Nokia again - The Microsoft risk

Came across this bit from the excellent newsletter of Rethink Wireless and it seems like the end is even closer for Nokia than what most of us thinks. After visiting Nokia at MWC in Barcelona, Nokia seemed confident, on the right track and that turn around is definitely around the corner. Rumors about some really cool phones where the acquisition of Scalado seems to be paying off well. Another 41MP camera phone, on Windows Phone this time? or maybe even better. 

"In an SEC filing last week, Nokia acknowledged the risk arising from a possible Microsoft launch of its own smartphone. It also lists other risks, including that Microsoft could sideline or even dump Windows Phone and rely entirely on Windows 8"

Can it be as bad as Nokia has invested two years in a new smartphone platform, totally ditched the two other alternatives, and that Microsoft may just dump the very same platform as nothing happened? And seriously, it should really be a viable option for Microsoft - it seems quite difficult for Microsoft to succeed in the fiercely competitive and fast-moving mobile phone market. And instead of both losing phones and tablets/new devices, Microsoft may need to cut the losses and stop Windows Phone and spend all their efforts in making Windows 8 competitive in the tablet market. After all, 2013 is the year when a crucial infliction point occurs: More smartphones and tablets being used than PCs and laptops and if Microsoft is losing the lucrative business market to Android and iOS well then Microsoft is going down fast.

On the opponents side to cut Windows Phone is Nokia, led by Stephen Elop, an ex-Microsoft boss who headed up the Office division and his right hand, Chris Weber, is also an ex-Microsoft manager with ample experience of enterprise business in North America. Now, these corporate heavy weighers should not have a problem to convince their ex-bosses to keep Windows Phone, no? I'd actually be surprised if Microsoft listens to Nokia as they already got what they need the most - reliable map data and in smartphones/tablets, it matters. Just look at Apple's debacle launching their own Map applications without Google Maps.

If no Windows Phone? Really, I find impossible to believe that you could build a competitive smartphone based on Windows 8 RT for the next coming years. Tablets, yes, but competitive smartphones, no.

If so, then Nokia really is at its end point and it's hard to see a way forward. On the low end side, Nokia gets strongly attacked by low-end Android phones, street price already hitting $50 and it will be tough for Nokia to demand premium prices for its Asha phones without a brand backing from its top-line devices. 

The SEC filing shows that the management and the board in Nokia actually fears the discontinuation of Windows Phone 8. Serious.

The Barcelona Take Away - MWC13

it was cold and windy and where I stayed, you could hardly be outside. Not much better weather than Stockholm. And MWC 2013 felt a bit similar, not much better than before. "Same same" sort of feeling.

The show moved from Fira at Placa Espagna to Fira Gran Via, next to Ikea and not far from the airport. The venue is far better as it was very spacious, indoors and never felt crowded even it was the largest ever (aren't they all?) and thus easy to find the companies you were looking for - though you couldn't find Google and Microsoft. Nokia, on the other hand, is back again and they had a very nice lounge. They didn't fill their booth with phones, phablets and gadgets, instead provide room for informal meeting and made it very human (it couldn't be because they basically had nothing to show, could it?). 

And seriously, MWC is all about to see and be seen, an extreme of networking where you start during breakfast (8am) and continue past midnight, every day.

Otherwise, Phablets was the buzz of the town. Is it a phone? Is it a tablet? Is it a notebook? With devices like Samsung Note 8.1, ZTE Grand Memo and Huawei Ascend P2, the term phablet was coined to mark the cross-over for small tablets with phone functionality and yes, the only thing I miss in my iPad is the phone functionality so maybe Samsung and others have come across a lucrative niche that Apple is ignoring (on purpose). Engagdet has an interesting article on the phablet subject 

And to spinn on phablets (even have its own wikipedia definition), there was an explosion of accessories for phones, phablets, notebooks ranging from Hello Kitty to more normal canvas folders for phablets. Krusell assigned half their booth to Motörheadphönes.

