05 August, 2012

The End of a Saga - Nokia - Part II


The end is probably even closer than what you think. The latest changes in Nokia really makes me believe that the company is setup to be divided and sold off in three parts. It looks like it's the 80s corporate raiders who have taken over the company.

So what will happen?

Nokia Siemens Networks (NSN) will be sold off if there is anyone willing to take them on and getting NSN into shape, reduce management and streamline the company do not seem to be an easy thing. I can only speculate that e.g. Samsung or ZTE might be willing to take on NSN in order to gain market share and market position but the outlooks are grim. I think NSN is really Nokia Board's biggest headache. It doesn't improve and there is no obvious buyer/investor to take them on. Maybe the Nokia to be is holding NSN only.

The S40/Mobile phone organization may be sold off to Huawei or ZTE who might be keen to capitalize on Nokia position in emerging markets and entry phones.

And the more I think of it, it starts to make sense for Microsoft to take over the smartphone team as Nokia killed the latest initiative of lower-cost smartphones aka Meltemi. With Nokia's IP and patent portfolio, both for phones and maps/location, it starts being good value for Microsoft who seems to be looking at Google and Apple's success more and more. A slimmed down product development company could then be of interest.

There are a few proof points further that supports the above scenario.

One of Nokia's strongest assets have been its channels and operator relationships but during H1 2012 the sales operations have been scaled down to a level where it's not an asset any more. More offices being closed and sales being centralized rather shows an attempt to streamline operations to avoid overlaps for anyone taking over operations. In South East Asia, only a small office in Singapore is maintained. Several sales offices in China has been closed as well.

Also reviewing the belated management changes, amongst a few good things (like getting rid of Niclas Savander and Mary McDowell) there is one in particularly that makes me confused and that's the appointment of Chris Weber  - his only international experience is from Canada… Nokia sales is 99% outside of the US, heavily driven by China, India and large emerging markets. Sales in US is, believe or not, actually decline. You thought it might be impossible given that Nokia hardly has any sales in US but still.. decreasing. Chris' latest gig was 15 years at Microsoft, Corporate VP for enterprise sales and marketing in US. Seems relevant to drive consumer business in India and China.

The foreclosure of Meltemi shows that management is not at all keen in developing its own platforms and stay independent. Instead, minimize investments in S40 to try to stay reasonable competitive and pray that Windows 8 will be a tremendous success, even in reaching low cost smartphone segments.  And Windows 8 has always been the end-game according Risto Siilasmaa, the Nokia chairman, but if so, why kill Symbian and MeeGo at that time in the way it was done. Should not that been done this year, maintaining sales for 2011 and 2012. Still, Symbian phones are selling better than windowphones ! I think Stephen Elop and the board still did not understand where the market was and was caught off-guard with two facts. 

The first one being that China and India no longer by second-grade or old products and that they are now part of a global community, so with the big splash news at MWC 2011, none of the dealers in China and India were particularly interested in promoting dead platforms and products. The launch of MeeGo and N9 is totally not understandable in that light.

The second one was the fast dropping prices of Android and the impact that had on sales of Nokia's S40 phones, which looks outdated - particularly in terms of downloadable apps and that the Ecosystem also matters in those parts of the world.

Nokia will be the subject of many case studies and Ph.D reports in an unprecedented case of destroyingroying maximum shareholder value in shortest possible time. Oh, the guy to study who lead this downturn is the same who created this magnificent mobile phone company in the 90s. Jorma Ollila.

3 comments:

Tom Miller said...

Was the rapid price drop in Android phones, especially in the Chinese market, really that much of a surprise?

David Almström said...

not for you and me and anyone else watching the space. It seems like that fact got filtered up to management so it wasn't obvious, obviously..

David Almström said...

and one more point:

If Nokia during the autumn also sells off manufacturing, it's the definite step to a product engineering company only.

And then, it is all up for sales.

But also, be prepared for a massive last effort when Windows 8 being launched - phones and tablets for sure.