How would you like to be a Nokia employee? Last week the bosses came up with more bad news: In order to cut 3B€ (about $3.8B) in expenses by the end of 2013, another 10,000 employees will be shown the door — this after earlier cutting payroll by 4,000 people. The news came couched in corporate doublespeak: Nokia sharpens strategy and provides updates to its targets and outlook, with a shamefully misleading first subtitle:
Company announces targeted investments in key growth areas, operational changes and significantly increased cost reduction target
Followed by a second one, finally hinting at the bad news:
Company lowers Devices & Services outlook for the second quarter 2012
In the opaque 2900-word release, management concedes business is worse than expected, with no immediate hope of improvement:
During the second quarter 2012, competitive industry dynamics are negatively affecting the Smart Devices business unit to a somewhat greater extent than previously expected. Furthermore, while visibility remains limited, Nokia expects competitive industry dynamics to continue to negatively impact Devices & Services in the third quarter 2012. Nokia now expects its non-IFRS Devices & Services operating margin in the second quarter 2012 to be below the first quarter 2012 level of negative 3.0%. This compares to the previous outlook of similar to or below the first quarter level of negative 3.0%.
In English: ‘Our smartphone business sucks, it lost money last quarter, it will lose even more money for the current quarter ending in June, probably in the 5% operating loss range, and we’ll experience similar bleeding for the foreseeable future.’
Bond-rating agencies took note and promptly downgraded Nokia’s debt to junk status, another worrisome development. Reading Nokia’s Q1 2012 numbers, we see Net Cash at 4.8B€ (approx. $6B), 24% less than a year ago, 13% less than the immediately preceding quarter. With accelerating losses, the cash drain is likely to do the same. This puts Nokia in a dangerous squeeze: It could have to borrow money at unfavorable rates, or be prevented from doing so, or be forced into liquidation.
This is how: We know Nokia has already borrowed money, about 4.9B€ (approx. $6.3B), but we don’t know what the small print on those bonds say. Creditors often put conditions (covenants) giving them the option to demand immediate repayment if the debtor’s business deteriorates too much.
Nokia’s management is worried, it shows in little signs such as the length of precautions taken in what is known as Forward-Looking Statements. These consist in lawyerly language telling us everything we have heard or read could be nullified by a number of changes in the weather, the price of pork bellies or crop failures. The practice, as often, stared with the best of intentions: Management should be free to share their views of the future without being held too strictly to their description of inherently fragile circumstances.
In February 2011, Nokia’s cautious language about 255 words. Last week, attorneys in charge of covering the backs of Nokia execs needed more than 1,400 words, listing precautions from A to K, and from 1 to 39.
Put simply, this betrays is a growing fear of lawsuits.
In the meantime, Nokia’s CEO, Stephen Elop, is “opening the second envelope”, that is firing members of his exec team, including one who imprudently followed him from Microsoft. Next time, it’ll be his turn — and too late to save the company.
Many blame Elop, but what about the Board of Directors? In 2010, when the fact Nokia was on the way down became too obscenely obvious for the Board to ignore, they fired the CEO, OPK (Olli-Pekka Kallasvuo), an accountant cum lawyer, and doubled down by hiring Elop, a Microsoft exec with zero smartphone experience and a record of job-hopping. The new CEO soon said one very true thing, ‘This is a battle of ecosystems’ and did a terrible one: He osborned Nokia’s existing Symbian-based products as he committed to a distant collaboration with Microsoft and its unproven Windows Phone system software. What did the Board do? Directors approved the move. Willfully or stupidly, it doesn’t matter, they supported Elop’s imprudent move.
Nokia, once the emperor of mobile phones, shipping more than 100 million devices per quarter, is now in a tailspin, probably irrecoverable, taking its employees into the ground.
And there is Nokia’s chosen partner, Microsoft. What will Nokia’s failure do to its future? Ballmer knows Microsoft can’t be relegated to a inconsequential role in the smartphone wars. Will this lead to Microsoft going “vertical”, that is buying Nokia’s smartphone business and become an vertically player, as it already is in its Xbox business?
