Nokia: The end of the line? Part 2

Francie Barrett

http://www.unwiredview.com/2013/06/20/nokia-in-acquisition-talks-with-microsoft-so-thats-why-meltemi-had-to-die-and-elop-kept-his-job-after-2012/

Nokia in acquisition talks with Microsoft? So that’s why Meltemi had to die and Elop kept his job in 2012

It seems that all that Nokia’s talk about things finally turning around, Windows Phone being the right choice and how we will finally the impressive results of that choice later this year, was just that.

An empty talk.

Putting on the brave face, trying to positively spin the collapse in its mobile phone business in Q1, even some positive signs of Lumia growth… It was just a spin to get a better price.

All this time Nokia management was actively shopping themselves to Microsoft.

According to WSJ, Microsoft was recently in advanced discussions about the acquisition of Nokia’s device business, but the talks have recently collapsed “… in part because of the price and Nokia’s own strategic predicament”.

Which probably means that after the disastrous Nokia Q1, Microsoft got scared with the speed of Nokia’s mobile phone business decline and way too slow ramp-up of Lumia sales, and significantly reduced the offering price they’ve been discussing before. Stephen Elop couldn’t justify the new low offer to his board and Nokia walked away from the talks.

That talks were very advanced, nearly at an oral agreement stage, is a very interesting bit of info. It means that they have been going on for many months, possibly for more than a year. And it explains so much about the disastrous strategic choices Nokia made for its mobile phones division over the past year.

Killing of Meltemi, abandonment of Qt, using the Smarterphone to transform S40 into some pretend smartphone OS, dubiously premature WP8 announcements, even Elop’s extended stint as CEO after the disastrous 2011-2012 – it all makes perfect sense now.

I still think that February 11th deal to go exclusive Windows Phone was made in a good faith by both parties. Of course, there was too much hubris at both Nokia and Microsoft, but they really thought they can make the deal work. BAck in early 2011, Nokia was still way too impressed with its own distribution power, and was sure that all it takes is to “flip a switch” to start selling millions of Lumias a month. And Microsoft was still sure that they’ve had a strongly competitive mobile OS on their hands, and all they need is a partner like Nokia to get strongly behind it and really push.

But by mid 2012 it became clear that both of them were wrong. The strength of Nokia sales organization turned out to be an illusion, as did the competitiveness of Windows Phone. Realizing his mistake, and that he will never be able to bring Nokia back to even a shade of former glory, Elop decided to sell the company to Microsoft. Then convinced Nokia board that he can get a good price for it, and got the approval to start negotiations.

But in addition to Windows Phone, Nokia also had another modern Linux based smartphone OS – Meltemi – in the works and almost ready to ship on low end Asha like phones. And that was a problem, because even with the slimmest chance of success, Meltemi was an obstacle for Microsoft. Redmond simply didn’t need another competing smartphone OS, Windows Phone was performing badly enough even without it. And if Nokia had been shipping cheap Meltemi smartphones by the time of the acquisition, Microsoft wouldn’t have been able to kill it without a huge PR disaster. It would have had to spin it off and sell it, ending up with a competing OS in the hands of competitor.

So Meltemi had to die. And it did. Replaced by Asha Touch and its SmarterPhone OS based upgrade, first seen on Asha 501. A pretend smartphone OS with no future.

During 2012 and early 2013, negotiations between Microsoft and Nokia were proceeding at their own pace, keeping Stephen Elop in his job. And they almost had a deal. But then Q1 happened, Nokia mobile phone business crashed, and, despite the official spin, Lumia growth did not impress Steve Ballmer. So Microsoft came with a new, low ball offer for Nokia, and Elop failed to sell it to the board. The acquisition talks collapsed.

