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iniewski
300M Euro injection from the Finnish goverment is a good news...hopefully it ...
Traces
I think you'd dissolve the company when you decide there's no competitive ...
Nokia job cuts don't and won't impress anyone
Bolaji Ojo
6/14/2012 3:31 PM EDT
The announcement earlier today by Nokia Corp. that it will eliminate one of every five jobs in its mobile handset division and remove three senior executives didn't impress investors who promptly dumped the stock, driving down the company's market value by more than 15 percent in intraday trading.
CEO Stephen Elop might have meant to signal resolute leadership in the midst of an ongoing crisis at the wireless handset vendor but nothing in today's announcement adds clarity to what the future holds for the company or confirm it will be able to right the sinking ship. Investors have seen reorganization actions like these before at other endangered companies and they know where it's leading Nokia. By the end of the current year, Nokia will be a much smaller company on a revenue and stock valuation basis and its future will be even more in doubt notwithstanding the modest success its Lumia phone has recorded in the market.
There's some disheartening history behind this tough assessment. The actions instituted by Nokia are eerily similar to steps taken by other enterprises that slowly diminished in importance after once-dominating their market sectors. While it is unlikely Nokia would disappear into technology's historical bin, the job cuts, management changes and other strategic initiatives implemented so far by Elop reminds me of similar actions taken by Palm Inc., Motorola Inc., Nortel Networks, Lucent Technologies and many other former tech giants that misread their markets and tumbled into oblivion. Blackberry maker {complink 4644|Research In Motion Ltd. (RIM)} is in a similar funk and its reorganization efforts so far have not paid off as expected.
If this assessment appears harsh, follow the trajectory of Nokia's sales but look more closely at other more important factors, including why the company is where it is today, what is happening at rivals, the monumental changes occurring in its market, the rivals it faces (Apple, Samsung, HTC) and what could make it competitive again. Also, consider the fact that while Nokia is cutting jobs and reorganizing operations (necessary actions if it is to survive) it is also demoralizing employees, sending mixed signals about its future to contractors and suppliers as well as other third-party support companies it requires for future growth.
By now, Nokia suppliers in the communications IC market, for instance, who recall how their profitability and long-term viability were horribly threatened as companies like Motorola declined know by now they've got to pull up the stakes and throw operational and product support behind rivals. As Nokia totters, the eco-system it needs to survive is feeling the heat and rushing for the exit. This means critical internal engineering employees will be firing off resumes to Nokia rivals while application developers the company needs to support the role out of services for the Lumia and other devices in the pipeline will devote more resources first to rivals before considering the wounded company. The Nokia-effect is already being felt at companies in its extended supply chain. DSP chip vendor Ceva Inc., for instance, recently slashed its 2012 sales and profits estimate "due to weaker-than-expected sales at key customer Nokia." What many suppliers see now is the possibility of getting crushed under the tottering giant.
Consider this: Nokia is a fast fading shadow of its former self and no amount of employee retrenchment and management reshuffling will send the market a different message. What today's announcement confirmed is clearly that the company is burning more money than it is making. Nokia said in a press statement it expects the "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%"
By the way, "Nokia expects competitive industry dynamics to continue to negatively impact Devices & Services in the third quarter of 2012," the company said. It should have added that the situation won't improve that much for the rest of the year. Prior to today's announcement, analysts had reduced their 2012 revenue estimate for Nokia to about $49.2 billion (39 billion euro). If their prediction turns out correct (I think sales will be even lower) that would be flat from 2011, down from 42 billion euro in 2011 and as high as 50.7 billion euro in 2008.
The job cuts will reduce the break-even revenue target for Nokia and relieve pressure on the balance sheet at a time cash conservation is becoming a major priority. They won't cure what really ails Nokia and that is its inability to catch up with Apple and Samsung combined with the unwise decision to abruptly terminate Symbian operating system-based products in favor of Windows OS. The move stopped Nokia cold and for that CEO Elop himself deserves the axe.
Bolaji Ojo is editor-in-chief of EBN, an EE Times sister site. This article was originally posted on EBN.
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tb1
6/14/2012 4:33 PM EDT
Microsoft has been slowly building up toward Windows 8 for its PCs, phones, tablets, and even (through interoperability) XBox. Whether they succeed or not is hard to judge now because it isn't even out yet.
Because of declining sales for its outdated Symbian based phones, Nokia hitched its future to the Microsoft operating system.
Microsoft, and by extention Nokia, hasn't yet hit its prime, and won't until Windows 8 is out for a few months. So I think it is premature to write their obituary.
If you remain doubtful, just remember all the doomsayers when Microsoft came out with a gaming system. Everyone wondered what they thought they were doing, that they didn't have a chance, and their (initial) very low sales was proof that they were going to completely flop. History tells otherwise.
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Frank Eory
6/14/2012 7:55 PM EDT
I don't think Bolaji wrote an obituary, he simply pointed out that Nokia is getting smaller -- in headcount, in market share and financially.
