, as a general rule. Would make a lot of sense that way. But in general, let the two compete, Microsoft continues with Lumia refocused to Enterprise on Windows Phone OS aka Windows 10 Mobile and Nokia relaunches on Android in the consumer space (initially) and eventually of course also into the enterprise side. Microsoft’s best bet would be a Blackberry-sized success out of this split but they could make a 1% or 0.5% market niche become profitable, yes, that is possible.
OPTION FOUR - THE NOKIA WAY
Nokia was always the nice guy. They really really were. Always. Not that they are somehow an altruistic company no, but they were the nicest. In a cut-throat business, Nokia tried to cooperate with competitors, and tried always to negotiate and to find win-wins. So if I was thinking what is the elegant way, the Nokia way, and one that is consistent also in a newer kinder Microsoft way, then why not find the best of all worlds.
Microsoft has invested enormously into the Windows mobile dream. There are tons of smart people who have poured their hearts into this. It is not a bad OS and the Lumia phones are good and there are now plenty of apps too. If Nokia got its business back now, at a fair and vastly discounted price, why not then do the nice thing for Microsoft.
So this is my dream scenario of the deal. Sell the whole phones biz back to Nokia, with all the rights. But in the deal, Nokia commits to launching those rumored six Lumia phones next year, branded Nokia Lumia, running Windows 10 Mobile, and for 2017, two years from now, commit to two more new handsets, one premium and one mid-price. This gives Nadella the clear commitment that Nokia is not abandoning Windows 10 Mobile and will be there for two more years. And clearly a handshake gentleman’s deal between Nadella and Suri, that if there is any demand past 2017, Nokia will continue providing Windows based smartphones and sell them fairly in those markets where such demand exists. There is no bad blood between these two new CEOs so there is no need to pay back any debts or prolong any blood feuds.
There is some lingering business for Lumia definitely. Windows 10 Mobile is a clear step forward in the evolution of Windows Phone which was deficient at its start but is now reasonably robust and competitive OS. Why not, as the investments have been made to design for this platform, keep that alive for two more years, and see how it goes.
But obviously release Nokia of any other limitations, so they can go back to Android immediately and get all their factories and all the R&D and staff and offices back. And Nokia would launch Android phones, first the three X Series in early 2016, then the newly-designed flagships on Android, but also release every two months another new Lumia during 2016, and once per six months another Lumia model in 2017. Nothing wrong with that, Nokia can handle this easily if it doesn’t force Lumia on its customers as the only choice, most will take Android but some will take a few Lumia as well. They also see Ballmer is gone. And if Satya Nadella really wanted to lift the ban on carriers supporting any Windows smartphone sales - carriers do want a third ecosystem - then if Nadella sees at some point in the coming months, that Skype is not really vital to the future of Microsoft either, if he sold Skype, that would open the door for Windows 11 Mobile and Samsung and HTC and Huawei and others to return with some interest. Just a thought...
Microsoft totally doesn’t want the handsets business. The dumphones side of Nokia is going to die in five years definitely, four years likely. No business left in it. Totally dead. Why not sell that now, and one buyer only exists who would want to buy it - that is Nokia.
If we’re talking with Nokia, new Microsoft CEO doesn’t believe in phones, new Nokia CEO wants to return to phones, why not then sell it all, or at least sell part of the smartphones business as well? Nokia wouldn’t mind at all if Microsoft kept a part of the Lumia business, especially any hires during Elop’s era because many of those are brainwashed microbrains anyway. Nokia could even say lets split the staff by hiring date. All hired from 2011 stay at Microsoft (the corrupted ones) and all hired up to 2010 return home (the true Nokians). I’m guessing that would be on the smartphone side roughly half of the staff haha. Obviously all dumbphone Nokia people would get to go back home.
Or sell it all back to Nokia, and really, I think there would be no resistance in the negotiations whatsoever for Nokia to commit to minimum levels of continuing Lumia support so that Nadella had his out on this issue, Nokia continues as a Windows partner for at least two more years. Why the hell not. Nadella doesn’t want this business. Its not going to turn to profits at Microsoft in two years ANYWAY, and Nadella already now sees the writing on the wall, this business has to be terminated anyway.
And for Suri? He gets to bring back the lost boys and girls. Can you imagine the level of loyalty and commitment and gratitude and hard work he would buy from this lot of saved Nokians” Samsung better watch out, this team would be chasing Samsung’s lead as early as 2017....