So what happens now? Here are some quick thoughts:

- Stephen Elop is as good as gone as Nokia CEO. Unless Lumia sales magically start getting traction, and start growing much faster than they had grown up to now, or Microsoft gets back with a better offer, he will be gone before the end of this year.
- Nokia Windows Phone exclusivity will end with Elop’s tenure, and we may see the first Nokia Android phone sometime next year. But don’t expect the true PureView Android phone anytime soon. It took Nokia 18 months to rewrite PV algorithms from Symbian to Windows Phone. So unless Nokia has a secret imaging team working on Android version for months now, it will take a lot of time 41 megapixel Nokia Android to show up.
- Nokia will become a company for sale, for real this time. While they were pretending to chart an independent course, or when they were talking to Microsoft expecting a good price, there was no reason for Nokia to entertain competing offers. Or anyone to seriously consider buying it. Nobody was more interested in Nokia than Microsoft and nobody could offer a better deal. With Microsoft out of the picture – things are very different now.

In the end it all will depend on how Nokia will do in the next 6 months. Will they be able to stabilize their mobile phone business, or will it continue to collapse? How fast will Lumia sales grow and what are the margins on Lumia phones? How much cash Nokia has left and how fast is it burning it? Is there enough time to ship a competitive Nokia Android phone?

We’ll get the first glimpse of the new realities in July, when Nokia reports its Q2 results. The numbers will be very interesting, but even more interesting will be to hear the tone and mood of company execs, and future guidance.

That should tell us a lot where Nokia goes from here.

All the moves over the past couple of years make sense now - the entire time the company was being prepped for sale to Microsoft.

• Ditching all their own smart phone OS's in order that they don't compete with Windows Phone.
• Developing the crippled Asha OS with the hope it pushes people to WP.
• Disentangling their Nokia/Siemens Networks division - MS hardly wanted that.
• Refusal to adopt Android despite it pretty much becoming the market.

I have to say it doesn't make any sense to me for Microsoft to acquire Nokia. Nokia are already exclusively using Windows Phone and are pretty much pouring everything they have into making the OS a success despite the crippling losses. So then why would Microsoft pay for something it's getting regardless? It looks like a win-win situation for Microsoft. If WP can turn things around and Nokia survives, then MS has a viable money-making mobile platform. If WP fails and Nokia go bankrupt, then Microsoft will be able to buy the smartphone business for a fraction of the asking price today.

Things will change if Elop gets the push, that would be a definite signal from the Board that they have lost patience with the WP-only strategy. If he does go, then expect to see an Android device very soon.

The Corinthian

Mod Note: I've spun the above post off from another thread, to start its own, as it was resuscitating a thread that was almost two years old.

The Corinthian

When Elop wrote his no infamous 'burning memo', he identified two broad problem areas; firstly that their in-house OS's had become irrevocable dead ends. And secondly, that the corporate culture in Nokia was too slow, despite some excellent innovation, getting to market took considerably longer than anyone else.

Yet, two years later, how has he handled the these problems? The dropping of Symbian was expected, the dropping of Meego was not unexpected. The exclusive adoption of Windows Phone?

While it was expected that he's adopt WP7 at the time, that he didn't also hedge his bets with Android did raise eyebrows. Effectively he was putting all his eggs in one unproven basket, that was trying to carve out the mythical 'third ecosystem' title, with no plan B should it prove disappointing.

Rumours of it coming down to Microsoft offering a big chunk of cash as part of the deal, may have explained it, but it seemed like a more risky strategy with little extra benefit (it's not as if MS didn't sell their platform to other manufacturers).

From this, one observation I'd have to make about this latest revaluation is that it's exposed Elop as a bit of a one-trick-pony. First, his solution to the catching up in the smartphone OS race was to adopt Microsoft's offering and drop everything else. Now, with the expected turnaround not yet having materialized, plan B is apparently also Microsoft.

Is this because Elop doesn't have much imagination? Maybe his relationship with his past employer, was a bit too friendly, leading to a sub concious bias? Or maybe, as many increasingly think, he's just not up to the job.

And what probably most suggest the last of these is how he's handled the second problem cited in his burning memo; the slow, beurocratic culture of Nokia.

Sure, he's fired lots of people, but that doesn't mean it's going to make anything more efficient. A year after his 'burning memo' Nokia was releasing the 808 PureView, running Symbian. Huh?