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- Will Microsoft buy RIM or Nokia? TweetWe continue along the lines of last week’s Monday Note kriegsspiel with the latest speculation Will Microsoft, at long last, buy RIM? The idea has been kicked around for at least five years: Days after the iPhone’s introduction in January 2007, Seeking Alpha suggested that the Xbox maker ought to buy RIM in order to [...]...
- Transitions: The Nokia Way vs. The Microsoft Way TweetOne false step and you’re dead. Or worse: You’re the walking dead. This is what awaits CEOs who mismanage a product transition and allow the existing revenue stream to run dry before the promising new product shows up. This is known as the Osborne Effect, named after Adam Osborne, the prolific inventor, entrepreneur and writer, [...]...
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25 Comments
When Elop osborned Symbian, which as you mention is probably the killing blow done to Nokia, there were a few voices complaining that this move was completely intentionnal : killing Symbian was meant to weaken Nokia so much as to make it a little puppet of Microsoft. In short, Elop was acting on command for Microsoft.
This conspiration scenario was never mentioned in your blog. You seem to imply that all decisions taken by the Board and the Executives where sincere, maybe bad, maybe short-sighted, but there was no “betrayal” on the horizon. Is that your point of view ?
It’s probably too late now, but they should invest not in today’s smartphone tech, but instead in the next technology wave. People are going to get tired of smartphones because of the constant drain of attention, the constant interruptions.
What Nokia should build, is a device which will only interrupt you when something important is happening. Your travel arrangement have changed because of a delayed train; your phone should ‘whisper’ that a change has occurred, and then alert you when you need to leave in order to get that connection. In America, Google and Apple will continue to reign. Nokia still has prestige in Europe. People are buying Lumia phones not because of WinPho, but because it says Nokia on the front.
If they can hook into all mobile transportation, festivals, restaurants, art-exhibitions &c; make it so that no-one in Europe will even think of organisnig something without posting it on Nokia’s service.
Provide a transparency layer between people. Say that some people you have a connection with are going to go to a concert, Nokia’s service should use this data to make recommendations without informing the other users. It’s just one more datanode, to be compounded with many more (your schedule, travel plans, music taste). Then, press a dedicated Nokia button which will randomly suggest an activity.
This would be great for going on holidays. Imagine going to another city; you don’t know anyone or where all the cool places are. Press the button, and your phone will automatically suggest something based on not just your preferences but on people like you and your friends, all obscured but still added to the datanode list. It will provide you with travel details, make a reservation for a taxi if you want it to, reserve an entry ticket, post it on FB &c.
That is what Nokia should be investing in, not trying to copy Apple and Google, and certainly not getting into bed with Microsoft. No one who partners with Microsoft has come out better. If you succeed, they’ll cut you out, if you fail, they move on.
It is indeed a stunning turn of events for NOK. To contemplate this company now on the bring of insolvency versus what they were just a few short years ago is a reminder of how often a company needs to rethink, reinvent and retool. There was lots of denial from management about their eroding position until things started to collapse. It wasn’t too late then but after watching this clueless crew for the past year it now seems that the opportunity to turn things around is past.
All good news for Samsung and Apple. Who else might swoop in here other than MSFT to pick up the pieces and try and create a viable third ecosystem in mobile?
Did you see Tomi Ahonen’s three latest posts about Nokia? http://communities-dominate.blogs.com/ Even if MS bought Nokia, it wouldn’t help, apparently. The carriers are boycotting Windows Phone because Skype sticks in their craws. Even removing Skype, I don’t think would help. The Metro UI does not work on phones and is also too alien from the existing UI paradigm offered by iOS and Android (and what webOS offered). How many companies must die before learning from Palm’s error? Phones are tough. Do a kick-ass tablet *first* and you can always leverage that into phones later.
@Cyan wrote, “…killing Symbian was meant to weaken Nokia so much as to make it a little puppet of Microsoft.”
