21 April, 2012

The End of a Saga - Nokia

The last couple of days really seems to have put yet another nail into the coffin that represents the of Nokia (and Europe)'s dominance of the mobile phone industry. The end is near.

Three significant points of data:

1. The quarterly result where Nokia has managed to turn around a €300M profit to 1.3 billion in losses, but where the emerging markets really suffers. Global sales drops 40% and China a whopping 70% decrease in (true, Windowsphone just started to sell but still) YoY! 

However, the huge losses comes from Nokia-Siemens Networks, who been demoted to #3 (overtaken by Huawei) with a billion euro operating loss! That leaves the devices with an operating loss at 5% (or -€230M and €3 per phone).

2. The exodus of Nokia executives - lately Colin Giles had to leave, EVP Sales, which is not surprising given the horrible sales results but in all fairness, is he to be blamed?

What is worse is that Nokia's management (aka NLT) is now left with 'stars' like Niklas Savander in charge of Sales, Marketing and Production. And he has yet to deliver anything, whereby his further strengthened position is really questionable. Moreover, the NLT is basically brand new and I fear that Nokia has lost its Finnish roots, which would have been the foundation for any rebound. Never underestimate the finnish Sisu! It has taken Nokia back from the brink of bankruptcy before and help a country fend of Soviet Union in the winterwar 1939-40 and 1941-44.

7 of 11 in the NLT has been there for less than 18 months and half is non-finns (which is not necessarily a negative thing) 

And Windowsphone? Well, a lot of positive comments about the UI/UX but it has not translated into sales and Microsoft is really gunning for Windows 8 with tablets and smartphones, not 7.x, which leaves Nokia in no-mans-land for another year.

3. India going Android, where Reliance's deal with Google on committing to Android for the next two years shows that Nokia has lost its grip even in the emerging market. Nokia has been too late in addressing the need of low-cost smartphones (and the latest marketing pundits effort to rename S40 into a smartphone platform doesn't fool consumers or the market), which is now clearly visible in sales performance in China, India and also Africa. 

The BRIICA markets abandons Nokia! And as those are at the foundation of Nokia's rebound - with solid sales, great branding and the target for "Internet for the next billion", the very strategy itself, though the right thing, may prove at great risk with Nokia doing too late and too late.

Problems Started 2006
But the decline started long time ago, long time ago. And it was highlighted when Jorma Ollila resigned and promoted a bean-counter, Olli-Pekka Kallesvuo (OPK), to CEO. Sad to say, and this is quite common by many charismatic and successful business leaders, the appointment of a CFO to be the CEO was not the smartest move (it seems difficult for them to accept the fact they need to appoint a smarter, bolder successor to take the company to the next level instead of preserving existing). And, like the new leadership in China in 16th century, OPK could only preserve the business and maintain the strategy but not be able to see (or understand) or change the company to reflect the momentous changes that happened between 2006-2009, with the rise of Asian vendors (Samsung, LG, Huawei, ZTE) and the clear change of user preferences, introduced by Apple.

The results are bluntly obvious today, where Nokia has been kicked down from its #1 position both in terms of revenue and units shipped, posting a horrible billion euro quarterly loss. The mentality of being an underdog has to be reinforced but probably also a much needed adjustment of the organization will be required, quite similar to the steel-bath Ericsson undertook 10 years ago, shrinking for 150,000 employees to a mere 50,000 in one year.

Given what has happened and the state of the company, windowsphone and the competition, Nokia are destined to follow the route of Sony Ericsson and become a niche player, posting 10-15% market share in 2012 and maybe €10-12B revenues (please note, I am not a financial analysts, so revenues are just for wild guesses).

I have a real problem seeing what could make Nokia rebound into being a significant mobile phone player again, given the lack of strategy beyond mobile phones per se. The only good thing is that Nokia spotted the problems before it had a solid financial effect. Compared to Motorola and RIM, Nokia has already taken decisive measures to change strategy, reduce headcount and have a path to success. Let's see if that path leads to glory or misery.

1 comment:

Unknown said...

Actually, Colin pinged me after reading this post and explained briefly that he already decided a month ago to resign and the announcement to leave was made along the quarterly result.

Now, Stephen Elop has proven to take harsh decisive decision - which is good, better to do something than do nothing - but he skills in PR can improve (or the team around him). The announcement at MWC2011 lay the ground for the disasterous drop in sales - better managed maybe emerging markets could have held up the sales better. The announcement about Colin leaving clearly gave the impression that he was fired.

But when you have kids in a certain age and you live in Beijing and you have to work (and fly) your ass off to get Nokia back on track, you have to chose. Colin chose family this time. Continuing in the role, I guess he would be traveling at least 20-22 days a months for another 2 years. that's a bit stressful.