AND A FEW PRACTICAL DETAILS
So lets say this happened, I think Scenario 1 absolutely should happen for both sides and some kind of weird karma would need to occur for at least that to be denied. Microsoft has no need for dumbphones, Nokia wants to get back to phones, why not effectively sell the permission for Nokia to return fully to smartphones, if it takes the soon-to-end dumbphone business (and last remaining Nokia branding) off Microsoft’s hands. If Microsoft still keeps the smartphone Lumia business, and Nokia pays something for this little unnecessary bit, then why the hell not.
Then in those negotiations the other three Scenarios would also be approached. I think the most likely one is Option 3, Microsoft keeps only a part of the smartphone business, focuses remaining Lumia to the enterprise and Nokia gets back the rest. Still a bargain price for Nokia’s old business and Microsoft can attempt to make something out of the most promising part of Lumia and Windows 10. My fave is Option 4 obviously and with new CEOs in charge, both wanting to turn a new leaf, that could happen.
But regardless of which it was, lets look also at a few obvious steps it would mean. The Nokia handset sales staff is second to none, pure gold. The Nokia hardware R&D people are unmatched too, truly excellent. Other rank employees mostly good too, and as there have been so many stages of layoffs, any possible dead weight in the general staff has been cut quite a while ago. So for the staff, this is some of literally the best on the planet. But senior management of what remains of Nokia, the ones reporting directly to Elop or one level below that, these are utterly worthless. The ones with real vision and backbone stood up to Elop, were fired, or resigned in protest, years ago. The last ones who lasted are not brilliant executives of phone business, they are survivors and career politicians who are only good at kissing ass and saying yes. They are worth less than nothing.
And if Nokia took back any part of the business from Microsoft, the top management part has to be immediately let out to pasture. Offered generous retirement packages, part-time consulting gigs, some nonjobs in community outreach or PR or strategic planning, and not let anywhere near where adults make decisions about the future of the new division at Nokia. And they must be stripped of all staff. They are seen as traitors by the staff and middle management, cronies of Elop and part of the cancer. So when Nokia takes over the business, these in top management must be reassigned so that they cannot do any more damage.
First who to run this unit. Rajeev Suri is a networks equipment guy and has his hands full with the Alcatel-Lucent integration etc. He needs someone really strong to run the new Nokia handset business. Obviously the best man would be Anssi Vanjoki who also rather obviously would turn this job down because he was in the CEO negotiations before, so he wouldn’t take a job now to report to a new CEO. But Anssi knew the landscape better than anyone else and Anssi knew all the best talent back before the Eloppian cancer entered the company. So what Nokia should try to do, is to get Anssi to come advise and help set up the top management and help in the selection of the VP to run the phones business. Anssi could be offered a Board Member position in return and he might even be agreeable to act as an interim President of the Handsets Division while the new top guy is being recruited.
Other obvious top talent to help with that is Pekka Ala-Pietila who was Jorma Ollila’s first choice to replace himself as CEO (which later went to Olli-Pekka Kallasvuo the CEO who failed at that job before Elop). Another mind of great capacity in understanding Nokia handset business is Jean-Louis Gassee who also should be brought in to help in building the top management. None of these three are the guys to do executive management at a VP level (too expensive for one) but top managemnet is absolutely vital and we know that Elop forced all smart guys out, but also many purely opportunistic ones left too. And such people might be fastest to try to return (having now lost any credibility at their newest jobs) so particular attention would be needed not to hire the worst of the old gang back.
The ideal boss of handsets, to be number 2 guy at Nokia overall, and Executive VP or President of Nokia phones, would be a star of the previous top tier, who left, who now returns. But also, an outside pick could be someone from the carrier community. It should not be a networks guy (unless he/she was with phones up to about 2010-2011). And it cannot be anyone who is now with Microsoft. A panel of Vanjoki, Ala-Pietila and Gassee could do the advising on this, come up quietly with a short-list and then do the contacts. Obviously Suri would make the final decision. But Anssi, Pekka and Jean-Louis would know everybody and would easily see who was not of this calibre. The team coming back to Nokia, after five years of Elop, need to be seen as something like the return of Steve Jobs was at Apple, trusted by all, to come run their business, someone all old hands at Nokia instantly respect and one that they know, that was a brilliant choice. And the kind of legendary name, that when the younger people ask, who was that, the older Nokians can tell with pride and respect old war-stories about when we were fighting for the Vodafone contract and...
