In August 2011 Google bought Motorola's handset business for 12.5 Billion dollars. Today we learn that Lenovo has bought the handset business for 2.9 Billion dollars but Google keeps most of the patents it acquired from Motorola.
I wrote right from the start that Google's primary interest was the patents portfolio and Google would sell the handset unit most of all because this purchase caused irritation in the Android handset manufacturer community who didn't want their software operating system provider Google to simultaneously compete with them on making the hardware. That thesis was repatedly proven by press stories that the Android manufacturer community was not happy - and led to several significant developments of rival operating system projects (Firefox, Tizen etc) to purchases of operating systems (Palm WebOS bought by LG from HP).
Now its happened. This has several important impacts to the smartphone bloodbath. First its another consolidation move (and we are still likely to see more of these). So two smartphone brands (arguably 3) become one (by three meaning Google as smartphone maker plus Motorola as its 'independent' brand merge to Lenovo's ownership and eventually all of it will only be known as Lenovo brand just like how Lenovo did with its original IBM PC business purchase.
What does this do to the smartphone battle? Lenovo is currently mired in that mid-field battle with Huwaei, LG, ZTE, Sony, Coolpad/Yulong and HTC for who gets to be called 'third largest smartphone maker' behind the giants Samsung at 1 and Apple at 2. Huawei is the latest also-ran who sits in the 3rd ranking position for Q4 of 2013 (while we still await the last tidbits of the data to complete the Q4 and full-year 2013 results on this blog). Motorola was some years ago the world's second largest handset maker and has been as high as 4th largest smartphone maker but currently isn't even near the Top 10. Still they make in the 12 million to 15 million smartphones per year. So when we add Motorola shipments to Lenovo's latest, we get roughly 6% market share and over 60 million total shipments of smartphones annually. That is the level where Lenovo now climbs to, well above the Huawei level in the 5% market share stage. As Motorola is all running Android as is all of Lenovo, and Motorola has completed its migration of dumbphone production to smartphones the transition to Lenovo unified smartphone portfolio running Android is relatively easy (vs say MIcrosoft's purchase of Nokia where they still have to manage the costly transition from Nokia dumbphones - 89% of the handsets sold in Q4 under the Nokia brand were dumbphones and only 11% were smartphoens - to Windows based smartphones)
So Lenovo now will have about 6% market share and becomes rather clearly number 3 in the smartphone race. Note that just in 2012 Lenovo was ranked 10th largest smartphone maker and powered by mostly only in-China domestic smartphone sales (China towers as the world's largest smartphone market now more than twice as big as the USA) Lenovo had climbed to 4th biggest smartphone manufacturer. It now becomes the clear number 3. In the global handset race Lenovo will be ranked 5th as Microsoft/Nokia and LG are bigger when their dumbphone sales are added to their smartphone sales.
More importantly for Lenovo, it gains a global brand and global distributor channel via Motorola and can far more rapidly boost its market penetration by the Lenovo brand into local national smartphone markets. Motorola's strongest markets left are in the Americas North and Latin America where Lenovo had not yet done meaningful market entry in smartphones (while Lenovo had already entered many Asian markets and some Europeans already). While its market share is modest it is also well trusted in Africa and Middle East. Lenovo should be able to build very powerfully onto the Motorola brand and gains a big leg up ahead of its Chinese rivals Huawei, ZTE and Coolpad/Yulong who are all in the process of also expanding abroad.
The Motorola business has been making losses for years. The Motorola handset business has been declining in sales numbers at alarming rates until Google bought it and stopped releasing unit sales numbers - suggesting quite clearly that the troubles continued. So this is not a healthy unit. But it is a global brand which has a global distributor network something that Lenovo did not have in handsets (remembering that the PC sales distribution channel is very different from the far larger handset industry distribution system that depends on mobile telecoms operator/carrier support), Can Lenovo turn this business around? I think the IBM laptop business purchase shows a very good signal that Lenovo is able to buy a 'US' business and make it work and grow. Yes IBM's PC business was profitable when Lenovo bought it vs Motorola's loss-making but I think this is very promising compared to say Microsoft's bad history of buying hardware makers like its purchase of Danger that it messed up totally into the aborted Kin phones launch. Time will tell but I think Lenovo has a good chance to capitalize on this purchase and propel itself to a safe third-ranking in smartphone wars of the years to come.
I should note that this clearly proves that Lenovo was serious when we heard rumors that Lenovo was looking at buying RIM/Blackberry - and Nokia. I did say on this blog several times that Nokia shareholders would have been better served if they allowed the handset business to be bidded for openly (Lenovo was not the only one interested in addition to Microsoft) and that very likely Nokia could have sold only part of its handset business to some other buyer than Microsoft to get enough cash to continue but still keep at least part of its handset business... (Note that Lenovo also made a $2B purcase of some IBM server business just a few weeks ago so Lenovo obviously had that itch it wanted to buy someone and had plenty of money to burn.) But yeah, that is water under the bridge but I wanted to point this out against those who accused me of imagining things and not being in touch wtih the industry anymore haha...
What does this do to Google? Google has been having trouble in its Android manufacturer partners base as many of those in partners were pursuing various alternate operating systems to Android in some capacity or another. There is also some talk of some Android partners possibly re-joining Windows in part (most of all Sony possibly launching a business-oriented Vaio branded smartphone running Windows). This sale very clearly establishes Google's ambitions as 'pure' of not wanting to compete with its handset manufacturer ecosystem. That it was true as so many of us speculated at the time in 2011 that Google's primarly reason for buying Motorola was the patents portfolio that Google didn't want to own the handset manufacturing business. Google is a software and services company at heart. So those doubts and irrituations now recede for Google and this should help stabilize the Android base and possibly even gives motivation for some handset makers NOT to pursue alternate OS platforms. Good move by Google. Obviously the Motorola handset business never turned profitable under Google's ownership and the handset sales numbers dimished while the overall industry grew.