However, Windows Phone has managed to carve a niche for itself in the market, but nowhere near the 20% market share that Microsoft and Nokia were hinting at back in 2011. And even what it has carved out has been overwhelmingly at RIM/Blackberry's expense and include sales by other phone manufacturers. Meanwhile, it still appears to take Nokia six months to 'transport an empty box from one office to the office next door'.

So, yes; with his uninspired (and possibly desperate) plan B having failed, it's long overdue that Elop be dropped. The impression I get, looking at his past career and his time in Nokia, is that he could well qualify as a case study for the Peter Principle.

wheresmybeaver

Interesting, so is the market expecting Nokia to get sold on to another company and start aggressively targeting android? Seeing as how badly HTC are currently doing in the face of samsungs massive marketing spend, does this not seem like jumping from one burning ship to another?
I'm a bit of a windows phone fanboy but I do think their current range are great phones, and they finally seem to be shifting a fair few of them? And are they not making great inroads into developing markets where the future revenues lie? Maybe I'm just reading too many windows phone blogs

beauf

They claimed they were too far along with the 808 to switch OS.

The Corinthian

beauf wrote: »

They claimed they were too far along with the 808 to switch OS.

If so, and even without changing the OS it still took them a further year to release it, after the change in direction, one really does have to ask about Nokia's corporate structure.

beauf

I think the suggestion was the hardware only worked with Symbian. The software was always the weak point on Nokia phones. it's much improved since they switched to Windows. Just because management decide something doesn't mean it's possible for the development teams to deliver it.

dulpit

Nokia Lumia devices running latest version of Android would be the dream. They make undeniably great hardware, just have been lumped with poor software and an OS that is not well adopted and doesn't look like it'll go that way.

HTC make good hardware and the One is an amazing phone, but they lack the brand recognition (still) from a lot of people. Look at Samsung, great phones but flimsy hardware (and I have a Note 2) but they sell a stupid amount of phones.

I would guess that if Nokia finally abandoned the Windows Phone approach there might be some saving that company. Otherwise, doesn't look good...

The Corinthian

beauf wrote: »

I think the suggestion was the hardware only worked with Symbian. The software was always the weak point on Nokia phones. it's much improved since they switched to Windows. Just because management decide something doesn't mean it's possible for the development teams to deliver it.

Think about it though; if they were "too far along with the 808 to switch OS", as you say and it still took them a further year to actually release it, what does that say about 'too far along' and how long it takes them to release anything? Or if the message to switch OS didn't reach the unit producing the 808 until months after the 'burning platform memo' suggest about how Nokia operates overall?

Nokia's problem was never simply about it's ageing platform; indeed it's ageing platform was a result of a Byzantine corporate structure that meant that it simply could not innovate fast enough, which is why Symbian was 'opened up' in a desperate attempt to quicken it.

Remember; Symbian was essentially the smartphone OS up until 2007. Its only competition was RIM's offering, which catered to a very specific corporate market. Then the iPhone appeared and Nokia found itself left behind and unable to catch up. And it wasn't impossible to catch up - Google managed it with Android - it was just it was impossible for Nokia to catch up.

So even if Nokia now decides to hedge its bets and adopts Android as a secondary OS to invest it, it won't save it, it still appears to be mired in this Byzantine culture - this, more than what OS it pushes, is what is slowly suffocating Nokia.

All that adopting Android will do is give it access to an already established market that is happy with Android and can be tempted to switch manufacturer.

However, the real problem would still remain, just as Elop has left it.

Francie Barrett

The Corinthian wrote: »

When Elop wrote his no infamous 'burning memo', he identified two broad problem areas; firstly that their in-house OS's had become irrevocable dead ends. And secondly, that the corporate culture in Nokia was too slow, despite some excellent innovation, getting to market took considerably longer than anyone else.

I disagree with the first point, but you're definitely spot on with the second.

For all the criticism that Symbian got, quarter-on-quarter sales were rising and Nokia was always profitable. Even after Elop took over at Nokia, Symbian was still a cash cow and for the 2 quarters he had before Burning Platforms, smartphones sales rose. You can see this from the below graph.