After the boss, then next tier of senior management Vice Presidents and Directors. Where to get these? Not from current Microsoft-Lumia middle management, I’m sorry. That includes highly competent staff who did a heroic job on behalf of their teams, and also career politicians who only survived. Too much a risk. The best talent of Nokia handset top management are those who resigned in public, in protest, in 2010 and early 2011. A good time frame is three months from the Burning Platforms Memo. Anyone who resigned from a top managemnet, Vice President or Director level position by April 2011, from the Nokia handset side, those are persons of personal courage and persons of integrity and backbone, who saw the best for Nokia and tried to save it, and took the gravest sacrifice possible. They abandoned a top management career rather than follow a lunatic CEO. They are where the best top management skill was. Many have found new lives, some are too old now, but also many truly loved Nokia and if offered a chance to return, would love to do so. It would be a smart move by Nokia to contact those who resigned by April 2011 and ask if they’d want to come back and do the old job or something similar (or even better) and at roughly the same salary and conditions. Even restore any abandoned bonus clauses, earned vacation days, stock options and the like, so treat the past time as if they took a long sabbatical.
Then after that, is the second tier of exits. The smart top and middle management who read the Burning Platforms memo understood that Elop was a madman and they left. But most did not leave in a public protest, they just ‘happened’ to receive soon thereafter a nice job offer at Finnair or Kone or Yle or whatever big Finnish corporation. Highly talented top and middle management who wanted out, but were smart about it, to do it quietly and as if it was just coincidence and they actually were thinking about changing to a totally different industry. Bullshit. They were afraid of what was coming at Nokia and saw the writing on the wall. They often took huge salary cuts and diminished jobs just to get out. Some are in very nice lives today. Others hark back to the good old days at Nokia. Here is the second tier of top managemnt candidates. Not polluted by Elop, know how to win in handsets, fierce fighters, performers, whose track record is documented in years, even decades of Nokia personnel files. Here is the rest of the early top management hires. All traditional old school Nokia execs who knew how to run a highly successful handset business profitably, in the face of competition from Apple, from Samsung, from the Chinese makers etc. Bring them back.
And the soul of the best of Nokia still lives on. Its not people who carry Microsoft business cards today. The soul of Nokia topmost handset design excellence is huddled in a sanctuary, a little-known cult, a lifeboat, a fanatical group of partisans in the woods, still fighting the good fight. Their numbers are small but the fire is fierce and the loyalty is unquestioned. They are the soul of Nokia. We know them as Jolla, the company making one smartphone model that runs on their OS called Saiflish. Sailfish is the son of MeeGo, grandson of Maemo and Moblin, its the older smarter brother of Tizen. Like Android Sailfish is Linux based. So the handset designers at Jolla know how to make Android-compatible phones. And they have kept the faith of pure Nokia brilliance. But Jolla, their little lifeboat, is slowly sinking and this crew does not have much life in them anymore. They have just announced that the company will end the handset manufacturing side to focus on just keeping the Sailfish OS going on. Well, if Rajeev Suri wanted to find the best collection of a handful of the world’s best smartphone designers, as a bunch, who all did Nokia before and all know Linux and all know how to make flagship class superphones that all loyal Nokia users will love, this is it. They are in Finland, and I am sure that Jolla would love to do some skills transfer, let its hardware guys go ‘back home’ to Nokia while the software guys continue on at Jolla doing Sailfish, and perhaps Nokia could even inject a little investment of cash into Jolla in exchange to help them stay afloat with their little OS dreams...
The core staff employee level and sales staff that used to be with Nokia and now are with Microsoft, they are the best 7,000 people in the mobile business. They are pure platinum and any one would love to return to Nokia and rebuild the business. Absolute top notch heroes who have had a rough few years. Every one immediately worth taking back. Their bosses in middle management, perhaps half career diplomats and politicians who played for personal gains and half exceptionally good managers under incredibly troubled times. They deserve to keep their jobs and prove their mettle in the transfer. The top management who survived Elop for five years and reported directly to him or one level below, those are the traitors, the spineless bums who should be fired but in the transfer, those who come back, should just politely be reassigned non-damaging job duties with nobody to manage. A non-job, until they get the message and find a way out of the company. That layer has to be eliminated totally and replaced. Not with promotions from the bottom, not now, maybe later, but now it has to be with the best talent that was, the ones who were brave enough to depart. And the top handset design office, should be bought back from Jolla and made Nokia’s top design ‘skunk works’ to create the next iPhone-killer (after all, these are the folks who designed the previous iPhone-killer from Nokia, the N9 on MeeGo, launched in 2011, the only phone ever that regularly beat its contemporary iPhone in tech reviews, by any manufacturer, but the phone that Elop refused to sell in any major markets).
My thoughts on an idle summer Saturday and slow news day.
I do think there is much sense in what you're proposing. It all depends though - Microsoft might actually be crazy enough to pass Skype to somewhere else. It'd be extremely hilarious if Google were to buy Skype haha, wonder what carriers would say then...
