What’s Up, Nokia? And Will Firing Elop Save It?

By Charles Moreira

Once the world’s king of the hill in smartphone, Finland’s Nokia is in dire straits. It’s share of the global smartphone market is now down to less than 10% from 50%  during its heyday before the Apple iPhone arrived in 2007 and Android phones turned up two years later.
“In 2010, 1.3 billion Nokia phones were used by people across 220 countries, 175 million of which were smartphones,” said Kenny Mathers, head of Developer Relations, Nokia Asia-Pacific in Kuala Lumpur. Five hundred million were feature phones and the rest, basic phones.
“Nokia also has a presence in over 100 countries and is often regarded as a local brand, with a wide portfolio and relationship with operators,” Mathers added.

In his famous “Burning Platform” internal memo to Nokia employees in February 2011, Nokia chief executive officer Stephen Elop admitted that Nokia was under fire from the iPhone and Android smartphones at one end and from low-cost China phones on the other.

In it, Elop likened Nokia employees to a worker on an burning oil rig in the frigid North Sea who had no other choice but to either burn to death or jump into the frigid waters, was rescued, then realised how the burning platform had forced him to change his behaviour.

Describing Nokia’s state at the time Elop said, “We thought MeeGo would be a platform for winning high-end smartphones. However, at this rate, by the end of 2011, we might have only one MeeGo product in the market.”

“It (Symbian) has proven to be non-competitive in leading markets like North America. Additionally, Symbian is proving to be an increasingly difficult environment in which to develop to meet the continuously expanding consumer requirements, leading to slowness in product development and also creating a disadvantage when we seek to take advantage of new hardware platforms. As a result, if we continue like before, we will get further and further behind, while our competitors advance further and further ahead.

“Our competitors aren’t taking our market share with devices; they are taking our market share with an entire ecosystem. This means we’re going to have to decide how we either build, catalyse or join an ecosystem. This is one of the decisions we need to make. In the meantime, we’ve lost market share, we’ve lost mind share and we’ve lost time,” Elop added.

A couple of days later in London, Elop announced Nokia’s strategic partnership with Microsoft and its switch to the Windows Phone 7 as its primary smartphone OS. Elop believed that Nokia could tap into Microsoft’s ecosystems of applications and developers, while Microsoft would gain from Nokia’s strength in devices, customer base and market share.

At the time, Nokia has 200 million smartphone customers worldwide. He also said this move would enable Nokia to be more widely accepted in the U.S. market where it was hitherto not popular.

At the same time, Nokia would wind down its own Symbian OS over at least a five years till 2016 and continue to make basic phones for the low-end market.

During this transition period, Symbian would co-exist with Windows Phone as its secondary OS for emerging markets. Nokia would also sideline development of the Linux-based MeeGo OS in partnership with Intel.

Still sinking
Meanwhile, Nokia decline continues, despite it coming out with its Windows Phone 7-based Lumia models.

It had lost 3 billion euros in operating expenses in the 18 months till June 2012 and analysts expect it to lose another 700 euros this third quarter. This forced it to close three of its facilities across the world and retrench 10,000 staff, including senior executives. At this rate, some analysts believe Nokia will spend its entire cash reserves by the end of 2013.

Nokia’s share price in Helsinki dropped 13% to 1.99 euros (RM8) mid-way through the joint announcement of its latest flagship the Lumia 920 by Nokia and its partner Microsoft in New York on 5 September, its biggest drop since June, while its US-listed stock closed down 16% at US$2.38 (RM7.50). Investors were obviously unimpressed.

Many analysts were also unimpressed that its lacked the “wow” factor to make big inroads against rivals Apple and Samsung. They also regarded its expected November launch date as too late, since it will face stiff competition from the Samsung which unveiled the world’s first smartphone running Windows Phone 8 the week before.

Meanwhile Apple beat the Lumia 920 with the launch of its new iPhone 5 in San Francisco on 22 September, while it also faces competition from new models from HTC and Google’s Motorola. According to Strategy Analytics, Windows phones currently have only 3.7% of the world’s smartphone market, a far cry from 8.7% in 2009.

Part of the problem could be that Windows phones so far support only just over 100,000 apps, compared to about 500,000 or more for Android or iPhones.

However, a smaller share of a larger pie could still be more. According to IDC, a total of 174 million smartphone units were shipped worldwide in 2009 which rose dramatically to 491.4 million shipped in 2011 and based upon that, 15.1 million Windows phones were shipped in 2009 and just under 18.2 million in 2011, a modest increase.

Nokia came third with 19.6 million smartphones shipped in Q4 2011, after Apple (37 million) and Samsung (36 million), a big drop from first place with 28.1 million smartphones shipped in Q4 2010, followed by Apple (16.2 million) and Samsung (9.6 million). Nokia’s market share fell by more than half to 12.4% in Q4 2011 from 27.6% in Q4 2010. Samsung is now the market leader in smartphones.

Sources at European telecommunications operators speculate that the Lumia 920 is Nokia’s last chance to make a turnaround.
What went wrong?
Some say Nokia’s leading position in smartphones was only because there was no real competition until the iPhone arrived with its intuitive, fluid, finger-operated touchcreen which perhaps is true, since the company was rather late to come up with a touchscreen phone.

Nokia launched its first Symbian smartphone, the 7650 in Q2 2002 but without a touchscreen. Only over two years later in November 2004 did Nokia launch its first touchscreen smartphone, the 7710 running Symbian OS 7.0.

Not surprisingly, the user interface of Nokia’s early Symbian smartphones was designed for up-down, right-left scrolling and rather “compartmentalised.” This was so even with its later Symbian S60 smartphones, so the iPhone’s user interface was a breath of fresh air when it arrived.

Some complain about the lack of applications which run on Nokia Symbian smartphones or that the applications are boring, though this does not seem likely since there were many third party download sites carrying Symbian-based applications and it was an open market for both commercial and non-commercial developers.

Also, for an application’s security and quality, Nokia introduced a Symbian-signed requirement from Symbian S60v3 onwards, whereby applications had to be Symbian-signed with a digital certificate or they would not install and getting them signed costs hundreds of dollars, which was too much for non-commercial developers and which tended to favour commercial developers. It was also unpopular with end-users who hitherto could install whatever they wanted on their phones and felt this was an infringement of their rights and freedoms.

However, developers must also have their applications approved by Apple before they are allowed onto its AppStore and still Apple is ahead of Nokia, so the Symbian Signed requirement does not seem to be that big an issue.

-To be continued in Part 2–