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Alongside the Nokia board’s bad decisions, it wouldn’t surprise me if Microsoft met them in kind by trying to weaken a partner whose strength they depended upon. But at least Elop had the advantage of recognizing that Nokia *had* to find a successor to Symbian, and fast; Microsoft has no excuse for burning thru the firm that was most willing to promote its wares into markets where Microsoft is clueless. If this was the case, I challenge readers to name a business decision that was even half as stupid and dishonest.
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Elop’s primary sins seems to have been first, that he was too candid about coming to a stagnant company too late; and second, to have been too hopeful that the smartphone market was a paint-by-the-numbers business of good-enough software, good hardware and Business as Usual.
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Microsoft’s next major partner, Samsung, is making no such mistake. Their “major” role in Windows Phone and their partnership on early Windows8 tablets are tactically opportunistic hedges as they build out their takeover of what is left of Android. Whether or not they fork Android (they seem to be doing fine with it in its current mess), their commitment to Microsoft is only for as long as the support checks or whatever deals Redmond has thrown their way.
@Mike Cane:
Tomi is a fine example for the thinking of the Nokia managmement at least before Elop: Ignore reality, believe in good looking numbers from the past and ignore troubling signs until it is too late.
If Elop is the right one for the turn around or just the only one ready to enter the sinking ship is an open question for me. But I do not believe in betrayal or conspiration by him.
> How many companies must die before learning from Palm’s error?
See http://mobileopportunity.blogspot.co.at/2012/01/why-web-os-really-failed-and-what-it.html
> Do a kick-ass tablet *first* and you can always leverage that into phones later.
Android is the counter example.
@Mike Cane wrote, “The carriers are boycotting Windows Phone because Skype sticks in their craws.”
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Carriers hate all sorts of things (e.g., subsidizing iPhones) but do it because it brings them business today giving them both current revenues and more power in future negotiations. (Verizon’s original refusal of the iPhone ranks in the upper echelons of Small-minded Decisions That Almost Killed Companies. What would’ve happened had Verizon not created the Droid?)
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With that in mind, the problem is that WinPhone isn’t selling well enough to make any money from it. Consumers are so far uninterested in a me-too product with Microsoft’s uncharacteristically muddy roadmap and the attendant risk of its being orphaned. Another correspondent noted that finally Nokia had done some nice ads in the UK, but they were “OMG TXTing in 2012 is GR8!!!” — srsly!
Hey, readers! Let me call out the Michael Mace piece that @ste mentioned. You don’t need to be very inventive to plug “WinPhone” every place that Mace wrote “WebOS” with of course, the difference that Microsoft has a history of patience.
It’s easy to attack Elop, but much harder to point out what decision he should have taken instead.
First, I think the ‘Osborning’ accusation is easy and obvious, but totally wrong.
Symbian sales did sag – a bit – because Elop announced the platform was dead – but it WAS dead, and sales would have collapsed by pretty much the same degree by now anyway. Symbian was a terrible product. It had to be abandoned.
And then, who are these people who were buying Symbian because they loved the platform, and abandoned it when they heard it was being discontinued? These people did not exist. By 2011, Symbian was not selling as a smartphone – it was selling as a feature phone to people who have never heard of Elop or Windows Phone. So the Osborning argument really doesn’t make sense.
Meanwhile, the transition: Nokia’s problem is that it takes time to switch platforms. It is only in H2 2012 that the full portfolio will start to come on stream. And crucially for the ‘is Elop a fool’ dialogue, this really wouldn’t have been any different if they’d chosen Android.
So whatever you think of Elop, there wasn’t any other choice open to a Nokia CEO at that point that would have had a better outcome.
Good article. The “burning platform” doomed Nokia. There was probably no scenario that wouldn’t have resulted in some variant of the outcome that has arisen. Even immediately firing Elop would likely not have managed to limit the fatal wound but this alone might have given Nokia a chance. Classic and irreversible Osborne Effect at play.