I should mention Microsoft and its Windows Phone OS platform as well as its Nokia purchase. I accurately predicted that when Nokia would sell its handset business or parts of it, that MIcrosoft would almost certainly end up owning the Lumia unit because Microsoft could not afford anyone else buying the Lumia unit and then ending Nokia's silly Windows project and shifting that to Android. (Microsoft obviously ended up owning all of Nokia's handset business).
I have since said that MIcrosoft will never be able to make the Nokia Windows Phone smartphone business into a viable significant-sized business into the double digits market share. Never. I have also said that in the long run MIcrosoft's Nokia handset business will be a drain to profits and it will be eventually winded down and ended quietly. I still beleive this except now after the Google Motorola purchase I would add a new scenario - Microsoft may at some point decide to sell what remains of the Nokia handset business while still trying to continue on the Windows Phone OS side... Now that Google no longer owns a handset manufacturing unit the contrast to Microsoft is even more glaring and that irritation that Google felt, will be transferered to ever bigger irritation by Windows hardware manufacturer partners against MIcrosoft. Not just in smartphones but also in PCs because of Microsoft's growing efforts in the larger computing world through its tablets like the Surface and the Nokia phablets. Microsoft's PC side is not helped by this, but the smartphone side is definitely damaged by this. What bad future the Windows Phone platform faced before today - just got even worse.
Samsung now sees clearly who is the new number 3 rival to monitor in addition to Apple's iPhone now that Nokia/Microsoft is a non-player. The new number 3 to consider as emerging rival is Lenovo. Not Huawei not LG not Sony. Lenovo. For us in the Bloodbath-watch year 5 Who is Left Alive we have yet another death and the year starts with consolidation. Who is left alive? I believe this year will see still mroe consolidation...
PS first Samsung Tizen phone leaked via Korean gaming site Moveplayer.net and is called the ZEQ 9000 - see it here for example at Digital Trends.
Ok then we have Apple (Samsung released Q4 numbers on Friday but as usual, they didnt' give us their smartphone number other than the total smartphone shipments were up.. I am projecting over 90M but lets see what the big analyst houses count for our number in early February)
So Apple.. How many iPhones? Only 51 Million for the October-December ie calendar Q4 quarter. That is up yes 53% from Q3 - but Q3 is historically Apple's worst quarter of the year while Q4 is the best as the new iPhone model is sold for the first full quarter. How does Q4 of 2013 compare to Q4 of 2012? Only 7% more iPhones sold this past Christmas worldwide than the year before. This while the industry has grown by 48%. This is NOT good news. Not good news at all.
So how does it show in the market share calculation? Apple's prelim iPhone market share now for Q4 is 15.7%. That is down from the same period a year ago when it was.. 22.0% !! MASSIVE fall. Yes Apple did again make obscenely big profits and yes the iPads sold well blah-blah-blah but the iPhone market share is now in SEVERE decline.
So lets look at the full year numbers. Apple sold 135.8 million iPhones in calendar year 2012. The industry grew by almost half since then. Apple managed to grow... 13% to 153.4 million units. Last year Apple had 20% market share globally in smartphones for the year. That tumbled to 15% for 2013 !!! This even as the iPhone 5C was introduced to spread Apple's market presence down the price range (and I did warn that the 5C was not cheap enough). It would be FAR worse if the 5C didn't exist.
THIS IS THE RECENT HISTORY
iPhone market share
Year 2009 . . . 14.6%
Year 2010 . . . 15.9%
Year 2011 . . . 19.1%
Year 2012 . . . 19.7%
Year 2013 . . . 15.0%
Yes it is now a fact, we've seen 'peak iPhone' in its market share - and now the iPhone will adjust gradually towards the historically consistent market share that the Macintosh has held in the PC market which will be single digits by the end of this decade definitely. (But we've known about this and peak iPhone on this blog for some time now...)
And how will 2014 play out? Because the market is growing at the bottom not the top, and Samsung is increasingly grabbing some of iPhone's top end and others like Sony Xperia etc are joining in on that fu, Apple's iPhone market share in 2014 will DEFINITELY go down even more, perhaps to about 12% range by full year 2014 - depending a bit on how Apple revises its dual product line during 2014 and perhaps lowers the prices of its bottom end..
Just as a note of how to play this market. Samsung reported growing smartphone sales from Q3. That means they have sold at least in the high 80s or likely in the low 90s of millions of smartphones in Q4. For the full year Samsung clears at least 310 million and likely well over 320 million smartphones. Samsung grew 50% from 2012 ie faster than the industry which grew 48% in the same period. Oh and Samsung is doing its smartphone sales very profitably - don't be fooled by the one-time cost item now in Q4 that was the surprise bonuses the CEO paid to the handset folks for achieving Samsung's dream of becoming the world's biggest handset maker. Without that one-time bonus payment the Samsung quarter was totally on par with its high profit smartphone business as per usual. Why is Samsung able to grow far faster than Apple? Samsung caters to all markets and offers a broad portfolio of smartphones that it updates feverishly many times per year. Apple just reluctantly last year went from one annual iPhone model to two. If you want to be a market leader you have to play the market leader game like a market leader. If you want to be a niche player - which is what Apple is - then dont' delude yourself - or your investors or app developer partners - that you are anything else...
As a company yes, high profits. I don't care about that on this blog. This is not a blog about investments. This is a blog about the industry and now that the iPhone market share is in clear decline annually, that long-standing myth that Apple can be a mass market platform should slowly die. Apple is to phones what Porsche is to cars - a highly desirable luxury niche item of fierce loyalty but not a mass market product for all price points and markets. That is Samsung (like Toyota is in cars)
PS feel free to discuss iPhone market share or iPhone features, apps, future versions etc. Don't post about Apple the company profits - that topic is not open to this blog and all comments discussing Apple profits (or Samsung profits) will be deleted as will all that deal with stock market evaluations, share prices etc.