I am certainly not saying that Symbian was perfect, or even that it was the future. What I will say though is that Symbian had a strong brand, it was liked by customers and it sold well. Even today, it still trumps rivals technically in certain aspects despite having been effectively dropped over 2 years ago.

One of the big problems with Elop is that he just didn't understand Symbian, and he didn't understand the markets that Nokia competed in. For example, during an all-hands, he apparently asked how many of the employees had Apple or Android phones. When very few people put their hands up, he castigated them. I don't think it ever occurred him that there millions of people were buying Symbian devices because they actually liked them.

Considering the fact that Elop had this kind of prejudice against Symbian, he had awfully optimistic sales projections for it after Burning Platforms. In an interview shortly after his speech, Jo Harlow (senior Nokia leadership) said that Nokia still expected to sell 150 million Symbian phones. She also dismissed the suggestion that by publicly trashing Symbian, that sales would suffer, saying "millions of consumers are oblivious to the announcements that we have made". Nokia were wrong though. Consumers and carriers (especially carriers) did listen and they responded by dropping Symbian completely. Sales ended up being half of Nokia's projections, again, you can see that from the graph above.

It wasn't until 9 months after Burning Platforms that Nokia were able to ship a Windows Phone device. Even when the Lumia 800 got released, shortly afterwards it was announced that it was non-upgradable to WP8. That combined with OS limitations meant that the Lumia 800 (and later Lumia 900) were complete disasters for Nokia. Less than 1 year after the release, Nokia were left with a massive stock pile of unsold Lumia phones that it had to reduce to £120 to clear. It was blatantly clear that Nokia killed Symbian far too quickly.

While the WP8 devices have faired a little better, Nokia's smartphone shipments are still in decline. IDC just announced the Q1 numbers for Europe (a core market) and it has shown that Nokia smartphone shipments fell 30% and that Nokia has went from 3rd place in the market to 5th place. If those figures are bad, then the numbers for North America have been catastrophic. Apparently Nokia only shipped 700k Lumia devices there during Q1.

So far, at the mid to upper end of the market, Nokia have failed with the Lumia range. What has been interesting to see in the past few months is Nokia's focus on devices in the lower price range. In particular, the Lumia 520, which by all accounts looks set to be the top selling Lumia device produced yet. While the Lumia 520 will increase market share, the margins on this device are likely to be razor thin. I wonder if the irony of Nokia competing on price is lost on Elop though. His predecessor (Olli Pekka Kallusvo) was fired because he tried to get Symbian to compete by lowering prices and reducing margins.

beauf

The Corinthian wrote: »

Think about it though; if they were "too far along with the 808 to switch OS", as you say and it still took them a further year to actually release it, what does that say about 'too far along' and how long it takes them to release anything? Or if the message to switch OS didn't reach the unit producing the 808 until months after the 'burning platform memo' suggest about how Nokia operates overall?

Nokia's problem was never simply about it's ageing platform; indeed it's ageing platform was a result of a Byzantine corporate structure that meant that it simply could not innovate fast enough, which is why Symbian was 'opened up' in a desperate attempt to quicken it.

Remember; Symbian was essentially the smartphone OS up until 2007. Its only competition was RIM's offering, which catered to a very specific corporate market. Then the iPhone appeared and Nokia found itself left behind and unable to catch up. And it wasn't impossible to catch up - Google managed it with Android - it was just it was impossible for Nokia to catch up.

So even if Nokia now decides to hedge its bets and adopts Android as a secondary OS to invest it, it won't save it, it still appears to be mired in this Byzantine culture - this, more than what OS it pushes, is what is slowly suffocating Nokia.

All that adopting Android will do is give it access to an already established market that is happy with Android and can be tempted to switch manufacturer.

However, the real problem would still remain, just as Elop has left it.

