Spillikins №176. Nokia Tragedy: Elop’s Treason

Seems like I made it a habit to write a separate Spillikins issue to cover news from Nokia since there is so much going on around this company. Below you will find links to the previous Nokia related articles. As for today, we are going to talk about Stephen Elop’s lies and his treason of Nokia. I will not be guessing who he is working for but it is pretty obvious who benefits from it. This person managed to single-handedly destroy a giant company from the inside. I no longer have the heart to watch how Nokia is going down thanks to Elop and those who collaborated with him.

The two other Nokia dedicated articles were posted once every ten weeks and it seems like the destruction of the company has its own pace.

	Spillikins №155. Nokia 2011 Results: A Billion Euro Down
	Spillikins №166. Nokia Loses The Crown to Samsung, The New Number One

Contents:

1. Once More Into the Abyss: Stephen Elop and Nokia
2. Why Meltemi Was Murdered
3. The End of S40
4. The Sale of Vertu
5. Elop's Strategy

Once More Into the Abyss: Stephen Elop and Nokia

The CEO of Nokia is an outstanding man: he managed to sink a major company, a world leader on its market, in a record short time. Truly, an exploit worth of Herostratus. Some become great through creating something and some are just great at destroying. Upon his arrival in Nokia Stephen Elop surrounded himself with top-managers who assisted him in sinking the company and it is time for Elop to get rid of some of them. He used an old CEO trick: first he made a promise, then he repeated it sometime later and when the time came to answer for his words he shrugged his shoulders and said that the situation had changed. Since September 2010 Nokia has fired 35 000 employees. That is only those who worked inside Nokia proper and we can only guess how many lost their jobs inside Nokia partners. Unfortunately, the official Nokia figures do not tell all the truth. Several thousands of Symbian developers have been officially employed by Accenture with the single purpose to relive Nokia of its social obligations towards the thousands of people who built Nokia’s success over decades.

The latest news that sent Nokia stock down again came from Elop who announced that by the end of 2013 Nokia is going to lay off 10 000 more employees around the world but mostly in Finland, Nokia’s homeland causing the stock to plummet by another 10% last Thursday. The lay-off is estimated to cost Nokia around one billion euro in compensation payments. Let’s have a look at how many people Nokia has already laid off:

I feel bad for all those falling the victims of Nokia’s CEO but let’s now see the history of lay-offs. Any company having hard times it is of utmost importance to develop new technologies to regain what it has lost. It is quite obvious that if no one is buying your products you should make new ones. Nokia before Elop was developing several product lines. Firstly, they had Maemo later renamed into MeeGo when Intel joined in the development. MeeGo was supposed to compete with the iPhone but it became the first victim of Elop who said that disregarding how well MeeGo sells it will be discontinued. Moreover, Nokia did everything to fail the first and only MeeGo product so that it could not turn into a rival of Windows Phone 7.

The Elop's Victim: Nokia N9 – the First and the Last MeeGo

The Symbian became Elop’s second victim although some believe that it was actually the first but it was harder for Elop to announce it officially as Symbian accounted for 100% of Nokia’s smartphone sales. So after a while Nokia announced that Symbian will be steadily replace by Windows Phone 7.

It didn’t go very well and as soon as Elop announced these plans in February 2011 the sales of Symbian began to diminish rapidly swiftly turning into a catastrophe no one at Nokia expected. In March already Nokia attempted to remedy the situation but failed.

In 2012 Symbian sales were melting like snow in July despite Nokia’s dumping prices/ Nokia’s products could not compete anyway and the situation was getting worse by the week. According to IDC in Q1 2012 Nokia shipped 2.2 million handsets which is just pathetic. Besides, Nokia is also dumping its WP7 smartphones selling them for less than the production costs.

Spillikins №166. Nokia Loses The Crown to Samsung, The New Number One

So what is the fat Nokia trimmed in 2011 and is going to trim in 2012? The top managers of the company have answered that: it seems like they value the marketing and the PR departments the most and the lay-off will hardly touch them. I am no expert in big business management but it seems like a mad decision for me and like Nokia is doing everything possible to rid itself of any chance of survival.

I am fascinated by how Stephen Elop talks on the behalf of Microsoft, he mentions the goals of MS as if he were on the board and seems to forget about the goals of Nokia. The former Elop’s employer is concerned about Android rivalry as they have managed to destroy two of their other rivals Symbian and MeeGo. Stephen Elop said it out loud during one of his Q&A sessions over the phone that Android is a threat to WP7. I will talk about it a bit later but now let's think whether Android is a threat to Nokia? Should Nokia has adapted Android instead of WP7 it would have had bigger sales than Samsung today and preserved its leadership on the market. So all the attempts of the current Nokia management to make Android look like an enemy of Nokia means only that they are not really working for Nokia.

