by Jean-Louis Gassée

Here we are, back from last June’s Nokia science-fiction romp. The company has finally elected a new CEO to replace OPK, Olli-Pekka Kallasvuo. 43-year-old Stephen Elop’s bona fides are in order: As President of Microsoft’s Business Division (since January 2008) he was in charge of the Microsoft Office money machine and was part of the company’s “Leadership Team”. He was well-paid (the 2009 proxy pegged him at $4.8M, excluding longer-term items) and rumor placed him at the top of the short list to succeed Ballmer…

So what possessed Elop to take the Nokia job?

The answer must be that he’s been given the opportunity to make his mark. Having seen Microsoft from the inside, he must have realized that he was being groomed to be no more than a competent caretaker. He might even have decided he wouldn’t get, or wouldn’t want, the big prize, the CEO crown. So, I speculate, he went for the challenges of a turn-around situation.

The goal is clear: Restore Nokia to its former glory as the ne plus ultra of smartphones. But the path to this renaissance isn’t a straight shot—it’s an obstacle course.

Numbers

Mr. Elop’s most immediate challenge lies in Nokia’s financial performance. During the last three years of OPK’s tenure, Nokia lost 75% of its market cap, plunging from $40/sh in 2007 (the year the iPhone came out) to less than $10 today, although with a nice 2% uptick following the CEO announcement:

A more direct way to look at the numbers challenge is a single datum: Today, Nokia gets about €155 ($196) per smartphone, down from €190 last year. In the meantime, Apple gets more than $600 per iPhone. (See the June 2010 Financial Times story here.)

It gets worse when the total average number is considered, smartphones and not-so-smartphones together. That average now hovers around €60, which means Nokia sells very large numbers of low-end phones that yield very little profit. They’re in great danger of being squeezed by the incoming low-end Android horde.

But the numbers are a mere proxy for the bigger trial: The product itself, the smartphone.

Once the category leader, Nokia is now struggling to catch up with HTC, Motorola, Samsung and, of course, RIM/Blackberry and Apple. Pugnacious Nokia die-hards adhere to the company’s sisu, but the market has spoken—and it enunciates more distinctly every quarter. See this Business Insider chart:

Given today’s market turbulence, one can’t help but admire the charter’s ability to “see” as far as 2014—but the trend is obvious. Will upcoming products such as the N8 reverse it? Early reviews are mixed. For Nokia, the N8 isn’t likely to do what the Razr did for Motorola in 2003 or what the latest Droids are doing now. Motorola’s conversion to Android seems to have righted the ship and Sanjay Jah, the Co-CEO in charge of the company’s mobile business, is on his way to leading a self-sustaining entity, one that could finally be spun off as planned.

Software

Today, Nokia pushes devices that use older Symbian S60 stacks, newer Symbian^3 and Symbian^4 engines, as well as a mobile Linux derivative: Meego. Imagine the chuckles in the halls of Cupertino, Mountain View, and Palo Alto. Even with plenty of money and management/engineering talent, updating one software platform is a struggle. Ask Apple, Google, or HP, and the chuckles quickly become groans. Nokia thinks it can stay on the field when it’s playing the game in such a disorganized fashion?

This is Stephen Elop’s first big decision: How to give Nokia a real software strategy. It’s not a trivial determination.

Let’s start with the technical dimension and look at RIM for context. RIM just announced their newest Blackberry, the Torch. In this (long) review, Joshua Toplosky pronounces the device “a generation behind the market… To call the Torch the ‘best BlackBerry ever’ wouldn’t be an understatement, but unfortunately for RIM and the faithful, their best isn’t nearly good enough.” A mere few weeks after the August launch, the Torch was heavily discounted.

Why? The original Blackberry software engine was extremely capable, the best in breed for the PIM task set. But RIM is now saddled with an older-generation software engine whose foundations are extremely difficult to modernize. Symbian, based on the also once very capable Psion OS, is facing similar architectural difficulties.

Nokia understood the difficulties and went for a mobile Linux derivative, Maemo, which they “merged” with Intel’s abandoned Moblin…and thus begat MeeGo. Nokia execs explain the issue in painfully contorted statements: “Symbian is the chosen platform for us for smart phones,” said Kai Oistamo, Nokia’s executive vice president for device, “MeeGo is about the next wave, where wireless devices will go next.” (See this Mobile World Clusterf#^k Monday Note for more obfuscating corpospeak.)

A noted French politician once promised “Change In Continuity.” It kind of worked for him, but it won’t do for Nokia: Elop needs to make a break from the past, rather than merely apply patches. As he takes power, some observers suggest that Nokia ought to follow Moto’s example and go Android. It’s a tough pill to swallow for Nokia, they’ll claim that they’ll lose control of their future…But haven’t they already?

A bolder move, and perhaps more likely, is that Elop will embrace his old employer and position Nokia as the most notable Windows Phone 7 licensee. Conspiracy theorists would have a grand day: It was planned all along, Elop was sent to Nokia with a mission, this is just the continuation of Microsoft’s partnership on mobile Office documents. (The latter item is a fun click. You’ll see the expected and pompous “Global Alliance” announcement of August 2009 and a video featuring Nokia’s Executive Vice President for Devices Kai Öistämö and his future boss, Stephen Elop. What you won’t see is how the two get along now. Kai has been replaced by Anssi Vanjoki, the colorful biker.)

Culture

This leads us to what is likely to be Stephen Elop’s biggest challenge: Nokia’s culture.

Blaming OPK for Nokia’s decline is understandable—but insufficient. OPK was a Nokia lifer. He joined in 1980 and has been a combined cause and effect of the company’s proud history.

Furthermore, Nokia’s choice of a Canadian—a non-Finn—is both encouraging and controversial. The Finnish press isn’t entirely happy with the decision, but the company’s Board has seen the need for new blood. It has watched Nokia’s spectacular failure in the US and has acted upon it.

Not everyone is convinced: “Nokia Makes The Same Mistake Again: Hires A Manager, Not A Product Visionary”. After reading the Silicon Alley Insider piece, I foraged around for more data on Nokia’s new turn-around man. His LinkedIn profile is more instructive than the official bio. Besides executives positions at Microsoft, Juniper Networks, Adobe, and Macromedia (before the Adobe acquisition), LinkedIn says Elop was CIO at Boston Chicken and Noah’s Bagels (it now transpires these two positions are just one). All this within 20 years of graduating from MacMaster University. You can parse him as a well-traveled executive with a very broad experience…or that he “moves around” a lot. The good news is that Elop, unlike OPK, knows the Valley and its networks.

We’ll pay attention to where the new CEO spends his time. Nokia’s US HQ is in White Plains, NY, while Apple, Google, HP, and Facebook are all headquartered within a five-mile radius in the Valley. If you’re in the fashion business, you must live in the garment district.

For Nokia to win, Elop must change the hearts and minds of 123,000 people, make unpopular decisions and make them quickly: The smartphone business is moving much faster than when Nokia was king.

Is Elop up to the task?

Possibly. Stephen Elop is tough. He’ll have to be if he wants to battle the old ways at Nokia.

JLG@mondaynote.com

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