IMO Symbian was never a great OS. It only did well because there was nothing else and they had a lot of people who stuck with Nokia from older devices. That inertia carried them. But the OVI apps store was brutal and the S60 was a real patch work of things thrown together, as you could where bits of the OS didn't communicate with other bits. It was difficult to develop for and it was fragmented with different version and service packs only working for some apps/software and not with others. It was falling over itself. When they had their diasaster with the N97, they effectively forced the high end user to shift to another platform. All the brand loyalty thrown away. They needed to start over with a clean sheet.

Obviously the debacle with WP7 not being upgradable, completely undermined the switch to Windows Phone. Also a lot of these devices, were expensive. Even for low end devices. The high end devices were not in the shops so Nokia effectively disappeared from the shops.

The Lumia 520 is a major device for them. It will be interesting to see will it build a user base that it carry through to the higher end devices. Their product line is a little confused at the moment with model overlapping. Android is great on top end hardware, but on the midrange and low end, its not as slick as a Windows Phone.

Samsung have Windows Mobile and Android phones. I don't see why Nokia couldn't do the same. But I think there's a space for Windows Mobile in the market. I wouldn't write it off that quickly.

The Corinthian

Francie Barrett wrote: »

I disagree with the first point, but you're definitely spot on with the second.

We could argue endlessly on whether Symbian, or Maemo/MeeGo, were smartphone OS's with or without a future, but ultimately they didn't because of my second point, not because they were bad in themselves.

Had Nokia been as dynamic in it's R&D as Google, they would have been able to turn Symbian around and become a real third contender in the smartphone. As I said, Google managed to effectively go from buying Android Inc in 2005 to hitting the market in 2007 - then expanding rapidly.

Meanwhile Nokia had been employing Symbian for years, and had become it's largest code contributor, long before acquiring it in 2008, but by 2010 little progress had been made (the N97 was still light years behind the competition) and a year later gave up on it altogether. Less said about the ecosystem (OVI) the better.

Symbian, or Maemo/MeeGo, could have been players, but they could never become so because they were trapped in Nokia's corporate culture - they became dead ends principally because of that and not because of their own technical shortcomings per say.

One of the big problems with Elop is that he just didn't understand Symbian, and he didn't understand the markets that Nokia competed in.

As time has gone on, I believe that Elop just didn't understand much at all. His career background, if you look at it, is not exactly all that inovative; he's an admin guy, not really a 'big picture' guy.

So it was hardly surprising he fixed on his previous employer for a solution (possibly the only company he's worked for that had anything to do with mobiles prior to Nokia) as he knew they effectively had to concentrate on the hardware, outsource the OS and Microsoft conveniently promised to supply one (not the first time MS has been in such a deal).

However he put all his eggs in one basket, and he picked the basket that was not yet in the game, had no ecosystem and was an unproven entity. And that ultimately was a mistake, IMO.

beauf wrote: »

Samsung have Windows Mobile and Android phones. I don't see why Nokia couldn't do the same.

The fog of war is such that we don't know if Nokia would have been even able to take on two OS's simultaneously and bring phones to market quickly. Or if it was allowed - a Microsoft lock-in may well have been a condition of the deal, which allegedly included a nice chunk of money for Nokia.

Francie Barrett

beauf wrote: »

IMO Symbian was never a great OS. It only did well because there was nothing else and they had a lot of people who stuck with Nokia from older devices. That inertia carried them. But the OVI apps store was brutal and the S60 was a real patch work of things thrown together, as you could where bits of the OS didn't communicate with other bits. It was difficult to develop for and it was fragmented with different version and service packs only working for some apps/software and not with others. It was falling over itself. When they had their diasaster with the N97, they effectively forced the high end user to shift to another platform. All the brand loyalty thrown away. They needed to start over with a clean sheet.

Obviously the debacle with WP7 not being upgradable, completely undermined the switch to Windows Phone. Also a lot of these devices, were expensive. Even for low end devices. The high end devices were not in the shops so Nokia effectively disappeared from the shops.

The Lumia 520 is a major device for them. It will be interesting to see will it build a user base that it carry through to the higher end devices. Their product line is a little confused at the moment with model overlapping. Android is great on top end hardware, but on the midrange and low end, its not as slick as a Windows Phone.

