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.
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.
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?