Lets do some smartphone items. We're in the Q4 results season and we have Nokia's numbers but Nokia is being naughty, decided not to give us the detail they have always given in the past... Also we have some good news from HP and some bad news from Tizen. Lots of bad news from Tizen. But lets take the Nokia numbers first.
NOKIA SMARTPHONE SALES DOWN AGAIN
So we did not get the actual numbers anymore. I predicted that Microsoft would be doing this when it takes over the Nokia handset business. I'm disappointed Nokia already now is resorting to this move. Why is Nokia not reporting the detail of its handset sales? Because they are down in what is usually Nokia's best quarter, the Christmas Q4 quarter. Nokia did not give us the details but in its Quarterly results it did tell us sequential sales revenues were down 5% for the total sold unit which includes the dumbphones and the smartphones. So in very rough terms smartphone sales should be down something like 5% sequentally from Q3 the last quarter we had the precise number at 8.8 million. Then we also learned that the average selling price is down for both dumbphones and smartphones (that drives down the sales revenue figure) but we learned that unit sales were flat sequentially for featurephones but down for smartphones. This leads me to believe that smartphone unit sales were down somewhat more than 5% sequentially from Q3, so I put it at 7% decline ie 8.2 million units.
Until we get a more official number from Nokia, that is my best guess of Nokia Q4 sales at 8.2 million units in its smartphone unit. That gives Nokia a preliminary market share of 2.5% for Q4, down from 3.5% in Q3 (as I predicted it would happen after Microsoft took over the failing Lumia smartphone business from Nokia). Oh, and the overall handset sales are unprofitable again..
UPDATE - note only moments after I posted this, apparently Nokia already confirmed the smartphone number as 8.2 million haha... not bad guesswork eh? I haen't seen the number yet, that was based on a tweet. I'll go dig for it but we can safely assume 8.2 is the right number and if it is not., I will update this blog again.
UPDATE - as we didn't get the usual info from Nokia smartphones like regional splits, average sales prices etc, its nice that some of the detail is emerging. Mobiili.fi the Finnish mobile industry magazine reported that they counted the revenues based on the info that was out, at 1.1 Billion Euros for the smartphone unit in Q4 (this is down 12% from Q3 when usually Nokia reports 25% jump in smartphone revenues in the Christmas quarter). They also kindly calculated the Average Sales Price ASP for the Lumia lne which was 134 Euros in Q4, down from 143 Euros in Q3. So not only are the customers abandoning Nokia massively when the industry has its best growth quarter, they are not willing to pay as much for the Lumia handsets even with the big phablets and other new devices like Lumia 1020 etc - the Microsoft purchase has damaged the already struggling Nokia Lumia line even more if that is possible Thank you Mobiili.fi for the calculations and I know many of our readers on this blog will appreicate at least those details of total smartphone unit revenues and the ASP for Q4.
Let me mention also one truly brilliant piece of writing by Tero Kuittinen at Forbes - not only reporting on the Nokia Q4 results but also about how and why the US analysts tend to misanalyze Nokia so badly, and why this bodes badly for Microsoft's purchase of the Nokia handset unit. Definitely a must-read article!
For the full year Nokia sold thus about 30.5 million smartphones and had 3% market share, down from 35.0 million in 2012 and 5%, and down from 103.6 million in 2010 the last year before Elop's doomed Microsoft strategy when Nokia's market share was 34.8% and the handset unit grew 52% unit sales and generated Nokia record profits... That is the end of the Nokia tale in smartphones. Sad end but yeah, we saw it coming didn't we on this blog. Lets move to the other news.
HP IS BACK
Hewlett Packard is back again into smartphones, promising us two phablets which will run Android. Lets see them soon! Welcome back HP! For those who still remember, HP bought struggling Palm and planned new smartphones using WebOS but then after a new CEO joined the company, HP suddenly announced the end of its smartphones business in 2011. It then sold the WebOS system to LG. But now they've seen the light again - as PC sales globally fell last year but smartphone sales grew by nearly half. 2013 saw roughly 3 times the sales of smartphones than traditional personal computers in volume and most major PC makers are also smartphone makers led by Lenovo. Now HP has seen it has to be in this game and is back. Very good news and hopefully we'll see some good innovation from HP and not only some 'me too' devices.
TIZEN IS DELAYED (is this the end?)
So this was supposed to be the period of great news for Tizen. We heard suddenly from Japan that NTT DoCoMo will not release the first Tizen smartphones in Q1 now after all. Then shortly after that we heard that Samsung won't release a Tizen smartphone in the first quarter either. What was expected to be big news at the Mobile World Congress in Barcelona with many Tizen anouncements and demos is now apparenty winding down. Some rumors suggest one Tizen phone may be out by ZTE but overall, what was seen as the strongest play of the new platforms is seriously damaged by these news.
I take the NTT DoCoMo news as the most significant. That was my reasoning why Tizen had such a strong insider advantage in the race for the new platforms (Sailfish, Ubuntu, Firefox etc) because NTT DoCoMo controlling about half of the Japanese market had a large enough smartphone customer base to alone sustain an ecosystem. If NTT DoCoMo is out of Tizen, the prospects are really bad. And NTT DoCoMo's strong past support has now turned sour. Then the other obvious big player is Samsung. Now that Sammy also is delaying its first Tizen device that is bad news. We also hear separately that Intel is moving away from its smartphone ambitions (why?) so the whole Tizen world is coming apart. We heard earlier that one of the big brands in the partnership, Panasonic was pulling out of all smartphone business (this was befoe these items of Tizen news, middle of last year) but that was one potentially big hardware brand for this alliance.
So my enthusiasm for Tizen is obviously severely dented. It might still work out, but there is no opportunity if there is no handset. And those handsets will do nothing if there is no carrier support. Before we can believe in Tizen, we need both. At the moment both are severely delayed..... We'll keep monitoring this space. More news expected soon in the smartphones end-of-year results.
