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Android could save Nokia, but not its boss

Stephen Elop

By Reuters and Barry Collins

Posted on 19 Sep 2012 at 14:02

Stephen Elop has only a few months to show he can turn Nokia around if he is to survive, but doesn't yet have the handsets to woo customers back from Apple and Samsung, according to market watchers.

Investors and analysts say the chief executive has until early 2013 to prove he made the right choice by partnering with Microsoft Windows or his future at the loss-making company will be called into question. Indeed, many believe the company's best hope of survival is to jump to Android - a u-turn that would almost certainly finish the Nokia career of former Microsoft man Elop.

Nokia still sells almost a million phones a day but analysts are pessimistic on the outlook, predicting Lumia 920 will lose out to Apple's iPhone 5 at the top end of the smartphone market in the 2012 Christmas season.

"Elop has not been able to attract customers and that is what counts. You can say that he has not had enough time, but he has been there for two years. Time is up," said Magnus Rehle, senior partner in Greenwich Consulting, which advises large telecoms companies.

You can say that he has not had enough time, but he has been there for two years

The moment of truth for Elop's strategy shift came in early September when Nokia launched its first models using new Windows Phone 8 software.

Elop promised to wow with new models, but the Lumia 920 disappointed the markets, with Nokia shares losing a quarter of their value in two sessions.

They've since recovered, but are still below the pre-launch level.
A strong Christmas could help Elop survive but investors and analysts doubt this will happen.

"The Christmas season is a lost cause. For Nokia, if there is any chance, it will be spring," said Juha Varis, who holds Nokia shares as part of the Danske Invest Finnish Equity Fund. "The beginning of next year may be the final judgment. I think that maybe the end of the first quarter is the marking point."

Starting from scratch

Nokia was already having a difficult time when the Canadian took control of the former market leader in September 2010. Its share of the smartphone segment had dropped to 33% from 39% two years earlier and some analysts say a bold approach was needed.

Elop shocked investors by dumping the company's own Symbian software and betting on unproven software from his former employer Microsoft in February 2011. He promised a two-year transition and a longer term operating profit margin of at least 10%.

"He has been making some brave decisions and courage is something this company has lacked for a long time before Elop joined," said Nordea analyst Sami Sarkamies. "His starting point was really weak and it's hard to say someone else would have done a better job."

But he also said Elop has until the end of the first or second quarter of 2013 to show his strategy can work.

So far he has been unable to halt the decline. The share of the smartphone market had fallen to 6% in the second quarter of this year, according to research firm Canalys.

Nokia has reported operating losses of €3 billion in the past 18 months, closed sites around the world including the Finnish factory in Salo that was the hub of its 1990s success, cut tens of thousands of jobs and revamped top management.

Investors who held on to their shares have seen the value of their holdings shrinking by more than 70% since the Microsoft strategy was unveiled.

Nokia was caught using a video and photos shot with professional cameras to advertise the capabilities of the new Lumia 920 model, highlighting the contrast with Apple's slick launch of the new iPhone 5.

Elop needs strong sales this winter to prove his strategy has worked but analysts expect shoppers to opt for the sleeker iPhone or Samsung Galaxy range.

Apple reached more than 2 million orders for the new iPhone 5 during the first 24 hours, with demand exceeding supply. Nokia is expected to sell fewer than 4 million of its Windows Phones in total this quarter while Samsung has sold 20 million Galaxy S3 phones in three months.

"It will certainly be an iPhone Christmas," said Gartner analyst Carolina Milanesi.

Long-term recovery

Some shareholders are holding out for a long-term recovery by the company, which has a history of reinventing itself. It faced bankruptcy in the 1990s before it shifted to cellphones from toilet paper and rubber boots.

Nokia still sold 6 million smartphones using its old Symbian software in the quarter to end-June, more than the 4 million sales in Windows phones, even though it has launched only one Symbian handset in the past 12 months.

"Nokia remains a long position in our portfolio," said Anders Tandberg-Johansen, global head of tech/telecom at Norwegian fund manager DNB Asset Management. "Lumia-based revenues should increase from Q1-Q2 next year," Tandberg-Johansen said, adding that Nokia's patent portfolio alone merits a higher share price.