Samsung have Windows Mobile and Android phones. I don't see why Nokia couldn't do the same. But I think there's a space for Windows Mobile in the market. I wouldn't write it off that quickly.

I agree and I disagree.

From the sounds of it, the last Symbian phone you had was from the 2008/2009 era. Those were definitely the worst Symbian years. The flagship N97 was a buggy mess and it was waaay behind the Iphone (it didn't even support multi-touch!). However, by the time the N8 was released in 2010, Nokia were back in the game. The N8 was an aestheticly brilliant phone and thanks to Symbian Anna which came shortly afterwards, it delivered a touch experience was comparable to anything else of the market. As for the app situation, the Ovi store was behind Apple, but it had most of the popular apps. It was definitely not much different from the situation that WP is in now. As for development, the pain of developing for Symbian was fixed by Qt which was released in 2009. It wasn't really until 2010/2011 that developers really had a handle on the framework and started pumping out good applications. Nokia dropping Qt was another tragedy. It was terrific way to develop and it could have been the bridge between every Nokia device. All in all, I never said Symbian was the future, what I am saying is that it still had legs in 2011. Considering that it was still a cash cow in 2011, Elop was incredibly dumb to kill it off considering he didn't even have an alternative to sell.

Francie Barrett

The Corinthian wrote: »

We could argue endlessly on whether Symbian, or Maemo/MeeGo, were smartphone OS's with or without a future, but ultimately they didn't because of my second point, not because they were bad in themselves.

Had Nokia been as dynamic in it's R&D as Google, they would have been able to turn Symbian around and become a real third contender in the smartphone. As I said, Google managed to effectively go from buying Android Inc in 2005 to hitting the market in 2007 - then expanding rapidly.

Meanwhile Nokia had been employing Symbian for years, and had become it's largest code contributor, long before acquiring it in 2008, but by 2010 little progress had been made (the N97 was still light years behind the competition) and a year later gave up on it altogether. Less said about the ecosystem (OVI) the better.

Symbian, or Maemo/MeeGo, could have been players, but they could never become so because they were trapped in Nokia's corporate culture - they became dead ends principally because of that and not because of their own technical shortcomings per say.

Symbian was a behemoth in Nokia, no question. Maemo/Meego on the other hand wasn't. The whole story on it is available here in broken English. Maemo/Meego was skunkworks projects that had nowhere near the resources that Symbian had. It showed that Nokia could make a great, modern and innovative phone that was relevant to today's market. Elop never even gave it a chance, despite the fact it was already a finished product.

The Corinthian wrote: »

As time has gone on, I believe that Elop just didn't understand much at all. His career background, if you look at it, is not exactly all that inovative; he's an admin guy, not really a 'big picture' guy.

So it was hardly surprising he fixed on his previous employer for a solution (possibly the only company he's worked for that had anything to do with mobiles prior to Nokia) as he knew they effectively had to concentrate on the hardware, outsource the OS and Microsoft conveniently promised to supply one (not the first time MS has been in such a deal).

However he put all his eggs in one basket, and he picked the basket that was not yet in the game, had no ecosystem and was an unproven entity. And that ultimately was a mistake, IMO.

In fairness to Elop, he did come in and was a catalyst for change.

The Corinthian wrote: »

The fog of war is such that we don't know if Nokia would have been even able to take on two OS's simultaneously and bring phones to market quickly. Or if it was allowed - a Microsoft lock-in may well have been a condition of the deal, which allegedly included a nice chunk of money for Nokia.

For a brief period, Nokia simultaneously were selling Meego and Lumia devices. Tomi Ahonen reckons that the N9 outsold the Lumia range by 3 to 1 (that's the optimistic number) whereas AllAboutWindowsPhone said the N9 sold about the same number as the Lumia range (the worst case number). Ignoring the optimistic numbers, it's a damning indictment to the WP strategy. For one, the Lumia was given a massive advertising budget, was pushed by Nokia to carriers, was released in all markets, etc. To me at least, it seems that if Nokia had give Meego a fair chance, it would have handily trounced the Lumia range and it could have went onto become the third eco-system itself.