In his speeches Elop often proves me right like when he mentioned that Microsoft has assisted Nokia greatly in development of new products. Frankly I was offended by these words because just a couple of years ago Nokia was the best on the market and did not need any 'assistance'. But after all the lay-offs Nokia is not feeling too well and does indeed need help. It is obvious from the quality of their latest products: the ratio of faulty products has grown considerably and Nokia's Windows Phone 7 smartphones undergo very little testing before released causing a trail of firmware updates for users. This is a definite sign of a company decline.

Nokia has very little if any space to maneuver and Stephen Elop's mission has been a success: he removed anyone from Nokia who could be any help in saving Nokia. Now he will have fire those who would be able to shed some light to what has been going on inside Nokia in 2011-2012.

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Why Meltemi Was Murdered

The CEO of Nokia is a master of lies: a year ago he was giving a speech at Nokia House and said how important the Meltemi project is. It was from Stephen Elop that the world learned about Meltemi, a Linux based OS. Meltemi was meant for budget but functional phones in the $100-300 price range. The Nokia strategy adopted in 2009 placed Meltemi as a one of the cornerstones of the company's future with the main goal to replace S40 which was getting too old and depleting its update potential.

It was the right idea and the whole 2009 strategy made perfect sense: there was supposed to be one or two Maemo (MeeGo) smartphones at the top of the product range leading to five in 2012. Just imagine that there could be Samsung Galaxy S3 and Apple iPhone 4S/5 rivals with the Nokia brand on them by now. The purchase of Qt and creation of a unified development tool was the right move Nokia needed for porting apps at minimal costs. Nokia would have a number of platforms with little costs to maintain them – an infinitely more profitable solution than relying on someone else's technologies.

Nokia had the right ideas but they had many problems in execution and they were often behind the schedule. But most importantly, back then they were moving in the right direction even though there were some losses in sales. I think that without that dramatic change Stephen Elop brought upon Nokia the company would be doing fine right now and would have successfully launched MeeGo and Meltemi a bit later. Those were not meant to be a breakthrough but merely to be evolutionary and logical next step. When I started criticizing MeeGo I had already known that Meltemi would be discontinued as Stephen Elop could not let Nokia be any threat to Windows Phone 7. So Elop has been steadfastly destroying everything what could have saved Nokia which was, after all, his only purpose as the CEO of Nokia.

Last Thursday Stephen Elop was asked during a conference whether the Meltemi project had been shut down for good to which Elop replied that he did not remember ever mentioning this project in public but confirmed that the development had been discontinued. Seem like Mr. Elop had forgotten about his speech a year ago (there were no leaks about Meltemi before Elop but under him leaks have become quite regular). I think it is extremely hypocritical of him to think that we might have forgotten about his previous statements.

You want to know when Meltemi was scheduled to be released? The answer is July 2012. Nokia had everything ready for this release and not just the platform – Nokia had plans for a few very affordable and competable phones on it. Even after he had ruined Nokia's ecosystem, refused Qt, fired the developers inside Nokia and ditched the outsourced works, claimed that Lumia was the only way he was still afraid of Meltemi. And I think he had reasons for that.

Right now Windows Phone only has the Tango version for budget smartphones but they cost the same as the previous gen WP7 smartphones e.g. Lumia 610 costs about the same as Lumia 710 and the latter is the clear choice. Tango was a planned move for Microsoft but really budget smartphones will only be released in 2013 together with Windows Phone 8 which might have a say on the market while Windows Phone 7 is just a half-measure. Until then Microsoft has nothing to put against cheap Androids. What does Nokia has to do about Microsoft's problems you might ask?

Every time Nokia releases a product that might be successful Nokia makes everything possible for it to fail. Like they did to Nokia N9: at first glance it could seem like Nokia was doing a lot to promote it but all the ads went to waste because the release was delayed. It is like lighting cigars with hundred dollar bills.

Meltemi release would mean that Microsoft would have no sales at all in 2013 in the budget smartphone range. Look for yourself at a probable Meltemi phone: 800x480 3.5” -4” screen, 5MPix camera, a good chassis, high performance and for just 120-130 euro. It would be a bombshell on the market that could mean that Nokia is coming back. I am pretty sure Meltemi would have been successful and would would be happening this summer.

According to Nokia's PR coming back with anything but a Lumia Windows Phone is unthinkable. But in terms of business it look the other way around. But the CEO said it: Nokia is either making it with WP7 or is not making it at all.