Now we have some serious AR numbers. AR as in Augmented Reality the next mass media channel after internet and after mobile. As AR started we’d only seen some very early numbers in the AR space. First numbers were only tidbits, one particular AR provider, perhaps only in one country and possibly only on one smartphone platform etc. Now in late 2013 we have seen the very first global numbers.
Those who read this blog frequently may remember that I gave the AR industry its first global forecast for this decade, predicting roughly 1 Billion media audience for AR by year 2020. As we count the start of AR from year 2009 it means 12 years to 1 Billion. This forecast was (and still is) based on the adoption rate of mobile media, which hit that milestone of 1 Billion users globally in 12 years from its commercial launch in 1998 - the first paid downloadable mobile media content was the basic ringing tone which was launched in Finland back then...
So, as Augmented Reality media formats are currently primarily designed for mobile phone ie smartphone use (but not exclusively so) we can use the mobile media adoption rate as a model. And then monitor as data comes in over the early years to see if my initial forecast turns out roughly in line with the future that emerges. Note that a mass media audience of 1 Billion users is massive globally - newspapers worldwide have only a combined daily circulation of less than 450 million...
That was the context of where the industry was most of last year. I had the honor of presenting the keynote to the Augmented World Expo (AWE) in Silicon Valley last year and made a lot of new friendships in the AR space. But I also eagerly was scouring any data sources for any stats we might have for this young industry in its fourth year. Then towards the end of the year we found some. We have the first global stats for AR. Now the story gets interesting...
60 MILLION USERS IN 2013
Juniper Research is the first analyst house to release into the public domain a count of global users of AR. They announced in November that the world has 60 million AR users at the end of 2013. 60 million might not sound like much. Remember, AR is primarily a media type accessable to smartphone users not all mobile phone users. 60 million AR users means 4% of all smartphone users globally are already using AR. That my friends, IS a HUGE number. AR is not on par with the growth rate of mobile media. AR is ahead of where mobile media was four years in.
AR REVENUES HALF A BILLION DOLLARS
So that is users. Many AR offerings are gimmicks, often advertising and marketing related and often free. Does this industry make any money? Good that you asked. We have that too. The first global number for AR revenues was also released late last year. Research and Markets found the AR global revenues for 2013 to be almost half a Billion dollars. They counted 496 million dollars in October 2013 for the full year.
If we use those two separate studies we get a preliminary ARPU number too. The annual average revenue of the AR industry per user is US $8.27 so the monthly ARPU is 67 cents per active user. This is VASTLY ahead of the early mobile media revenue and ARPU levels. It again points to AR likely to overperform vs mobile media not that it would underperform. My 1 Billion user forecast for 2020 is looking very solid by these early numbers.
MORE DATA, NOW IN SAMPLE CASES
During 2013 we saw more sample case numbers. Layar the AR browser people from the Netherlands reported in April that they had passed 30 million downloads of their browser. Note that a download is not the same as user, but this is very good validating data to put the 60 million user number from Juniper into context. The Juniper number is definitely not too big, it may in fact be too low. Meanwhile in the Netherlands, the home of Layar, they had achieved 1.3 million downloads which was 14% of the total Dutch smartphone user base at the time. Again the 4% adoption rate globally seems not to be in any way a kind of ‘ceiling’ if a leading country is far ahead of it already.
Then Cherry Picks of Hong Kong has released some new data on iButterfly. We already knew before that in the first year iButterfly had achieved 300,000 users in Hong Kong who collected 10 million virtual butterflies (and received 10 million mobile coupons in that media’s advertising channel which serves one coupon for every butterfly that is caught by a user). Some stats on those - remember this is 2012 data - 7% of Hong Kong’s total smartphone user base had used iButterfly and the average user caught 33 iButterflies in the first year meaning average user caught nearly 3 butterflies per month. One roughly every 11 days. But that is not the big news. This is:
Now Cherry Picks told us in 2013 the redemption rate of those iButterfly coupons. Are you sitting down? So these frivolous virtual AR butterflies fluttering around Hong Kong are hunted by 7% of Hong Kong’s smartphone users - Hong Kong with the world’s second highest smartphone penetration rate behind only Singapore and ahead of the UAE. The average person isn’t tired of this silly hobby, they collect these iButterflies on average once every 11 days. And are served a mobile coupon as reward for doing so. How are these coupons redeemed. Would you believe 7.5% ie more than 10x better than coupons on the internet? No. Thats not the case. Try ... 75% !!!!! Yes, 100x better than coupons on the internet! iButterfly achieves 75% redemption rate on the mobile coupons served via Augmented Reality on smartphones!!! Yippee !!! This IS good news! So we have the first actual advertising that is sustainable on AR, not just a one-time gimmick.
Wait. I’m not done. We’ve done Europe, we’ve done Asia. Now lets go to North America. Canadian newspaper group Glacier Media spoke about their AR innovation at the WNC13 event for the newspaper industry in May of 2013. They had just completed their first full quarter of using AR to enchance print advertising sales. Yes, to enhance print ads in newspapers they used Layar’s AR engine to sell online digital mobile connectivity to print ads. Just like inserting QR codes or putting an URL on a printed page, except that it is done via AR so its far more user friendly and doesn’t need to waste ad print space for the QR code etc... How did Glacier Media do with it? They sell the Augmentation of any ad in their newspapers for a premium ad price of 99 Canadian dollars extra, above the cost of the normal print ad. The actual effort to Augment a printed page (inserting the web link to the advertiser’s website or campaign site or YouTube video or whatnot) takes 60 second of work by a sales assistant. So this is nearly pure profit. And how much did Glacier Media do in Q1 of 2013? 7.5 Million Canadian Dollars of bonus income to the newspaper group. Cool !!!!!!
We have the first sustainable business model for an AR solution in media. Enhance you advertising sales by Augmenting it. I love it !!!