Nokia's current share price also offers opportunity for anyone believing Microsoft could become the third force, alongside Apple and Google, on the smartphone market.

Microsoft will roll out Windows Phone-like tile-based start screens also to all PCs and tablets with Windows 8 launch - a move which could make different-looking mobile platform more accessible to consumers over coming years.

Jump to Android

But this might be too late for Elop and his strategy.

Financial analysts expect Nokia's troubles to continue. Average market expectations are for a €0.02 loss per share, but Thomson Reuters StarMine, which gives more weight to estimates from the most historically accurate analysts, is expecting Nokia to post a 2013 loss of €0.06 per share.

Although still more than €1 per share, Nokia's cash reserves of €4.2 billion are set to dwindle and all major ratings agencies have cut their rating on Nokia debt to junk.

For those shareholders holding out for a longer-term improvement at Nokia, several analysts suggest a switch in strategy towards the cheaper end of the smartphone market.

Greenwich's Rehle said Nokia should focus on rolling out smartphones running on Google's Android software for millions of consumers in emerging markets who often still prefer Nokia's brand.

Android models cost under $100 while the cheapest Windows Phone costs around $200.

Danske's Varis also said this could be a wise tactic for Nokia but focusing on Android instead would mean admitting defeat for Elop's Microsoft strategy.

"He's totally a Microsoft guy, so it is natural that he would have to step down then," he said.

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User comments

Elop is for the chop

Hopefully he won't drag Nokia down with him.

By Alfresco on 19 Sep 2012

Nokia could have easily competed with Samsung in the Android space. After all they have real hardware innovations as shown in the Lumia 920 and 808 Pureview.

Perhaps they should of listened to the average Joe all shouting give me an Android Nokia phone instead of wasting billions and more importantly time.

By diamondmailbox on 19 Sep 2012

He doesn't need to give up win8 devices,Just make a range of Android devices to sell alongside win8 Phones, like most of the manufacturers out there.That way you have a revenue stream if you have a problem with one of the platforms.It's called Hedging your bets.Perhaps I should be running Nokia. :-)

By Jaberwocky on 19 Sep 2012

The Standard Model

The thing is - and this goes for all phones, really; is that a bit of design innovation would work wonders. Every damn phone is a clone of the next one. At least Apple's materials look special and classy; the Lumia's unique style of Bevel is nice, but Nokia used to pitch some truly left-field designs; (remember the bananaphone?) and maybe thwy should again... surely the 'slab' isn't the last word in telephone ergonomics?

By timbosta on 20 Sep 2012

Nokia and Android

This article fails to recognise that Nokia receive $1bn per annum from Microsoft as so called "platform payments" without which their survival would have been in jeopardy long before now. Meanwhile, only Samsung seem able to make money from Android. HTC is now recommitting to WP as they have struggled to get traction with Android.
In my view, the opportunity for Nokia is to convert non-smart phone users to their platform (they sell 70m non-smart phones a quarter) and perhaps win some business currently going to Android.
Meanwhile the current market share numbers show a decline for Nokia simply because they include their Symbian platform which is falling off a cliff. The jury is out, but WP8 looks like a player to me. I think if they went to Android now, it would be too late for them as well as for Elop. I think they did the right thing in the very difficult circumstances they found themselves in.

By Philip on 20 Sep 2012

Windows

As Nokia are known for left field, maybe the old WebOs gone open source would be an option, there are those out there that loved the Palm OS, and with HP canning hardware, have nowhere to go as the last Pre 3s come up for replacement. or the old pPlm Pre dies. That with Android could make the difference. Pureview on Android or Web Os would have been stellar.

By robredz on 20 Sep 2012

I dont think so.

Android will not save nokia.
Out of all the android phone manufacturers samsung is the only one really competing with apple. LG, Moto, Sony are doing pretty horribly. HTC have taken a real beating recently.
out of 5 handset makers 1 is making a big splash.

For quite a few years I have seen nokia as a developing nations phone.
They are very cheap, durable and have battery life to last 1 week (non smart phones).
Thats how they were the biggest phone seller, they sold cheap phones.
If they can use a stripped down version of WP8 on a low spec phone for a very cheap price Im sure they can battle their way back up the hill and then continue to have high and low end phones.

Why are so many non-techies buying android phones?
Its because they are cheaper than the Iphone and it provides similar experience.

