Nokia Corp. (NYSE: NOK) investors should expect a long and arduous recovery for the entity that once led the mobile phone market for much of the last decade. They should also expect the near certainty that the company will emerge from the ongoing restructuring painfully smaller and possibly less profitable.
My personal opinion is that Stephen Elop, president and CEO of Nokia, will not be around long enough to see the company's turnaround when (and hopefully, not if) it finally begins to climb out of the current doldrums.
That may seem like a harsh conclusion, but it is not so improbable considering the forces arrayed against the company. This includes the history and dynamics of the industry's leadership changes, and the outcome of the first round of cost-cutting and other reorganization measures implemented since Elop took over management control of the company last May. Today, Nokia announced in a statement that it slashed the first quarter forecast and said it "expects its non-IFRS Devices & Services operating margin in the second quarter 2012 to be similar to or below the first quarter 2012 level."
In other words, Nokia hasn't yet stemmed the slide in the sales of its core mobile phone products and sees the decline extending through the second quarter. Sales in the devices and services division are now estimated at $5.5 billion (4.2 billion euro) for the first quarter with operating margins at "approximately negative 3 percent, compared to the previously expected range of 'around breakeven, ranging either above or below by approximately 2 percentage points.'"
The company attributed the poor performance in the first quarter and decline expected in the current quarter to the following reasons:
Competitive industry dynamics, which negatively affected net sales in the Mobile Phones and Smart Devices business units, particularly in India, the Middle East and Africa and China; and
Gross margin declines, particularly in the Smart Devices business unit.
Competitive industry dynamics continuing to negatively affect the Smart Devices and Mobile Phones business units;
Timing, ramp-up, and consumer demand related to new products; and
The macroeconomic environment.
Here's how Elop explained the situation and what he believes is ahead for Nokia:
Our disappointing Devices & Services first quarter 2012 financial results and outlook for the second quarter 2012 illustrates that our Devices & Services business continues to be in the midst of transition.
Within our Smart Devices business unit, we have established early momentum with Lumia, and we are increasing our investments in Lumia to achieve market success. Our operator and distributor partners are providing solid support for Windows Phone as a third ecosystem, as evidenced most recently by the launch of the Lumia 900 by AT&T in the United States.
We are continuing to increase the clock speed of the company. The change is tangible, and we are proud of the way Nokia employees are quickly responding to the needs of consumers and partners.
That's only part of the story. Nokia is stuck in a swamp and the company is obviously taking drastic steps to get itself back on track. Here's the problem: Nokia waited too long to start reorganizing its operations even as rivals like Apple Inc. (Nasdaq: AAPL) and Samsung Electronics Co. Ltd. (Korea: SEC) were steadily encroaching upon its turf. Like Motorola Mobility Inc. (NYSE: MMI), another ex-No. 1 in the mobile handset market, Nokia rested too long on its laurels and failed to provide the innovation the market needed. In the consumer electronics industry, that's a major mistake.
The challenges Nokia faces today began years ago and slowly developed into a full-disease. It's similarly going to take years to pull the company out of the downward spiral. Observers knew Nokia was headed for a nasty experience more than four years ago. In 2008, for instance, Junko Yoshida, editor in chief at EBN sister publication EE Times, observed: "Nokia's biggest enemy is Nokia itself. And it's about time for the world's largest mobile phone vendor to address the issue." (Also, see: Will Nokia Rise Again? and The Nokia Era Is Over.)
Elop has only compounded Nokia's problems, at least for the immediate future. Nobody should be surprised that the company's sales in developing economies "particularly in India, the Middle East and Africa and China," as Nokia puts it, fell in the recently ended quarter. Its decision to adopt Microsoft Windows operating system and dump Symbian placed consumers on notice not to buy Nokia products, at least until non-Symbian products were introduced. (See: Nok-Win a No-Win Combination.) By the time Nokia eventually introduced its Lumia smartphone, Apple and Samsung had cornered that segment of the market. This was predictable.
So the fact is that Elop may not be around long enough to celebrate a triumphant return by Nokia, if it ever happens. The best he can hope for is that he puts the company on a sound enough footing to sell it in the future to a deep pocketed player, similar to the decision by Google (Nasdaq: GOOG) to purchase Motorola Mobility, which despite major reorganization efforts, never quite recovered enough to reclaim the top spot in the market.