Yes. Augmented Reality is definitely emerging as a new mass media channel. It is well on track to outperform mobile media in the equivalent amount of time. Talking of mobile media did you notice that Strategy Analytics counted mobile media to be worth 161 Billion dollars annually when they reported it in June of 2013. Thats bigger than recorded music worldwide. Its bigger than cinema, all movies Hollywood, Bollywood, Nollywood and all others - added together, including DVD sales and rentals and so forth. And 161 Billion dollars in media income is bigger than videogaming global revenues in 2013. Wait. Mobile media is bigger than music, movies AND videogaming - added together!!
That is where mobile media has gotten in 15 years from launch. If AR gets to about a Billion users by year 2020, it may well hit these kinds of revenue numbers when AR is 15 years old, by year 2024. To give a round number, I’d be happy to say 150 Billion dollars of AR revenues is my forecast for AR media in 2024. Counting backwards, that could be around 60 to 70 Billion dollars in year 2020.
Am I confident in my initial forecast. Yes. All published AR numbers so far are strongly consistent with 1 Billion users of mobile media by 2020. And again lets be cautious, lets say the revenue number in 2020 to be at least 50 Billion dollars globally. That would be a monthly ARPU of about 4.17 US dollars. Keep collecting those iButterflies.....
Hi Gang.. been on holiday, now starting to prepare to come back (not quite yet, still doing some travel) but have had time to think a bit and draft some blogs... lets start first with the Bloodbath Year 5...
When I started this ‘Bloodbath’ intense focus on the upcoming smartphone wars four years ago, I said the wars would bring a lot of change. Back in 2009 the world’s largest smartphone makers were very well known brands of the handset tech space such as Nokia, Blackberry, Palm, Motorola, HTC and SonyEricsson, with the upstart Apple iPhone having appeared only two years earlier. No Chinese smartphone maker was ranked in the Top 10. What happened has been dramatic, indeed the most volatile period of any global industry. Motorola and Palm died early and were sold. Ericsson quit the races leaving the partnership to Sony. Nokia was sold late last year. Blackberry is on the ropes and HTC is not faring much better. Four Chinese vendors have already crashed into the Top 10 (Huawei, Lenovo, ZTE and Yulong/Coolpad) with a fifth, Xiaomi likely to enter the Top 10 early in 2014.
Many tech writers looked at Apple’s early iPhone growth trends and promised that Apple would own this market. I was the first to say that Apple’s growth trajectory (in taking smartphone market share) had ended. This past year, 2013, marks the first year that Apple’s iPhone actually lost market share. Most on the West Coast haven’t yet gotten their heads around that fact. Readers on this blog knew to expect this to happen.
I told readers on this blog when Motorola was in trouble and what HP had to do with its Palm acquisition to capitalize on it. We saw what happened. I was on this blog explaining what would happen to Nokia after the new CEO Stephen Elop changed the strategy - and I was the most accurate forecaster on how badly Nokia would fall. I also clearly forecasted that the single company with most to gain from Nokia’s fall would be Samsung - as it was.
I wrote last year that the ‘Bloodbath’ wars had become boring. We had now the two clear winners. On the operating systems side, Android had won. Android is today on more devices than Windows is on any computing device so Android has already defeated Microsoft’s Windows juggernaut. Congratulations Google. But my readers have known this for a long time, as I did tell you this back in 2012.
On the handset side some on the West Coast still think its a two-way race between Apple and Samsung. Readers of this blog know that is utter hogwash. Apple only has a niche - a large and highly profitable niche yes, but Samsung is the real thing, selling two smartphones for every one iPhone (plus Samsung sells a third lower-cost dumbphone in the same period). Samsung covers the full range of devices by features and design, and more importantly, by price.
Samsung has already gained the leadership edge of being the world’s largest handset provider, and its competitive advantages out of scale. Scale in manufacturing. Scale in sourcing. Scale in reach. Scale in retail presence. Scale in installed base of users. As long as Samsung doesn’t mess this up (like Nokia did), this is a very strong position and Samsung won’t be dethroned any year soon. If they grow complacent towards the end of this decade, maybe. But by pouncing very strongly when Nokia stumbled the past two years, Samsung has effectively won the decade, and is guaranteed to have well above average profits in a very profitable industry. The real long-term rival to Samsung is not Apple, it is the Chinese vendors. One from the pack will finally get a genuine hit product and propel it to solid second place, in the next few years. That Chinese manufacturer will fight on price and in most consumer segments where Samsung is (and where Apple is not).
That will be Samsung’s real rival, not Apple. Just like Apple was not Nokia’s real rival - Samsung always was (and until Elop came along Nokia HQ knew this very well and kept their focus on the real challenger. Remember - during Nokia’s world-record collapse Apple actually LOST market share while Samsung gobbled up almost all that Nokia left on the table. If Apple was Nokia’s primary rival, Apple would have taken at least half of that and today Apple would have 25% smartphone market share rather than 16%). So Sammy is very happy to see that there is no solid number 3 emerging. The longer the number 3 place alters year from year and the pretenders fight amongst each other, Samsung can collect huge profits and not be too concerned. But a solid number 2 will emerge and trust me, Samsung are nothing if not competitive, they are monitoring the market very closely to see who that will be and react accordingly.
Apple will do the iThing. They take the cream off the top, offering less than supreme devices, with some very Apple-ish ooh-aah single feature every few years, but lagging in most tech specs from the leaders. But providing uber-desirable sexy iconic iGadgets that every iGeek has to iHave. And in the process Apple gets to collect the biggest share of iProfits. As long as Apple investors are not under any illusions that Apple would one day ‘rule the world’ of smartphones, and its role will be in the 10%-15% market share mid term, maybe more like 6%-8% in the long term, but taking the biggest profits, that is fine.