For the last year I have been to Germany many times and have visited the town of Ulm twice. That is where the Meltemi project is based. The people who work there say they feel betrayed by Stephen Elop. The R7D department in Ulm is scheduled for closure now. The rumors about this first came around in April when Nokia decided not to send Meltemi prototypes to partners and discontinued their tests. Back then the official reason was to preserve the secrecy of the project. The management was deaf to their employees reminding them that without the prototypes the partners would not be able to assess the future sales. By May it became clear that Meltemi would not leave Ulm under any circumstances as it would be too successful.

Some idea used in Meltemi have been adopted in S40 in the Asha series which is nothing as compared to what Meltemi itself is capable of.

Now about another dirty aspect of this story. Stephen Elop discontinued all the projects Nokia has invested billions into and now the company is selling off bits of itself just to survive. It went so far that today Nokia is not printing its brand on memory cards and hologram stickers on batteries. Firstly, Elop refused Nokia any profit it could make and then adopts a number of austerity measures.

After it became public that Nokia is discontinuing MeeGo a number of companies including Samsung offered to buy this division and all the respectful intellectual property. Some bids were billions of dollars but guess what Nokia did? Instead of selling it they ruined it completely. It reminds me of the scorched earth tactics when the retreating party leaves nothing to the attacking opponent. A hostile acquisition looked impossible in 2011 but in 2012 it is very plausible. Then why didn't Nokia sell a dying asset and preferred to destroy it completely?

I think the answer is treason. It is not business, it is betrayal of the company's interests. In terms of the law Nokia can do whatever it wants with its assets including burying them. It is all up to the management and they chose ruin Nokia.

I think that Nokia will put a lot of efforts in H2 2012 removing all traces of Meltemi from history so that no rival could ever use it. Meanwhile, many of those Nokia is laying off today will go to work for Samsung and other companies to create something new instead.

I might be wrong with my analysis but what I think is I am witnessing right now inside Nokia is the betrayal of the staff by Nokia management. An economically successful treason and a massive backstabbing.

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The End of S40

The current Nokia's CEO is very consistent: first he got rid of Symbian, then MeeGo, then Meltemi. All those platforms were meant for production of smartphones. It would seem that S40 should not have bothered him as it was no competition to Windows Phone 7 and was making profit he could use to boost WP7 sales. But as you could have understood by now regular business models do not apply to Nokia's management. Stephen Elop's main objective is to make Windows Phone popular whatever it takes even if it means sacrificing all other Nokia markets.

Elop has proven that he is ready to give up the profit for WP7 sales and sell one WP7 smartphone instead of selling ten on Symbian and MeeGo. But as of now he has already depleted the potential of Lumia sales through those sources so the next thing he is going to do is to sacrifice S40 for the sake of WP7 sales. I understand it sounds completely mad but that is what Nokia is doing right now.

It won't happen right away and S40 is going to be ruined steadily until probably in 2013 Elop announces that S40 should be discontinued due to its ineffectiveness.

Imagine you have two products in your range: number one is has sizable and regular sales and you make 20% profit off of it, number two only has 5% of number one sales and you only make 7% profit on it. So which one is more profitable? You don't have to be a PhD. To understand that number one product should by your priority. The thing is, Nokia thinks differently and preserve the worst products in the model range and get rid of the most successful ones. They are playing anti chess to ruin S40.

This plan also caused the changes in the management staff: Mary McDowell used to be Nokia's phone division executive vice-president. One of her responsibilities was development of Meltemi. Today this post is occupied by Timo Toikkanen who used to be in charge of special apps and Nokia business development. It is very illustrative that the current phone division head is not an engineer but a lawyer. It is, of course, a technical replacement as the main Timo's job will be to lay off employees and shut down S40, not develop it.

Stephen Elop is cleaning up the top management to conceal the proof of what was actually going on inside Nokia in 2011-2012. the destruction of Nokia is nearing its last act.

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The Sale of Vertu

Nokia is selling off all assets that cannot make their rivals stronger. Vertu has become a major burden on Nokia as last six months Vertu sales have been going down rapidly. Without a strong Nokia Vertu phones becoming less and less popular. 90% of Vertu was sold to a private investment group called EQT VI. Nokia has not announced the sum but some sources close to the deal mention €200 million. It is a puny sum and back in 2000 Vertu cost $10 billion but then in 2000 Nokia was valued at $300 billion.

I wonder what platform will next gen Vertu use. Since Nokia still owns 10% of the company the logical answer is Windows Phone 8 but I guess Android is also possible.

However, I think that without Nokia Vertu has no chances of survival. It is a lot more important to have a proper platform than to be able to make expensive chassis.