Nokia had the design and engineering smarts as well as the carrier relationships to pull-off a transition via Android. Even if Android wasn’t going to be a strategic long-term platform and WP7/8. A credible intermediate strategy would have resulted in a better negotiation position with MS.
So sad to see a deservedly great company on its knees.
@Benedict : Many people believe there was another, obvious, choice.
It was to continue with *Qt*.
For 3rd party developers, the underlying OS has much less importance than the developer framework.
Symbian was horrible as a developer framework, a completely inconsistant set of patched libraries.
By introducing Qt, Nokia cleaned the mess. Even better, they made the underlying OS a secondary issue : applications could switch from Symbian to MeeGo, to anything else later. That was the promise of Qt. And from a small developper perspective, it’s a huge win : he can develop now, and let the framework adapt to future terminal.
I had a demo of the born-dead N9 early 2011, and it was truly impressive. Not just the device, but the developper environment as well. At last, it seemed Nokia had understood where were their woes and how to correct them.
Shortly after, by moving to WP7, they also destroyed the Qt line.
They *could* have kept it, having Qt for WP7 is possible. But no, Microsoft insisted that it was silverlight or nothing. They effectively betrayed the developpers by bending to this MS-only condition.
Betrayed developpers will never come back. The Nokia eco-system is basically dead now. Whatever the OS, Nokia is no longer a viable partner.
So yes, there was other choices possible than the one from Elop, and certainly it was possible to Not osborne the cash cow. Even with an eroding market share, the situation would have been vastly different 12 months later.
Between a falling market share and an eroding one, it’s a life or death difference.
@Cyan wrote, “Shortly after…they also destroyed the Qt line. They *could* have kept it…”
Your points about burning developers are well-taken; good to keep in mind.
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But given the spectacular failure of WebOS, WinMobile, BlackBerry and other OS environments, it seems at least *fair*to*ask* whether Nokia could’ve brought Qt’s frameworks up to the standards of today’s most demanding users, in time for them to keep lower-end users from migrating to Android. I know very little about Qt, but certainly Elop’s lieutenants apprised him of how quickly they could make it run with the best.
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WP is described by almost all who touch it as intuitive, smooth, capable and “modern.” If Qt didn’t hit those targets how could it expect to perform any better in sales?
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Do you really have the perspective to be able to assert Qt is today the near-equal of Android, iOS and WinPhone? … and that it could’ve quickly morphed into something that had significant user advantages over the others, big enough advantages to overcome being the 6th entrant into a market where positions #5 and #6 are hemorrhaging cash?
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As former Nokia analyst Dedieu notes, firms that fall behind the curve face a dreadful (but usually, short) future. Nokia failed at the same time, and due to the same market forces as companies that did NOT employ Mr. Elop, companies that did NOT Osborne themselves, but still are gone. Methinks you’re right to feel abandoned by Nokia, but almost nothing it could’ve done in 2010 had better than long-shot odds.
@ Benedict Evans: You’re right, it’s easy to attack Elop — that’s why I poimyed to the Board’ss string of failures. But I have to disagree on the Osborne effect. As I wrote in a 2011 Monday Note , Nokia could have kept the development of the next gen smartphones under wraps until ready to ship. Imagine the CEO of a certain Cupertino company standing up in November and telling everyone how wonderful their next smartphone would be — in 10 months.
You’re right again when you say it takes time to switch platforms, all the more reason to avoid opening a wide abyss in the process.
Walt French: To be fair, Nokia N9 was universally praised by reviewers who said it was smoother and easier to use than Android and iPhone. Nokia’s Meego had already had several years of development. So it’s not a question _if_ Qt gets there, it was already there.
That said, praise from critics do not always translate to great sales. But starting new with an even more immature platform is just plain stupid. The nice reviews of WP you speak of wasn’t until about a year later, and by then it still had a lot of catching up to do compared to Meego.