So this story is a bit boring now. We do have a nice tussle for who gets to call themselves the third largest smartphone maker. That race currently features Asian makers. World’s largest home electronics entertainment company Sony from Japan. World’s largest laptop computer maker Lenovo of China. And several second tier handset players - LG out of South Korea, Huawei out of China, ZTE out of China and Coolpad/Yulong out of China. If you want to be generous you can add HTC out of Taiwan.
A player who is not in the race for the third ranking among smartphone manufactuers is Microsoft, with its Nokia acquisition. When we started this series of articles, Nokia towered over its rivals. Even in its ‘problem’ year when Elop was hired in 2010, Nokia still wiped the floor with all the rivals, growing more new smartphone sales than Apple, or Blackberry or Samsung - and Nokia did this with Nokia-record profits in its smartphone unit. That all was demolished under Elop’s reign of terror. In a world-record collapse Nokia went from twice as big as its nearest rival to now ranked barely 9th largest smartphone maker by the end of 2013 (and the smartphone unit is now massively unprofitable).
Can this improve under Microsoft? In the long run, maybe. In the short run absolutely not possible. Microsoft has been tossing Billions of dollars into propping up the undesirable Windows Phone system and much of that money has gone to help the Nokia Lumia sales either through marketing support paid to Nokia or as further marketing support paid to carriers/operators. (Recognize what this means in reality. The Lumia series of Nokia smartphones has scared away 4 out of 6 loyal Nokia Symbian smartphone customers - and of the 2 that remain, half will never again buy another Windows Phone based device - so say consumer surveys. And this ‘success’ was achieved by Nokia reporting anywhere from 20% to 49% losses per quarter of selling those Lumia phones. AND that ‘loss’ was diminshed by the money-injection from Microsoft. In reality Nokia Lumia phones generated even bigger losses - and produced almost no satisfied customers).
Microsoft will need to continue subsidising this undesirable tiny ‘ecosystem’ as during 2014 Microsoft takes over the Nokia handset business and tries to figure out how to fix it. A big sign of will Microsoft do this intelligently or dumbly, will be how quickly Stephen Elop is removed from running the handset business of Microsoft. If Bill Gates (and Steve Ballmer) knew what they were doing with the Nokia acquisition then soon after the deal is completed in April, or during the spring they will reassign Elop to do something less damaging than running Microsoft’s handset business.
But during 2014 no matter what miracles Microsoft were able to achieve with its new Lumia (Nokia) unit, much of 2014 will be just adjustments and corrections and this is not a year of Microsoft/Nokia comeback. Microsoft-Nokia will be fighting just to remain relevant and in the Top 10 throughout this year. If you want to see the glass as half-full, then maybe in year 2015 we can hope for a comeback. If you want to see the glass as half-empty, we are now counting time till Microsoft shuts the lights out from the futile purchase of the Nokia handset assets. Although with Microsoft’s deep pockets. that will take years still.
Blackberry already fell out of the Top 10 and are in such a bad shape they won’t be doing major returns any time soon. We already have seen Chinese Xiaomi pass Blackberry taking 11th ranking during Q4 of 2013 (they may even pass HTC and enter the Top 10 by the time the final Q4 numbers are in around early February)
If you are ‘interested’ in the race for who is 3rd they are all essentially full Android houses now, all from Asia, with very similar products and prices in their product range. This industry from the hardware side is Samsung, Apple and the Nine Dwarfs (Huawei, Sony, Lenovo, LG, ZTE, Yulong/Coolpad, Microsoft/Nokia, HTC and Xiaomi). Yes I will be monitoring the races and reporting on the stats but yeah, this is not anymore the exciting times it was three and four years ago.
We did see the ‘son of Nokia’ ie Jolla launch on the evolution of Nokia’s next generation operating system MeeGo, called Sailfish (which is also Linux based and can run Android apps natively... cool). Jolla in December outsold the iPhone on the one carrier/operator that offered it in Finland DNA. From small things big successes can grow. Wishing Jolla and Sailfish all the very best.
There are regional players hungry to take to the global stage, especially from India we see Karbonn and Micromax. With some luck and an aggressive global expansion strategy one of those could grow into a Top 10 contender. No doubt there are more ‘Coolpads’ coming still from Shenzhen China, so we may well see a few more Chinese makers appearing to follow in the footsteps of Xiaomi etc. In Japan the industry has been consolidating but of the fewer domestic handset makers we may see one or two re-emerge to the global stage. And in South Korea if you like Samsung and LG, there is also Korean number 3 handsest maker, Pantech. And this is a global industry so the next big thing could just as well be someone like Africa’s MiFone.
On the software side the biggest potential disruptor is Tizen. We should see the first Tizen smartphones from Samsung this Spring and likely sold among first markets in Japan on NTT DoCoMo’s network. My guess is that Samsung wants to create a big spash with its first Tizen device so they are putting extra effort to make it noteworthy. If a couple of other hardware vendors also deliver on expected Tizen handsets, it could be a fascinating world. Samsung also intends to use Tizen on its TVs and Tizen has many car makers and other tech providers lined up in that ecosystem
Will Sony use the Playstation brand to boost Xperia and other Sony smartphone sales? Will Nikon launch a smartphone? Will Nintendo correct its strategic mistake (of missing the smartphone challenge in pocket gaming). Will Microsoft use the Xbox branding to help its Nokia handset sales? What will LG do with the Palm WebOS platform it acquired from HP. And how will HP re-enter the smartphone space as it signalled last year. Its likely that Apple breaks the iPhone release cycle from 12 months into 6 months, releasing a new flagship in the Spring and new cheaper models in the Autumn, likely starting this year and they will probably spread the price difference between flagship model (current 5C) and discount models (5S). Yes, there are many stories still to be expected in smartphones but the big deaths are done in the Bloodbath. This will be the post-Nokia era of smartphones, Bloodbath Year 5: Who Is Still Left Alive. But stay tuned, I will be reporting on it as it develops.