For quite some time, I've been part of and followed the mobile OS and I really didn't think that Firefox OS would stand a chance. While testing phones with Firefox OS installed, it's obviously still early days and reminds me about Qtopia. But seeing the traction, understanding the operator paradigm, the ease of use for webRTC, non-locking of app stores yet screen applications, leveraging HTML 5; Firefox OS may have a chance of becoming the third Ecosystem - instead of windows phone. Mozilla's strong presence in desktop supports the use of Firefox OS in mobile and could it just easily be adapted to non-mobile devices, such as a TV or Infotainment system in a car, then it certainly would have a strong opportunity to be a viable option for both device makers and application developers.

HTML5 though would provide a sluggish experience. I have a hard time believing that optimizing Gecko for mobile and build an OS around the web engine  will provide a better experience than a native OS where e.g. Android has native OS and a Java engine for apps. From an app perspective maybe acceptable performance can be achieved but not from an OS angle which will really affect the uptake on high end devices, where performance strangely enough really matters. The gap should be smaller as time goes by with the entrance and optimization of e.g. WebGL.

What's speaks in Firefox OS' favor is Mozilla as a non-profit organization and its sole focus on open source. Both advantages can also be seen as disadvantages as its needs to compete and succeed is less apparent from its competitors: Apple and Google.

The one that a lot of open source geeks, including myself, hopes to succeed is Sailfish OS by Jolla, a finnish startup that based its operations and software on MeeGo/Maemo. But with no support from any vendor or operator and an OS that also begins to feel outdated, it would be really impressive if they manage to succeed. Bear in mind, the first market to target is the most competitive market in the world, the Chinese mobile market, which is driven by a number of Android spin-offs and the most successful is Xiaomi.

A bit of a surprise, it seems like Sony is making a comeback in the handset market with a strong line up of phones, phablets, tablets and notebooks, paired with state-of-the-art accessories and Sony Home Networking/TV and of course, Playstation. I do think Sony is staged for a comeback; trimming the company, reducing number of sites, focusing on Tokyo and Lund for R&D and betting on standard Android should make Sony a strong contender. They should be able to increase their quite low marketshare and maybe become #4 or 5 in sales revenue (not volume), maybe already 2013. Only 1.7% in units shipped in Q4 2012 according to Gartner.

Another company that keeps impressing and will move fast forward is Huawei. Latest move is to setup an OS R&D in Finland and they recruited a Nokia Research Fellow, Mikko Terho, to run the center in Helsinki. I have strong hunch that Huawei will try to develop some kind of in-house lightweight OS based on open source standards to give them control of their future and also differentiate somewhat from competitors. It will be quite exciting to see what kind of products Huawei might ship in 2014 based on 'Huawei OS'. Huawei has also recently setup a modem R&D center in Lund. 

Watch and behold, Huawei will soon rank top 3 for mobile phone shipments as I expected they will be dominating low end android handsets shortly.

Walking around in Hall 3 passing Qualcomm enormous booth, all of sudden an equally sized booth appear, by AirWatch! Heard of them? I actually did as I was asked to go and visit them but for a company in the mobile device management space, it was over the top. But that was the whole point. According to company representatives, they wanted to make a statement to show who is really the market leader in MDM. 

I have never seen a 3D printer in real life before, but in the Nokia booth they set up a 3D printer to print Nokia covers. Amazing technology and if pricing comes down, it will definitely change how people can innovate and try new ideas on their own. Larger quantities and/or higher quality will probably for quite sometime require professionals and professional equipment, but there are tremendous opportunities for e.g. repair and replacement services where fixes can be done in no-time vs ordering from the other part of the world. 

My own personal takeaway is the little thing below which is an HDMI dongle running Android 4.0 and Airplay. Plug into to a TV, download the remote control to your smartphone and bang, you have a fully functional Android TV. Now, that's maybe not what you need but the opportunities that you could explore with this kind of setup is quite interesting. Just use Android as an application platform and you can design apps for the really big screen. The device should hit the stores late this year.

There was a lot of app developers but I didn't have the energy to check up all app developers. There are more and more for years that goes and with limited screen real estate, mobile apps or smartly designed mobile websites are the way forward. 