By r1sh12 on 20 Sep 2012

Faith in the product

I was going to get a Windows based (i.e. Nokia) phone this month. But there was no enthusiasm for it in the phone shops I visited, and I didn't hear of anyone I knew using one or saying that they'd heard anything good about them. A few of each said they were difficult to navigate.
So I have an Androidy phone instead. Ironically these are genuinely difficult to navigate. Google don't seem to believe that data should be organised. And the public seems OK with that.
They just want shiny gadgets.

By Terryoflondon on 20 Sep 2012

Affordable phones needed

Nokia and Microsoft were never going to reach a stable market position offering premium Windows phones. They need to build up from the low/mid end and have people aspire for the premium products.

By ianhay2 on 20 Sep 2012

Nokia needs Android

I'd buy a Nokia Android if it was on some of the hardware that the windows phones are using.
Nokia should bin Elop with immediate effect and get on with it. How much more time/money are they prepared to lose.
All they have to do is use their current hardware (windows phones) and engineer the android software to work on it. It really won't take a lot of investment given the size of the company already. The hardware work is already done/happening.
It looks like the XDA lot will probably beat them to it. How crazy would that be?
Come on Nokia, think, get on with it, your getting left behind.
Windows phones pahhhh, what a joke they are....

By chris9 on 20 Sep 2012

Nokia Demise

I suspect, after losing 70% value, when Nokia are 'on the rocks' guess that M$, will not miss a 'trick',step in and buy it very cheaply to gain the hardware and keep their OS in the market

By g0wal on 20 Sep 2012

I would happily ditch Samsung for a Nokia

I've owned all three galaxy S android phones, and would ditch them in a heartbeat for a Nokia, as would others. People are tired of not getting updates in time, and Nokia is truly capable of innovating and designing phones that just work which is a rare thing on Android. Nokia is missing the train as we speak.

By Toss3 on 20 Sep 2012

I disagree

Windows 8 will replace Windows 7 across home PCs and work PCs over the next 2~3 years a lot faster than Windows 7 replaced XP and the Win8 touch interface will be in your homes and your work before you realise it. Add to that the plethora of Win8 tablets about to launch and the fact that almost every Exec currently wants an iPad for presentations and that they are notoriously useless for that, the Execs will flock to Win8 tablets. Add to your working and home life a phone which can integrate with your PC, tablet, xBox, ect., and suddenly a Win8 Phone is much more attractive than an Android or an iPhone. On top of that, Nokia's Lumia offers all those things that made Nokia a big hit in the mobile phone arena to begin with - bold design and wide choice of colours. HTC have recognized this and have presented two very nice looking and colourful Win8 phones since they are struggling in the Android market. If Nokia wanted to add Android to their portfolio, they could, but they would enter the same diluted market that Motorola are struggling to get into. Nokia + Win8 may well not take the market by storm when compared to iPhone5 initially, but given a year, the market share will increase and those iPhone 4S customers who's contracts run out mid to late next year will have a choice, not a set path. Android only took off because a lot of people don't like Apple and because you can get a decent smartphone for a lot less money. Win8 will see low-end smartphones to rival that side, and high end to rival iPhone and Galaxy S3. Give them two years, and Win8 will be prevalent. Give them three and iOS will need something very good and innovative to stay alive. The future for Nokia is a very bright one, well done Elop.

By StormWarning on 20 Sep 2012

Volte face?

Perhaps Nokia should think about re-joining Intel (and now Samsung) with the Tizen project. Nokia put a lot of energy, time, and money into the pre-Tizen Meego project before jumping ship and joining Microsoft.

By 6tricky9 on 20 Sep 2012

Windows Mobile is only an infant

...but already it can run. Once it reaches adulthood I can't see how Android can keep up. The gulf between Linux and Microsoft OS on a PC is so vast (and still growing) that Microsoft hegemony of the professional smartphone market is inevitable. Its only potential pitfall is the traditional licence cost of a MS OS - but its Win8 PC licences are coming in so cheaply that I don't expect it will be a major problem at all. Xbox was heavily subsidised to give MS a considerable advantage, in the same way that MS always makes its PC OS easy to pirate. Once you have control of the home market, you can charge legitimate businesses whatever you wish as the training costs are lower. Since margin-hungry Apple is their main competitor for business use, they've got a lot of profit margin to play with before they lose a price war. They won it on the home & business platforms in the 80s and 90s; they will win it again on the mobile platform. MS knows exactly how to dominate a market. And Nokia, vicariously, should benefit from that. Smart investment in Nokia perhaps? HTC choosing Windows Mobile could well jeopardise that.