So don't we just love numbers? We are starting to see into what the full-year 2013 final smartphone market shares will look like. In the OS wars, there is no race anymore, Android won.. But for the handset brands, there were real races. We do know now that of the Top 10, there are 3 definite known 'final' rankings, and three races for the other seven slots. This is what it looks like:
THE THREE KNOWN POSITIONS
We know who won 2013. That be Sammy the Samster Samsung. We know who came in second, that is the smartphone of the i-variety, by a fruit-maker company called Apple. And one other ranking is known. Sony will finish 7th. But there is an honest real race for the Bronze medal. Third place is not a race between two or even three brands, no. Third place is contested by four, count them four, Asian brands. Huawei, Lenovo, LG and ZTE are in a tight race for that coveted third-largest smartphone maker in the world, title. So yes, it will be an Asian, but will it be Chinese or South Korean.
As to the loser brackets.. There is a race between the oldest and youngest of this group. Nokia the inventor of the smartphone has tumbled. It was tied for 4th last year, led this industry from its inception and well into 2011. Nokia is now fighting for 8th ranking. It cannot finish out of the Top 10, in fact Nokia cannot finish lower than 9th. But yes. Who are they facing? The young whippersnapper start-up smartphone maker from China, so unknown, most of us even now have a hard time remembering exactly who is Coolpad, ie Yulong, ie China Wireless (not to be confused with China Mobile). But that is the race of 8th ranking.
And then there is the fight for who falls out of the Top 10. The fight of the 3-letter rivals. The former smarpthone giants. High Tech Computer of Taiwan, we know them better as simply HTC, and RIM, or the company until recently known as Research In Motion from Canada, who have changed their company name to be the same as their smartphone brand - Blackberry. One of these two will be kicked out of the Top 10 this year, and its really close. BTW just three years ago, at this very quarter, these two brands were ranked 3rd and 4th biggest smartphone makers in the world (and both reporting healthy profits and strong growth at the time). Yes. In 2012 Blackberry/RIM was still ranked 5th biggest and HTC seventh-biggest smartphone maker. One of them will stay in the top ten ranked 10th biggest, the other falls out this year for the first time.
Thats the brands. On the operating systems, Android won. iOS came second. Windows Phone is far far down in third in low single digits, and Blackberry OS is fourth. The other OS brands combined do not amount to 1% of all smartphones sold in 2013.
A few other notes. Now during Q4 Samsung will set a phenomenal record. This is the first quarter ever that any brand sells 1 million smartphones on average, every day of the Quarter. Yes, Samsung will easily clear 92 million smartphones sold this quarter. My preliminary projection has them at 99 million but they may well pass 100 million sold just this quarter, if they have a bit of luck in the Christmas season.
Apple? They will have indeed seen 'peak iPhone' in smartphone market share. Last year Apple's iPhone had a thin sliver under 20% market share. It has grown every year up to that time. This year, 2013, sees the first year ever, that Apple's iPhone smartphone market share falls. I project it to end in the 16% to 17% range. This still assumes a phenomenal growth Christmas iPhone quarter selling about 65 million or so iPhones. Of course Apple will report obscene profits and outrageous revenues, but some analysts will strike notes of caution, when they observe that the iPhone market share has turned into decline. Quite possibly terminal decline (I don't mean terminal as end to Apple, obviously, I mean terminal in that the gradual market share decline won't be reversed for several years.. that is an honest fear, and Apple's best bet to combat that, is to now lower the prices of its discount models, the C-series...)
Only one European smartphone maker remains in 2012. That won't be in 2013 when Nokia's handset business will belong to Microsoft. Only one US based smartphone maker of Top 10 size remains today (Apple) where just three years ago there were also Motorola and Palm. Three years ago there were no Chinese smartphone brands in the Top 10. Today there are four and one might be ranked as high as 3rd largest. Talk about taking a giant leap forward.
The year is well on track to break 1 Billion new smartphones sold this year. That is a huge number (for contrast about 350 million PCs will be sold). Over 780 million of those will have been Android-powered. Note, that is new sales of just smartphones this year. When we add tablets, Android will pass 1 Billion new sales this year and Android will become bigger by total users, than all forms of Windows based devices, desktop PCs and servers, laptops notebooks and netbooks, tablets, and smartphones - combined. Yes, already at the end of 2013, Android has become the world's largest computing platform and 'ecosystem' if you will. Congrats to the folks at Google..
Thats the kind of numbers and stories and rankings we will be looking at around early February and late January of 2014, in less than 3 months from now.. The year smartphones sold more than dumbphones. The year Android overtook Windows. And the quarter when Samsung started shipping a million new smartphones every single day, Saturdays, Sundays and holidays included... Quite an exciting time.
Stay tuned, I'll be bringing the updates as we get more data...
So its over. Nokia shareholder meeting today approved the sale of Nokia's handset business to Microsoft. Congrats Microsoft for picking up Nokia's huge handset business at a bargain price. It is a poisoned chalice however, as under Microsoft ownership, the smartphone business will never turn into anything worth keeping at Microsoft. The Lumia/Windows Phone business unit will at some point be closed down at Microsoft after enough money is thrown into that endless pit...
A few quick notes from the shareholder meeting (I was not present, I only monitored news via YLE and Helsingin Sanomat). Chairman Siilasmaa admitted that yes, there had been offers from other potential buyers when they negotiated with Microsoft (who told you so?). And they revealed that Nokia's royalty per Lumia handset was 10 US dollars. And that Microsoft was paying now 20 dollars per handset of marketing expenses (on top of Nokia's millions) to support the handsets (that still were selling at severe losses every quarter).
Ok, its about time to close the episode in our lives that was called 'my first phone' haha.. Bye-bye Nokia, we will sorely miss you in handsets. My requiem to Nokia is here. And we wish the newer, slimmer, to be dropped from Fortune Global 500 next year, Nokia very much good fortune on its ways to new opportunities.
I will soon release my book on the Elop Effect, it needs to be recorded for history as the biggest management failure of any global market leader in economic history of humankind.