Next year, more of the same but soon trends like wearable computers (aka smartphones, tablets), google glasses and other ways of interacting with your phone hub may start to show up and will change everything, again. On the mobile network side, the laws of physics do limit how much speed and capacity can be distributed and new network paradigm will have to be deployed in order to handle gigabit transfers of data to devices. Maybe we will see gigabit transfer stations in the same way as we have electric stations for bikes and cars? I don't small cells is the best way forward for that concept. There are too many challenges. Instead, the mega-blast point centers for infinite data transfers on extreme close range could solve the issue more practically than WiFi, LTE and small cells.

SvD: I have taken business contacts on free trips

"I have sent business contacts at free trips"

He has worked in China since 1997, e.g. as Vice President at Ericsson China and senior management position at Nokia but also as club owner. Many times have David Almström have closed encounter with the extensive corruption in the country. He himself have also done things with  business acquaintances that might be considered as bribery in Sweden.

This article was posted in Svenska Dagbladet, SvD

 - China is still extremely corrupt. I have been directly asked several times to give and get bribes. It's a kafkaesque system where all takes a lot of time, says David Almström

He has been in direct touch with bribery both within the iT and telecoms as well as in the restaurant business. David Almström's short time as part-owner in a nightclub ended up in a total fiasco, due to the extensive corruption. 

 - It was a lot of those things. I never got to see the daily business, only part-owner, but I did see any money there as well. I tried to recover what I invested but that was impossible.

Today, David Almström lives in Sweden but still owns a cafe in Beijing and works towards China as head of Scandinavia for the software development company, Symbio. And during his 15 years in China, he frequently was subject to bribery and got many requests from customers. 

 - One example was a fairly small deal of $50-60,000 whereby I met the CEO of the customer. He immediately declared he expected a new computer to sign the deal. We said no and also did not get the deal, says David Almström

And it is custom for both local and multinational companies use bribes in their daily business, according to David Almström. However, the Chinese government have increased their efforts to control the bribes during the last years. And when bribes get revealed, it may end quite badly for the parties. One of the top manager at China Mobile was prosecuted last year for accepting briberies from many telecom companies - Ericsson was one of them [NB: I actually did not mention any companies that was involved in the bribery]. Punishment: Death Penalty with a reprieve (normally not carried out).

 - It a fairly tragic situation. I know him for a long time and he had a reputation of being one of the more honorable in the industry, someone who do not accept bribes. But as it turns out, 15 years ago he accepted a bribe. And in China, almost every one at that level has done something not acceptable.

Though David Almström explains he himself has avoid the bribes, he has been in the gray zone. Traditionally, it's been important to maintain a good and close relation with the corresponding business partner in China, and it's not uncommon for companies to 'all-inclusive' nights out to pure tourist trips, he says.

 - I have myself taken a person on a trip. Surely, we had some meetings but it was definitely a covered tourist trip, he says

 - But today the situation is different, the relationships are cleaner. Multinationals keep bribery on an arm lengths distance, looking the other direction and pray all is good.

As the government been much tougher on corruption, the bribes have been far more sophisticated, says David Almström. One strategy to escape the government's sharp eyes is to use antiques to laundry money. The one who wants to give a bribe buys an antique for e.g. $250,000. Thereafter makes a copy at a fraction of the cost, to be able to show something during a revision. The original is being give as a bribe. The bribed returns to the antique dealer and sell it back and gets his $250,000 in cash.

 - As antiques are very difficult to trace, it has become an efficient way of laundry money. There a quite a few of these advanced methodologies to hide the bribes, says David Almström

If you as a businessman stays away from the bribes, you certainly will lose some deals, explains David Almström.

- But question is if you want those contracts. You may have something on the person you bribe, but if gets exposed, you yourself will suffer as much, he says.

What do you do as a businessman if you do not want to participate at all in the corruption carousel?

 - Primarily, you have to work with people that you trust, manage as much as possible by yourself and accept failure before cheating to be successful.

- But it is impossible to be 100% fault tolerant. You can sign clauses in the contract of zero tolerance; keep a tight control of your business, but it's really difficult to be sure that everything is according to the book.

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.