@Walt French: Nokia N9 is the only Nokia product with Qt at its core and that is the only public information that would help to assess if Qt was closer to Android than WP. I am among the people who think that the Qt transition would have fared better for Nokia than the WP path. However, that opinion is pretty useless today, because it finds itself in the beautiful domain of counterfactual history, where one can believe whatever one wishes, without feeling too much the burden of proof.
Nokia is the only European contender. It will be certainly sad to see that the “old continent” is now out of this strategic competition.
@Walt French
“WP is described by almost all who touch it as intuitive, smooth, capable and “modern.” If Qt didn’t hit those targets how could it expect to perform any better in sales?”
I assume you’ve never used a Nokia N9 running MeeGo and Qt?
By a country mile the N9 is the best smartphone Nokia has ever produced, and that includes Lumias (I also own a Lumia 800, but prefer my N9). The original Nokia strategy to position Qt as THE ecosystem, running on top of Symbian and MeeGo, scaling to various form factors and not just phones, was the right one and having used an N9, I’m confident – no, absolutely certain – it would have worked, existing Nokia customers would not have fled to Android and Nokia developers would have loved it rather than feel like they’d just been kicked in the teeth.
You can do stuff in Qt that is frankly amazing, and with just a few lines of code (in any computer language you like, pretty much). It’s a much more pleasant and efficient development environment than anything Microsoft has managed to produce. Silverlight has failed, and is already on life support, and Qt was no doubt seen as a huge threat to Microsoft, given it’s cross platform by design nature, as was the preference within Nokia to continue to pursue Linux based operating systems of their own. All of this is now dead, no doubt at the behest of Redmond.
Absolutely shocking, and sad.
This was guaranteed. History has shown that giving up your own development and partnering with Microsoft is equivalent to suicide. See Silicon Graphics with Windows workstations, Yahoo with Bing, etc.
The problem is that you can no longer afford you own development and need a cash injection to survive. Microsoft has a losing platform that it need to pay people to use. Two wrongs do not make a right.
Richard,
You may be right about (some) people becoming “tired of smartphones because of the constant drain of attention”. But there’s no need to buy a new phone … just delete any minute-to-minute “social media” apps that are bothering you.
The user experience you describe certainly does sound pleasant, but it could be adequately implemented by a startup as an iOS/Android app. It doesn’t *need* a company the size of Nokia, and so there’s no way Nokia can make money out of it.
@Walt French wrote “I know very little about Qt…”
@Charlie wrote, “I assume you’ve never used a Nokia N9 running MeeGo and Qt?”
Fair’s Fair Dept: To rectify this, I read the first 5 reviews that Google coughed up in response to “Nokia N9 review” and have to say they were uniformly complimentary to the software (identified as Meego, not Qt), after first saying how excellent the hardware was.
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So thanks for the challenge: the N9 seemingly offered a fine user experience, primarily marred by its by-then-known death sentence. But what were the quibbles? Somewhat, that the software, while very functional, was pretty basic, and that the Nokia ecosystem was immature—little in the way of apps, media and services. Of course, that ecosystem was the primary reason that Elop called for WP.
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So these comments reinforce to me the challenge of fielding a smartphone in the 2010′s: there’s a LOT of uncertainty about the future of the industry. Like the charming Fiat I bought many years ago (and had to pay to have towed away just weeks later), a consumer can lose many hundreds of dollars by choosing a product that doesn’t enjoy decent support. These days, I can afford to take chances (and indeed have, with a long list of quirky tech products), but my read of most consumers is that it costs too much time to do all the in-depth research, and it can never eliminate uncertainty, so the “leading brand” gets a big boost.
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Who’d have ever thought that Microsoft would trash its brand to the extent that it was on the wrong end of that equation? …that “Windows” would connote not “everybody uses it” but rather “too hard for mere mortals to maintain” ?
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It’s really too bad about Qt. Per that Mace post I shouted out earlier, I’ll bet it could have succeeded, but got buried under Nokia’s desire to get back, quickly, into a leadership role.
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“The best is the enemy of the good.”
Regarding Qt, it is also interesting to note that RIM is building their next generation of Blackberry OS using Qt (Cascades).