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Elop's Strategy

During a conference call Nokia's CEO shared his views on the development strategy. It is clear that he sets the Lumia series as the the top priority product and pay little attention to all others. Elop thinks that the release of Windows Phone 8 will boost Nokia sales. He said the same thing about Windows Phone 7. But as IDC report tell us that never happened. In Q1 2012 Nokia sold 2.2 million Lumia smartphones. 980 thousand of them in Western Europe as compared to 15.5 million Android devices, 7 million Apple iPhone and 2.5 million Blackberries. The figures speak for themselves.

All this does not seem to bother Elop. As the main problem on the way to respectable sales he names the retail and the way Lumia phones are presented in stores. I have talked about this many times and said that Nokia is already spending billions motivating sales associates to sell Lumia phones but they cannot do it for a number of other reasons. Nonetheless, Nokia blames the retail for all sales failures and not problems inside the company.

I remind you that while laying off the developers Nokia is still retaining the same number of sales and marketing staff. The company is repeating all the steps other companies that are now gone from the mobile market made. Nokia reps never say that they are leaving certain markets instead they say that Nokia is going to focus on this or that market. Then they enumerate the biggest and most important markets mainly the US, China and some other European and Asian markets. I guess the full list includes: India, Indonesia, Russia, Finland; then the second tier: Germany, France, Austria. The reason of leaving all other markets is obvious – Nokia does not have the money to keep all regional divisions. This is what Elop wanted only he did not expect the sales to go down that fast. For the first time in decades Nokia's market share in Finland is below 50% (IDC data). In Nokia's homeland Samsung is now the leader. The same is happening to other markets: a year ago Nokia's market share in Indonesia was 52% in Q1 2012 it is down to only 24%. In Russia Nokia's share is down to 20% and will continue to diminish.

This story is a copy of what happened to Motorola. Moto 'focused' on principal markets but soon had to leave them too because it did not have the money to stay. Elop's plan presupposed that in 2011-2012 Nokia will come back with the Lumia series so giant sums were spent for promoting Lumia. But WP7 failed and in 2011 its share fell to 2.2% from 2.6% a year before. And it was only Nokia with its giant spendings that stopped WP7 from falling any lower.

Elop said that he is happy with Lumia 900 AT&T sales. According to my sources the sales are very poor and nothing near the rivals. But we will learn the truth soon enough when the AT&T report is released.

The new Nokia strategy is forced by the circumstances should Elop have more money to promote Windows Phone then he would undoubtedly do so. But Nokia ran out of cash so now Elop literally is selling off Nokia bit by bit to keep Windows Phone afloat.

Nokia is working on the behalf of Microsoft doing everything to make WP better and sell it. As you understand ditching own platforms means that Nokia will only have WP7 left to work with. Nokia gave their maps to Bing but got nothing out of it. Now Nokia announced the purchase of intellectual property of a company called Scalado. Scalado has developed a few interesting technologies for digital photography. Nokia is buying some of their patents and staff. I am sure that in the future Microsoft will be the one using these technologies. Right now Blackberry devices use the same tech but the question I want to ask is why doesn't Nokia use PureView or any of the other their own technologies?

Besides, why Lumia phones are not produced at Nokia factories but rather Nokia outsources it to Compal. I think the answer is to keep Lumia production separate so that when Nokia collapses any other company like let's say Microsoft can pick up Lumia and continue like nothing ever happened. Today Elop is carefully collecting everything Microsoft might need for Windows Phone and destroying all that that Nokia itself or any of MS rivals could have used against WP. The summer of 2012 is the point of no return, from this moment on there is no survival for Nokia. So everything Elop has to do right now is to ensure that when Microsoft takes over what is left of Nokia it has everything it needs. Elop is leeching on Nokia transfusing its precious blood to Microsoft. Nokia stock holders don't seem to mind.

Elop will be leaving Nokia this year but when he does there is nothing left to restore the company. No matter how talented and honest the next CEO is he won't be able to change what is inevitable. Nokia was way too big to die in a moment but it is already dead and is making its last steps. Thanks to Elop Nokia died a lot faster than any other former mobile market player.

P.S. Have a nice week and Good luck!

Do you want to talk about this? Please, go to our Forum and let your opinion be known to the author and everybody else.

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Related links

	Spillikins №173. Be Smarter – Get a Mac
	Spillikins №174. What Benchmarks Mean
	Spillikins №175. Samsung To Purchase Nokia?

Eldar Murtazin ([email protected])
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Translated by Robert Mugattarov ([email protected])

Published — 26 June 2012

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