Nokia Keeps Burning — But How Long Can It Hold Out?


We noted yesterday that Nokia(s nok) was lowering its financial outlook for 2011, suggesting that lower sales and decreasing margins were having a significant effect on the company’s bottom line. Talking about the announcement, CEO Stephen Elop said that “going through this transition, it’s hard”.

He didn’t know how right he was — since then, the market has taken the news very badly. Immediately after the announcement, shares tanked by some 15-20 percent, and today they’ve continued to struggle. Reuters reports (s tri) that with a share price now around €4.64 ($6.69 USD), “The stock is at its lowest level in more than 13 years.” Elop can probably feel every single pound of pressure from Nokia’s shareholders coming to bear on him right now.

But even though he’s going to face some serious questions, Elop’s mantra remains the same: Stick with me, we’ll get there in the end. After all, radically transforming any company takes time. As Elop pointed out in the famous “burning platform” memo, fixing Nokia’s problems requires bold action. Getting the mobile giant to shed its burdens — an inability to ship products, a reliance on unresponsive in-house smartphone software — is tough, and it doesn’t happen overnight.

Lots of people invested in Nokia are clearly questioning whether this transformation was the right thing to do, realizing the short-term financial outlook is pretty bad and cutting their ties. I don’t think that’s the way to look at the situation, however. The question isn’t whether Elop was right to follow this path. You may not agree with his decision to sign up with Microsoft (s msft) and use the Windows Phone platform, or to cut back on employees, but it’s clear that something had to be done.

The question is whether, in trying to fix what is broken, he’s going to leave Nokia in an even more perilous position. Not only do shareholders have to keep their faith in the idea that things can be turned around, but they have to remain untempted by the interest of rivals who might see an opportunity to swoop in.

After all, a substantial share price drop makes Nokia significantly cheaper: with a market cap that now stands at around $26 billion, it’s more affordable than ever. A company like Apple (s aapl), which has built up a cash pile of almost $30 billion (in cash and short-term securities) as of the end of its most recent quarter, could purchase Nokia outright.

Obviously there’s not a great deal of incentive for Apple to do so, but that doesn’t mean there aren’t others who might be interested. The rumors are already swirling that Microsoft — which has already already bought Skype for $8 billion — is considering an acquisition of its newly-minted partner. The idea of somebody else jumping in to gain access to the Finnish company’s considerable assets is not inconceivable.

Faith, however much you have, can only last so long… and until Elop can bring some good news, Nokia’s going to look more and more like a target each day.


Tom Thumb

Why are nay sayers only commenting. I think MS-NOK alliance is made in heaven. Think about giving an average user on the street access to a WP7 powered Nokia phone – thats your answer to a tablet communication device at the grassroots.


Nokia, it is sad to see you falling so fast. In hindsight you should have done the following
-continue with Meego (future potential OS to take on all other OSes)
-create Phone for MS and Android
-continue with symbian as there will always be market for the low end

I believed you have the resources for these initiatives but now, you are a prime takeover target. How did it get to this? Surely you cannot attribute this to only the new CEO Stephen?


The big mistake Nokia made is in pre-announcing the deal with MS. They should have had phones within 2 months of the announcement. Also continuing with Symbian development until that time would have made customers more comfortable. But they are toast now – there is way back for them!


Yup, completely agree. I don’t think Elop thought this through.


miku should have stuck to its proprietary OS and worked harder on it. Today If I don’t want an android or iPhone there is hardly an option. Windows mobile? Blackberry? I don’t want a blackberry either. Hate the torch. What are the options? Phones like the e71 from nokia were great options and frankly they do evryhing the new android brata can so that 99% people want: email, browsing, some basic apps, office suite. Soon you coils have had more apps. Foolish nokia.


With all respect, to call an e71 a “great option” compared to Android or iPhone is precisely the kind of head-in-the-sand thinking that got Nokia into its current predicament. That phone, which I owned at the same time as an iPhone 3GS and a Blackberry Curve, was a total joke. Most incomprehensible user interface ever. Yes, it was a better application platform than the Curve, but that’s not saying much. Compared to an iPhone or an Android device, it’s basically an advanced feature phone, not a smartphone.


I have always felt elop was wrong.wrong in dismissing an in house OS, wrong in such poorly worded financial statemtents which send the shares tumbling down. But now I realize he has helped reduce nokia’s market cap, so his ex company can but it dirt cheap


Had Nokia opted for Android, they could be releasing their 4th android phone featuring Gingerbread and teasing customers with Ice Cream Sandwich for the holiday season.

Lucian Armasu

Indeed. Obviously Nokia was in a tight spot with Symbian “dying” and not having a real alternative themselves, but I still think Android would’ve been a much better choice for them, even if they would’ve been like the 6th major manufacturer to join Android. But they could’ve leveraged their hardware competence on Android, and since most Android “fanboys” care about hardware, they could’ve swayed a lot of them, even from HTC or Samsung. On the other hand, with WP7 they’re just dead in the water, regardless of how “different” it is.


In addition, they could have continued to work their own OSs’ and done a WP7 also, while staunching the flow of cash. Too bad.


I’m not sure what Nokia has to offer Microsoft besides services like MapQuest, but the idea of a solid ecosystem makes sense. Apple has proven that a hardware company can beat a pure software play.

MS can’t rely on Dell in the consumer space. HP has a mobile OS of there own. And, everybody else is playing both sides, so a hardware play may work.

I increasingly stand by a PayPal or complete Ebay swing, with Ebay turned into a generalized storefront marketplace, and offers tossed in with a wider Paypal initiative in payments…

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