Kirsty Dorsey: Smartphone woes could Finnish off Nokia

Published on Thursday 2 June 2011 17:55

IT WAS, by any measure, a terrible week for Nokia chief executive Stephen Elop, who on Tuesday was forced to abandon the mobile phone giant's 2011 forecast amid competition from Apple's iPhone and Google's Android.

The news that the Finnish firm might only break even in the second quarter of this year slashed 25 per cent off its value in 24 hours, furthering the plunge of the one-time market supremo which has faced difficulties ever since the launch of the iPhone in 2007.

The market has been rife with rumours that Nokia is a takeover target for Microsoft - gossip Elop felt compelled to deny in front of hundreds at an industry conference near Los Angeles last week. "There's absolutely no discussion," the 47-year-old Canadian said. "The rumours are baseless."

But the response failed to dispel all doubts and bloggers have continued to dwell upon the fact that Elop, the first non-Finn to run the company in its 140-year history, joined Nokia less than nine months ago from Microsoft, where he was head of the division responsible for the Microsoft Office line of products. He subsequently drove through a tie-up with Microsoft to develop Nokia smartphones on the Windows Phone 7 platform, a deal that took the industry by surprise when it was announced in February.

Though still clinging to its position as the world's largest volume manufacturer of mobile handsets, Nokia is on the ropes. It is slashing 7,000 jobs in a bid to cut costs by 880 million and it has transferred its Symbian smartphone software to Accenture.

When he decided to go for Windows 7, Elop effectively sidelined Nokia's current range of Symbian-powered phones, despite commitments to support the platform until 2016. Meanwhile, Nokia products using the Windows operating system will not ship until the fourth quarter of this year at the earliest.

Prior to the iPhone, Nokia was the king of mobile handsets. Now its share of the smartphone market has plunged from 49 per cent to 25 per cent. It has also lost its ranking as the largest handset maker in terms of revenue to Apple.

While some shareholders bemoan the fact that Nokia refused to stay the course with Symbian, most analysts say the Finnish firm needed a fresh sheet upon which to map out how to meet consumer demand for devices that surf the web, play films and run games. Carolina Milanesi, mobile phone analyst at Gartner, said Symbian could have been bettered but a fresh start was needed: "You are talking about something that can be improved, but it would have been difficult on such complex devices," she said.

As a company rooted in hardware and large-volume production, analysts say Nokia was slow to respond to the first iPhone and the launch of Android. Its hopes had been pinned on a platform called "MeeGo" - under development in conjunction with Intel - but after an internal review, Elop concluded that MeeGo wasn't ready to pick up the slack.

Some critics claim Nokia would have been better advised to join the Android bandwagon than pursue a partnership with Microsoft. Sales of smartphones using the Google operating system nearly quadrupled during the year to the end of March, putting them at more than double the sales of the more expensive iPhone. With such momentum behind Android, experts say Nokia could have regained its footing in the smartphone sector

Elop, however, wants Nokia to recapture the throne as the most innovative company in its sector. This would not have been possible with Android, as Google was not prepared to hand over any special concessions to Nokia. By contrast, the deal with Microsoft gives Nokia the right to bolt on almost any innovation that its engineers can come up with.

"I was at the Mobile Congress where they announced the partnership in February, and I actually thought it was good news," says Brian McNicoll, co-founder and managing director of Dynamo Games in Dundee. "If Nokia truly want to try and be a leader again, that is what they have to do."

Nokia has not yet suffered significant defections among its top technologists. At least part of this is down to national pride, as Nokia has for years been touted as Finland's technology champion. And despite the collapse in the firm's share price last week, some believe Elop can deliver.

Milanesi says much will depend on how well Nokia defends its territory from poachers during the transition period that Elop says will extend to the end of 2012. The battle to maintain market share is paramount, as it is difficult to win back customers once they've found an alternative they're happy with," she says.

"The second quarter should be the worst quarter for them," Milanesi says. "If that is not the case, then the whole recovery story is going to become much more difficult."