I don't expect a major reversal in Nokia's fortune. The Lumia is reportedly a fine product, but it lacks the draw of Apple's iPhone. The buzz around what the next iPhone will look like and the features Apple should pack in the device is already so strong the competition will be left only to pick up the market crumbs. (See: Forget The iPad, The Next iPhone Will Be Apple's Biggest Launch Ever.)
Market leadership in the electronics industry is not easily attained, and once lost, it's even more difficult to regain. Nothing I've seen tells me Nokia's case will be different. Please let me know if you believe Nokia has a good chance of retaking leadership of the mobile phone market. --Bolaji Ojo is editor in chief of EBN Online, where this blog originally appeared
"The Innovator's Dilemma: When New Technologies Cause Great Firms to Fall" by Clayton Christensen discussed the challenge years ago. Successful businesses have a hard time changing as their cash cow business moves to new technologies. Each generation of disk drive came from a different company - for a reason. When Nokia started 147 years ago, they made paper. Later they moved into manufacturing rubber boots and power generation. They've reinvented themselves in the past; it may be time to do so again.
I think the article's perspective is wrong. At the current stock price, the question is not whether Nokia can become dominant again. The question is whether they can become viable. If they can, buying at the right time can easily yield significant returns. Partnering with Microsoft was gutsy, while Android would have been a much safer bet, but I personally think the Microsoft bet will pay off. Here's a few reasons:
1 - The carriers need another system to increase competition and make them less beholden to Apple's demands. They have an incentive to push Windows Phone.
2 - Windows Phone is more simple than Android, and Nokia should be able to deliver cheaper products than Apple, whose cheap products are usually outdated models.
3 - Windows Phone is refreshingly different.
4 - Consumers will become familiar with Metro design through Windows PCs and tablets.
From an investor perspective, at $4/share Nokia is a risky but potentially lucrative bet. As soon as the trend in the stock price changes, I'm buying in.
I think that Nokia should shift users' focus on the protection of privacy. Nokia should strictly control the way of getting personal information, such as an address book, the current IP address, GPS location, etc., from mobile phones by apps developers. Nokia should emphasize on how Nokia protects users' privacy.
Nokia should also setup its own Internet community or channel that acts as a hub for connecting Nokia users to different kinds of communities in the world.
I'm not sure there is much more Nokia can do now, but this predicament could have been avoided. The rapid ascent of iOS and Android smartphones was not completely unpredictable. Not only was Nokia late to the smartphone party, but it wasted precious time and resources on the whole Meego fiasco. Had Nokia jumped on the Android bandwagon early on, it could have at least been a contender among the major Android handset vendors.
Having missed that opportunity, the move to Windows Phone was probably the only option left, and of course this caused even further delays. It is still a huge gamble, whether Windows Phone will gain significant market share or not -- but it is a gamble that Nokia had to make.
Some might say that Nokia caught the RIM disease, or perhaps the other way around. Both suffered from "not invented here" syndrome -- the belief that the homegrown IP that made them so much money in the past couldn't possibly be superseded by a couple of new kids on the block.
A device as complicated as smartphones today is really difficult to be bug-free. Every little things matters - antenna, baseband chip sets, MCU, pcb layout to placement of components. So does the OS. This particular bug can't be fatal if iPhone 4S could have "bars" dropped while the crowds were still queuing up in from of various Apple store to buy it. What struck me the most of the link that Waqar shared is "Software update will fix the bug while this bug is not OS related." Well! As a system engineer, I can see the issue could come from driver or, some other small changes that is customed to Lumia. Regardless, Nokia, at least, quickly acknowledge the issue and actively look for a solution. What did PR of Apple say when iPhone 4S was found having antenna issue?
This is a very informative piece that NOKIA investors should read. I have always believed that tech companies have one life or one and half. You never survive when you are broken like Nokia. It is the same reason that I think RIM is gone. Yes, you can mention Apple. The reason why Apple does not qualify is that Apple bout NeXT and NeXT evolved with Steve Jobs to become the new Apple.
Let no think Elop can do magic with the onslaught from Google. Now Nokia is sending people to Africa. For decades, they relied on partners. But Google showed them how to enter new markets by building local teams and the world will never be the same.
The only hope for NOKIA is if either Android or Apple will have issues. If not, NOKIA is done!
David Patterson, known for his pioneering research that led to RAID, clusters and more, is part of a team at UC Berkeley that recently made its RISC-V processor architecture an open source hardware offering. We talk with Patterson and one of his colleagues behind the effort about the opportunities they see, what new kinds of designs they hope to enable and what it means for today’s commercial processor giants such as Intel, ARM and Imagination Technologies.