Not going to happen though, Google is too smart for that. :)
Posted by: Per "wertigon" Ekström | July 11, 2015 at 12:37 PM
There's one huge issue with this. Microsoft has always hated competition. Selling part of the company to a competitor? Not done.
Look at how many times Microsoft has shut down divisions that were under-performing, and how many times Microsoft has sold something to a competitor.
Posted by: Wayne Borean | July 11, 2015 at 03:02 PM
You've also got to consider the new competition in SmartPhones...
http://xkcd.com/1549/
Posted by: Wayne Borean | July 11, 2015 at 03:04 PM
After having lost the battle for the cloud and the smartphones, I think MS will now go for the next battle: The Internet of Things.
The IoT is all about cloud data analysis. If they can link this into their Office/Sharepoint business (75% of the economy runs on Excel), they can make another grab for Windows Everywhere.
For this they really need a mobile platform. Anything they can control.
Posted by: winter | July 11, 2015 at 04:12 PM
Ah, but Microsoft has already lost 'The Internet of Things' and those who chose Linux as a platform won't choose Microsoft for data analysis.
Posted by: Wayne Borean | July 11, 2015 at 04:59 PM
Jolla seems like it is being wound down.
http://techcrunch.com/2015/07/07/mobile-maker-jolla-splits-in-two-with-sailfish-os-its-first-order-of-business/
If Nokia wanted, it could just hire the staff without paying a premium for a twice-failed software platform.
But the more realistic scenario, which is not capital intensive and carries no risk is for Nokia to just license out the brand. This is almost certainly what will happen, and it also means you can have a Nokia android today! Just buy some mid-range "other" branded phone from the Chinese or Indian market and put a Nokia sticker on it.
Posted by: Louis | July 11, 2015 at 05:40 PM
"He even tested that theory in 2014, and saw how rapidly the Nokia X Series took off."
Any evidence for this? Sales figures or otherwise?
"Nokia already launched a tablet running on Android that is very popular in China for example."
Any evidence for this? Sales figures, whatever?
"Ballmer was the CEO of Microsoft and Elop was CEO of Nokia -- the two by the way were by then rated the two worst CEOs in corporate governance"
Has anybody forgotten the rampage wrought by Leo Apotheker on HP? In less than a year he managed to squander, what, $10-11 B? Just on writing off Palm and Autonomy. Really, year 2011 was a freak one in the IT area...
Posted by: E.Casais | July 11, 2015 at 06:45 PM
Sounds like a nice Hollywood ending, but it's not going to happen.
Nokia is already clearly moving away from consumer electronics business. Why would they want to return to the most competitive and least profitable segment of it? Tomi's hero Vanjoki has even publicly said that the time is over, market has saturated, there is no room for Nokia, particularly not with Android. Would become just another Sony or LG at best.
But let's say they have something totally new in the making where theý would require manufacturing, supply chain and sales & marketing capabilities. What would they get from Microsoft? What's left of what used to be Nokia is basically only ONE factory in Vietnam, outsourced logistics operations, 25% of Tomi's highly praised ex-Nokia sales staff (rest have been fired by now) and a ruined consumer brand.
Posted by: Another Ex-Nokian | July 11, 2015 at 08:09 PM
The decisions are already done. Nadella should think 3 or 4 steps ahead of his current position,
so i guess a couple of new steps are planed including:
* Some sort of partnering with google on Android.
* C# native development for Android
These thing were not possible in the presence of WP, so i'm guessing this
can be part of a agreement of colaboration between them.
We are witnessing this now in a lot of open source related to android projects.
Posted by: Juan | July 11, 2015 at 09:30 PM
@winter
> After having lost the battle for the cloud and the smartphones, I think MS will now go for the next battle: The Internet of Things.
They try but as usual they are waaaay to late. Years to late since Linux took it over already. IBM, Nest, Android M (project Brillo), etc.
Its a very old thing that just made it recently, so e years ago, into mainstream press and years later, win10, to Microsoft. And Windows 11 gives us robotics, Windows 12 realtime, hahaha.
Posted by: Spawn | July 12, 2015 at 02:53 AM
Maybe they could hire a legendary analyst to help run their smartphone strategy. Someone with a good history of foresight, like Tomi Ahonen.
The problem with this strategy, Tomi, is that it makes sense. It obviously would work, be fantastically productive and profitable. Now think about the people who would make this decision: Is there any evidence that they might consider an obviously easy, swiftly profitable and immediately productive choice? No.
Posted by: Symbolset | July 12, 2015 at 05:14 AM
@Symbolset
Evidence there is but you are correct: As long as we didn't figure out what happened with the Nokia board during Elop it cannot be ruled out that the same never happens again. I also wouldn't rule out that mankind nukes the world away after we got presidents like Bush, two, maybe three times.