I think the comparison to Motorola is spot-on. By no means are they gone, they're just not what they used to be. Likewise, if Windows 8 gains some traction in the mobile market, Nokia could find itself healthy and profitable in a few quarters.
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iniewski
6/14/2012 7:01 PM EDT
This is all true Bolaji, but what else beyond layoffs is left for Nokia? Kris
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bolaji.ojo
6/14/2012 8:42 PM EDT
Kris, That's the dilemma Nokia must try to resolve. In business, it is as important to identify a problem light years away as it is to plan the right strategy for dealing with it.
To answer your question, though, I would say it's not the end of the road for Nokia. First thing I would suggest for them is this: embrace Android. What is the company gaining by marketing itself as the anti-Android OS company? It is not Apple. I understand why it has partnered with Microsoft but the Redmond, Washington-based company isn't all about just Nokia in the mobile device market. Microsoft will as well embrace Samsung, HTC and any other vendor that wants to use its Windows OS. Nokia should similarly signal it will use Android. The goal is to sell the devices not make Microsoft feel great at the expense of your own sales.
Second, go back to basics. Stephen Elop talked a good game -- but all about cost-reduction. What is the long-term strategy to boost sales, that is, what is the product innovation story here? Why is he not forcefully, repeatedly and emphatically addressing Nokia's sales growth strategy? Beyond embracing Windows OS and lowering operating costs, what is the Nokia story? What does it have beyond Lumia? That's what the market needs to hear and that's what potential customers need to be talking about. Instead, they see a company on the slide waving the Lumia at them. There's a bigger story or there should be a bigger story to Nokia and the company is not telling it.
All of this may seem superficial but don't forget that this is the consumer electronics market where perception is as big a deal as reality. There's pent up expectation about what Apple might do next? Is anybody thinking about what Nokia might do next beyond closing another plant?
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iniewski
6/15/2012 8:59 AM EDT
thank you Bolaji, perhaps you should take Stephen's job as Nokia's CEO? ;-), sounds you have a clearer strategy on what to do...Kris
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sranje
6/14/2012 7:36 PM EDT
Bolaji is correct - a difficult situation of moving to a new OS. But Microsoft also urgently needs a successful entry into SPs.
Nokia is Microsoft's much needed partner and hope. Hence it will likely continue to financially support Nokia's transformation - some postulate even possibly buying Nokia
Lastly, Intel is entering mobile landscape in a very big way - Microsoft (and Nokia) will surely much benefit.
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sranje
6/14/2012 8:04 PM EDT
In the end application developers (and what is attractive (profitable) to them) might be decisive. Certainly Win-8 will not be fragmented as Android already and increasingly is.
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BobsUrUncle
6/14/2012 8:33 PM EDT
Nokia has no compelling handsets. Windows8 is too little too late. It's the APPS, stupid! (paraphrasing Clinton's election campaign in '92). Apple and Android have the most apps, why the heck would Nokia choose windows over Android?
Some very dumb people over there at NOK. They should join hands with RIMM -- two drunks helping each other cross the street.
I predict there will only be two major handset manufacturers left -- Apple and Samsung. Apple is obvious; Samsung because they are vertically integrated and can drive down costs. Chipset vendors, TI and Qualcomm will die off due to cost cutting. Ericson will be bought by Apple.
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iniewski
6/15/2012 9:10 AM EDT
Bob, I agree with some of what you said but Why would TI and Qualcomm die? Neither Apple or Samsung has the expertise to design those ASICs internally...Kris
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daleste
6/14/2012 10:22 PM EDT
It is amazing who this parallels the rise and fall of Motorola. It just goes to show that once you make it to the top, it is not easy to stay there.
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chanj
6/15/2012 3:27 AM EDT
Would Google give Nokia exclusivity of Android if Nokia chose Android over Windows?
Choosing Windows or Android would probably do the same thing to Nokia. What important at the point were a) who is a better partner to work with? 2) which OS can bring Nokia back to the same and possibly to next level? Putting Android and Windows vendors side by side. Android has at least 2 more well-known mobile phone vendors - Motorola and Sony Ericsson. What option is quite clear to me. In addition, What's the business relationship between Nokia and Microsoft? I do hope the business relationship is tighter. I can't wait to see a better and unique features that Nokia and Microsoft is bringing to the market.
The night is darker before sun rises. The cut is painful and yet, inevitable. Most big corporation go through same phase. Apple is not excluded. Some failed and disappeared. Some succeeded and thrive. May Nokia be a better company and bring better products to the market.
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elctrnx_lyf
6/15/2012 4:03 AM EDT
If its not Android what else could save Nokia. They need to do more and more products. Why are they not aggressive enough. Is it a a old lazy company or is it the leader without a right direction?
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Traces
6/15/2012 9:32 AM EDT
Anyone who's ever run a business knows that all strategies basically come down to product differentiation or cost leadership. Cost leadership in the cell phone space means gross margins that grocery stores would turn their noses up at, and since when has Nokia made a phone that anyone actually wants?
The smartest move here would be for the company to be dissolved and all recovered monies be returned to the shareholders.