Business scholars will probably for decades to come research the Nokia/Microsoft case as a classic example of being wrong footed by the market, and this creating a series of negative effects which make the original reasoning seem misguided. An it is here the conspiracy theories start.
I for one do not buy the conspiracy theory that Elop was secretly parachuted by MS into Nokia with the sole aim of destroying Nokia so that MS can take over. Why on earth would MS want their prime (only) W7 OEM to go bankrupt and have their image and market perception dragged through the dirt? If Nokia go down, so does MS in the mobile space. No one will buy a ‘Nokia’ ever again, the name has been/is being/will be trashed.
At the end of the day, what is there left for MS to take over? Huge numbers of staff have been fired, core competences have been stripped. There is soon nothing left to own, except for the patents. But the most of these are FRAND and licensed broadly to the industry, so there is no smoking gun there to leverage against Apple.
We need to accept that MS and Nokia senior management and BoD entered into a mutual agreement based on their knowledge level at the time. But they have been wrong footed by the pace of development in the mobile computing world. Wrong footed by Apple and Google. They were too slow. One can argue over Elop’s burning memo, and whether this combined Osborne and Ratner Effect was calculatingly deliberate, or whether it had unfortunate consequences because of the slow turnaround culture at Nokia and MS compared to the pace of development at Apple and Google.
@Benedict, @JLG: “Imagine the CEO of a certain Cupertino company standing up in November and telling everyone how wonderful their next smartphone would be — in 10 months.”
I think we’ll never really know until Elop takes a guest lecturing gig at some business school. (Presumably not in Finland…)
We can probably try to back out the Osborne cost by looking at RIM, which also collapsed, though only to a lesser extent. In this sense, there’s a natural control. In terms of market share, it ends up being, IIRC, not difference-making for Nokia.
But the real reason I’m commenting is that the certain Cupertino company has some key differences: (a) focused on the whole product; (b) products overseen from the very top; (c) all employees fully behind whatever the secret plan is.
Nokia’s approach was quite different. This answer on Quora http://www.quora.com/Symbian/Why-did-Symbian-fail/answer/Christopher-Reiss is consistent with what I know, and if the specifics about the N8 are at all correct, Elop’s reasoning probably goes something like this:
1. Symbian is already in free fall
2. To actually launch a coherent product of any type in a 12-month timeframe will require a major change in approach, not just technology (like the previous failed Linux and QT projects)
3. Microsoft will provide enough cash flow
I can’t see a major shift like this happening without announcing that Symbian/Maemo/MeeGo/QT/etc are eol’d. (After all, the latest layoffs suggest that a multi-country, multi-thousands of programmers Linux project was still ongoing until last week. What?)
It didn’t work out, but I am not so sure that it was a horrible bet to make at the time. Apple and Samsung were just unexpectedly strong, and WP7 not compelling enough.
Let’s go back a step furthur – I do recall a group of CEO’s from companies called Nokia, Motorola and RIM laughing thier asses off about this little computer company thinking they knew anything about phones and would just be a little side note in history and kept right on doing what they had been doing…………….over.
As to the tablet first idea, the IPad existed before the IPhone, when Jobs was given a working prototype, after playing with it for a few minutes, he anounced this is a phone, sent them back to the drawing board and rest is history (very valuable history to those who owned the stock at the right time). The IPhone created the massive ecosystem that allowed the the IPad to ride on and thrive, the other way around you may have had a newton.
Nokia should have kept going with Meego and made it run Android apps via ACL or Alien Dalvik. If neither of those technologies was feasible, they should have produced what would have been the best Android phones.
We would have had new Meego phones this year, quad-core slates and slide out keyboards. We probably would have had a tablet that was better than the iPad. Nokia would have early access to Intel’s SoC.
At the time, you could see why Nokia’s board panicked. But there’s little brand loyalty in smartphones. There’s a good rumour that major Nokia shareholders put Elop in to prop up the share price while they got out.
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