By baldmosher on 20 Sep 2012

"Nokia was caught using a video and photos shot with professional cameras to advertise the capabilities of the new Lumia 920 model, highlighting the contrast with Apple's slick launch of the new iPhone 5."

So, you're basically saying Apple didn't get caught cheating...?

Unfortunately Nokia rested on their 'Utility' models and neglected the true 'Smartphone' for too long, now they are too far behind to catch up, and even Microsoft money won't help the crash - and putting an MS lackey at Nokia is just cutting off the nose etc., because he will obviously restrict any Android devices in favour of WP8.

Nokia not only have to produce models people will want (including Android devices - maybe sell the same model in both WP and Android formats?), the key to all smartphones is Apps, and here MS need to really invest in Developers (paying them to cross-program successful apps maybe?) for WP8 to have any hope. Maybe Nokia could push their phones as an XBox replacement, that might generate some interest.

They also need to learn a lesson from HTC - don't put out hundreds of different models (there are only 4 models of iPhone, and only 1 current one), and if you do, just make Eco, General and Luxury models.

But personally I think its too late for Nokia, it's going to be a long slow death.

By Wilbert3 on 20 Sep 2012

re: Wilbert3

What is the difference between 100,000 available apps and 500,000 available apps? I mean - how many do you install?

By StormWarning on 20 Sep 2012

Windows hampering Nokia

Windows are the ones for whatever reason stopping Nokia putting in a memory slot (it stopped me trying them out) the weak and pathetic hardware doesn't help. CPU dismal. RAM pathetic on the earlier ones like 610 and 710.
Windows 8 will not be delivered to most of their phones.
This feller shouldn't wait. He should go now before he's fired by shareholders.
And he'd be RIGHT to say "It's all MIcrosoft's fault !"

By PhilK on 20 Sep 2012

re:Wilbert answer

"StormWarning" how many times do you need to post an answer for God's sake ?
And as for apps. Its not how many you need, it's choice and variety. Windows phones selection is pathetic.

By PhilK on 20 Sep 2012

re: PhilK post

Your reply about the apps, is unsatisfactory. Check out the number of applications which are available to iPhone right now, and then note that 400,000 of that 650,000 "variety" have ZERO downloads. These dead apps are just noise for the 250,000 apps that are in use. Windows have reached 100,000 now and of them, I've downloaded maybe 30. Tell me, from whatever system you are using (I'm guessing Apple from your anti-Windows rant, most Android users aren't so closed to other systems), how many apps have you installed - and more importantly, how many of them do you actually use? And how many of the "variety" left are you even going to bother searching through? Regarding the WP7 not having a memory slot, that never bothered an iPhone user? And on WP8 it is now supported, Nokia chose not to with the 920 for style, but its there on the 820. The "pathetic" hardware - the OS didn't need ultra powerful CPU's and massive memory, don't judge it by the requirements of others. But more importantly, and the only reason I am responding to you in the first place: "how many times do you need to post an answer for God's sake?" I have no idea where that rant came from? I had one post about the topic itself and one post to Wilbert about the apps. You just posted two in a row? If you think there is a limit, why are you breaking it...

By StormWarning on 21 Sep 2012

Anyone actually tried a windows phone?

I have a lumia 800, so does my wife. We both love the phone.

Exchange works brilliantly, the tiles are ace, it's really fast and has withstood being kicked across my kitchen twice (by mistake I may add) without a dent.

By Ip_pete4646e21a2 on 21 Sep 2012

Re: Volte face

I agree with 6tricky9: I had a Nokia N900 and loved it; if they had stuck with Meemo (and now Tizen) they could have had a real chance of eclipsing Microsoft and becoming a genuine alternative to Android. It's not too late! Ditch Elop and M$, join Intel instead, and they could still be a force to be reckoned with.

By ptysoe on 22 Sep 2012

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