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iniewski
6/15/2012 9:37 AM EDT
To @Traces, perhaps you view is valid from shareholder point of view but it will probably not work out for thousands of people working at Nokia...not to mention for Finland as a country for which Nokia is a flagship company...I belive it will re-structure itself a few times and emerge eventually in some smaller, better defined entity...Kris
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Traces
6/15/2012 10:08 AM EDT
@iniewski, I hear you: it's pretty much a tragedy for the country of Finland, and for the families of the engineers working at Nokia.
Whether the end result result is profitable Nokia-in-name-only that's 10% of the size of the current Nokia or completely disolving the company, it's going to feel about the same for the people laid off and their families.
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iniewski
6/15/2012 10:25 AM EDT
Your are right @Traces, in either case most people will loose their jobs and pride of Finland will suffer...what might be particularly tough for them is teh fact that beyond Nokia they don't have much high-tech industry unlike say Sweden or Norway that have hundreds of smaller but more diversified companies than one huge conglomerate...Kris
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Traces
6/15/2012 10:18 AM EDT
@daleste, W/R/T Motorola parallels, I think the parallel here is that "A fish rots from the head." Motorola at one time was an innovative place driven by technology, and then, somehow, it got larded up with a million layers of Good-Old-Boy management and they forgot that they were supposed to be, you know, building things and innovating.
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daleste
6/15/2012 8:07 PM EDT
Traces: I agree about Motorola. Is Nokia headed down that same path? At least Moto had some diversification that might have helped cusion the fall.
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selinz
6/15/2012 5:34 PM EDT
@traces: Dissolve company? to what end? Any shareholder can simply sell their stock now and get more than your doomsday scenario. Getting smaller is not the end of the world, but there has to be concomitant job loss to go along with it.
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Traces
6/18/2012 1:59 PM EDT
I think you'd dissolve the company when you decide there's no competitive business units left within the company. Although shareholders can redily sell shares now, if there's a stampede to sell then it wouldn't be the case...
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http://www.lulu.com/spotlight/poconoarmchairreview
6/15/2012 8:27 PM EDT
My advice to Nokia: Take all those little plastic cases you have, put wheels on them, some decals, and sell them as "Hot Supernopeaa Pyörät!" Maybe put out a cartoon series based on them. Or maybe skip the wheels and put out a cartoon series based on the Lumia 900!
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http://www.lulu.com/spotlight/poconoarmchairreview
6/15/2012 8:41 PM EDT
The estate of Eduard Khil may be in negotiations with Nokia to use his likeness in advertising for Nokia: http://www.youtube.com/watch?v=eNxygsLGHSQ
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david.may
6/15/2012 8:42 PM EDT
iv not yet seen the obvious stated here , diversify in to vertical markets, there's far more to ARM Cortex, 3G and 4G than just mobile phones.
the onset of DATA ONLY pay a you go 3G proved years ago that the real end users that ultimately drives the profit growth of all the mobile phone market would like more and faster machine to machine data.
a nice selection of retail meshed private mobile data longer range M2M personal and business network ARM/3G devices at a reasonable and fixed cost would be a nice innovative start to stream that latest CES/Computex etc HD video to your hotel room with that mini portable ARM NAS server you setup before going to the show floor as just one blue sky idea of the top of the head :)
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http://www.lulu.com/spotlight/poconoarmchairreview
6/15/2012 10:42 PM EDT
News Flash: Finns to abandon country and move to South Korea.
In related news, 10,000 laid-off Nokia employees agree that they were not impressed by layoff.
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iniewski
6/16/2012 8:48 AM EDT
I had a good chuckle Rich reading your joke...have you ever considered career in comedy? Kris
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DrQuine
6/16/2012 12:21 PM EDT
Nokia started as a paper mill (1865) then moved into power generation (1902) and ultimately became the top provider of mobile phones (1998 to 2012). Sounds like time for another re-invention. Perhaps their technical talent could solve email spam / phishing attached for once and for all. It would be a huge contribution to humanity and their bottom line.
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ippisl
6/17/2012 6:37 PM EDT
The finnish government is arranging a 300 million euro subsidy to help ex nokia employees open startups. So instead of a big company , we might just see a growing startup ecosystem.
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http://www.lulu.com/spotlight/poconoarmchairreview
6/17/2012 1:25 PM EDT
If they created a line of lower-emission smart phones (lower than they have now), or smartphones with better shielding between the user's head and the phone's antenna, they might have something. No need for them to support the industry's view any longer, that the emissions aren't dangerous. If they are headed for oblivion, anyway, then they can go rogue and abandon the industry's point of view, and embrace safety concerns as a selling tool.
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NTownsend
6/18/2012 10:07 AM EDT
Has Nokia disclosed what its future plans are? Is there any indication, besides not getting with the technological trend, what it plans to do with a smaller sized company? Downsizing means more than just refusing to get with the times, it could mean totally revamping its structure.
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iniewski
6/19/2012 8:01 AM EDT
300M Euro injection from the Finnish goverment is a good news...hopefully it will spur innovation at numerous start-ups...who knows maybe in teh long run that would pay off for the country...Kris
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