Posted by: Spawn | July 12, 2015 at 06:35 AM
"Why would they want to return to the most competitive and least profitable segment of it?"
Is there any example, in any industry, of a corporation completely shedding an entire business segment and then later returning to it? Not just a product line -- say shedding smartphones but continuing with feature phones, or shedding laptops and continuing with desktops. I cannot think of any, but perhaps somebody knows about an example (successful or unsuccessful).
I agree with Louis: if Nokia returns to mobile phones, it will be as a brand, not as a manufacturer, and probably not even as a full-fledged system designer. This would also be perfectly consistent with having a specific division "Nokia Technologies" responsible for "developing and licensing innovations and the Nokia brand" -- and which already was responsible for launching the N1 tablet (actually a Foxconn output).
Posted by: E.Casais | July 12, 2015 at 10:38 AM
@E.Cascais
"Developing and licensing innovation" - exactly, it's all about commercializing innovation. Nokia is in infrastructure business and they need reference designs for consumer products to kick start commercial developments that will then generate demand for infrastructure. 2G phones -> demand for 2G networks -> 3G phones -> demand for 3G networks and so on. Nokia was able to levarage this for years, having both infrastructure and consumer products in house.
And why Nadella chose to keep parts of what used to be Nokia? Commercial versions of Hololens or whatever consumer hardware product in the making can't become real business without the channels and functions from what used to be Nokia. Phones are kept alive to keep the future opportunities alive.
Posted by: Another Ex-Nokian | July 12, 2015 at 11:49 AM
We cant dispute - there IS movement in all the three nokia drama player s life atm.
The facts :
M$ is winding sown the phone business.
Jolla is splitting hw and sw to "focus on sw".
Nokia wants back in The game but needs a phone maker.
The theories need to validate to the best win/win solution (win/win/win if you include all three players).
The theories :
Nokia buys r&d back from ms, makes android phones. Jolla males sw only.
Nokia buys jolla for sw, buys r&d for phone manufactoring from ms
Jolla buys phone manufacturing from ms, nokia buys manuf fron third party and goes android
Jolla starts hw business with people fired from ms, nokia goes android and third party phone maker
Jolla starts hw business with fired people for phones with nokia brand
Posted by: Tk | July 12, 2015 at 12:29 PM
Ps ofc these are only some theories :)
Posted by: Tk | July 12, 2015 at 12:32 PM
@Tk:
Wouldn't it make more sense to buy Jolla HW division than software division? Since Jolla is intent on continuing with Meego (SW side), Nokia buys their phone factories (and promise to keep their phones Meego-compatible).
Of course, that does not allow Nokia to come back with their own manufactured phones because of licensing deal, so until they can do that, well...
Posted by: Per "wertigon" Ekström | July 12, 2015 at 12:48 PM
@wertigon :perhaps, but does actually jolla have a hw division per se (ie factory lines )?
Posted by: Tk | July 12, 2015 at 02:49 PM
It seems like most of you are missing something. AssumeTomi is right about Nokia's ability to market to the telecoms as long as Microsoft Windows Mobile is not involved.
Why not release Jolla phones?
The Telecoms would take them. It would give Nokia phones a major marketing differentiation (This is not just another Android phone, this is Sailfish which has been reviewed and was Rated better than IOS and Android!) And it would allow Nokia to control their own destiny, and implement features valuable to their markets as much as a year before Android would be able to.
The purchase cost and ongoing operations costs would be a rounding error.
As to 'branding' that is a REALLY STUPID WAY TO GO. We are talking a loss of control of the product. If a phone was absolutely horrible Nokia gets the blame even if they had only a limited amount of control over the OEM who they licensed the brand too.
It also means that Nokia makes ALMOST NO MONEY.
Licensing is a REALLY BAD WAY TO CONDUCT YOUR BUSINESS.
Posted by: Wayne Borean | July 12, 2015 at 04:16 PM
@Tomi: nice options... The question whether Nokia could afford any of them?
Especially after buying ALu and trying to "leverage synergies". That will take significant effort - in terms of money and people. See NSN adventure...
Coming back as real phone manufacturer would need hell of a lots of money to build up everything again. And no, Nokia X devices would not make it. Maybe XL part, maybe - but the lower members of the family - well, they can be improved. Telling the truth they are quite barely usable...
Of course, they targeted budget segment but if Nokia wants to come back they have the sell usable devices...
On the other hand they could just 'blindly' sell all current Lumia models with Android - that would be the fastest solution, I guess...
Posted by: zlutor | July 12, 2015 at 04:42 PM