So we now have the numbers about as good as we can hope to get. All four major analyst houses have given their counts of the total market size, and all 4 agree we've passed the quarter billion sales level per quarter this quarter, so yes, the average we are working from is 254.3 million new smartphones sold worldwide in Q3 of 2013 and this year is very well on track to pass 1 Billion total new smartphones sold. The global migratoin rate is 55% and the global smartphone average price in Q3 according to IDC was 317 US dollars. So its now a 300 Billion industry by annual revenues in 2013, not total handsets, just the smartphones part.. Bigger than Hollywood, bigger than Gaming, bigger than Music, bigger than Radio. In fact bigger than all four of those, combined. About the size of the global PC industry by revenues (far more by annual unit sales obviously). Nice biz eh? Lets do some numbers!
BIGGEST SMARTPHONE MANUFACTURERS BY UNIT SALES IN Q3 2013
Rank . . Manufacturer . Units . . . Market Share . Was Q2 2013 . . OS systems supported (coming)[ending]
1 (1) . . Samsung . . . . 84.1 M . . 33.1% . . . . . . . ( 31.9% ) . . . . . . Android, bada, Windows (Tizen)
2 (2) . . Apple . . . . . . 33.8 M . . 13.3% . . . . . . . ( 13.4% ) . . . . . . iOS
3 (5) . . Huawei . . . . . 13.4 M . . . 5.3% . . . . . . . ( 4.9% ) . . . . . . Android (Tizen)
4 (4) . . Lenovo . . . . . 12.3 M . . . 4.8% . . . . . . . ( 4.9% ) . . . . . . Android (Tizen)
5 (3) . . LG . . . . . . . . 12.0 M . . . 4.7% . . . . . . . ( 5.2% ) . . . . . . Android
6 (6) . . ZTE . . . . . . . . 11.6 M . . . 4.5% . . . . . . . ( 4.6% ) . . . . . . Android, Windows (Firefox)
7 (7) . . Sony . . . . . . . .10.3 M . . . 4.0% . . . . . . . ( 3.8% ) . . . . . . Android
8 (8) . . Coolpad/Yulong . 9.1 M . . . 3.6% . . . . . . . ( 3.6% ) . . . . . . Android
9 (9) . . Nokia . . . . . . . . 8.8 M . . . 3.5% . . . . . . . ( 3.2% ) . . . . . . Windows, [Symbian]
10 (10) . HTC . . . . . . . . 6.3 M . . . 2.5% . . . . . . . ( 3.1% ) . . . . . . Android, Windows
Others . . . . . . . . . . . . 52.6 M
TOTAL . . . . . . . . . . . 254.3 M
Source: TomiAhonen Consulting Analysis 15 Nov 2013, based on manufacturer and industry data
This table may be freely shared
Yes, this quarter it happened. Yet another death in the Bloodbath of smartphones. We've seen past giants like Palm, Motorola, Ericsson die and now goes the biggest. Nokia the inventor of the smartphone who at the start of our Bloodbath series towered over all rivals, will be sold to Microsoft. There the Nokia/Lumia unit will live for some years, struggling to find business, until some day Microsoft decides its too expensive to fight for a tiny slice when they see Windows Phone can never become something like say Xbox, and will pull the plug. Nokia/Lumia at Microsoft will go the way of the Zune, the way of the Kin. But yes. Another death in the Bloodbath.
Meanwhile on the charts? Nothing much new really to report. There is that dogfight for third place, jostling between Huawei, Lenovo, ZTE and LG. Sony was in that fight but seems to have fallen a bit behind. Coolpad ie Yulong was no flash in the pan, it is solidifying its 8th ranking. Blackberry is still solidly out of the Top 10. Sammy rules on the top = all hail Samsung the king. And as I wrote separately already, we've now seen 'peak iPhone' in smartphone market share. Apple is very unlikely to achieve annual level growth in its smartphone market share this year, 2013, for the first time ever. That is why they launched the parallel discount models in bright colors, the iPhone 5C. But those are still priced too high to save Apple's growth trend in market share. Yes, Apple will obviously produce another record Christmas Quarter but growing only in units (and yes, revenues and profits) but its market share is now in decline. Unless they lower the 5C model range prices, that decline will continue..
BIGGEST SMARTPHONE OPERATING SYSTEMS BY UNIT SALES IN Q3 2013
Rank . OS Platform . . . . Units . . . . Market share . Was Q2 2013 . . Manufacturers in Top 10
1 (1) . . Android . . . . . . . 204.3 M . . 80.3 % . . . . . ( 79.0 %) . . . . . Samsung, LG Huawei, ZTE, Lenovo, Sony, Yulong/Coolpad, HTC
2 (2) . . iOS . . . . . . . . . . 33.8 M . . 13.3 % . . . . . ( 13.4 %) . . . . . Apple
3 (3) . . Windows Phone . . 9.3 M . . . 3.6 % . . . . . ( 3.9 %) . . . . . . Samsung, Nokia
4 (4) . . Blackberry . . . . . . 5.9 M . . . 2.3 % . . . . . ( 2.9 %) . . . . . . (None)
others . . . . . . . . . . . . . . . 1.0 M . . . 0.4 % . . . . . ( 0.6 %)
TOTAL . . . . . . . . . . . . 253.4 M
Source: TomiAhonen Consulting Analysis 15 Nov 2013, based on manufacturer and industry data
This table may be freely shared
This race is over. Android has now passed 80% of new sales and the only meaningful rival is iOS at 13%. Yes, Windows Phone is now 'the third ecosystem' by new sales (not anywhere near that by installed base) but at 4% market share that is a hollow victory indeed. At least Blackberry is so troubled, it is no rival and Samsung's Tizen keeps teasing us but still nothing to see. Hey, Sailfish gets its sales now before Christmas as Jolla starts its entry into the smartphone wars. First Jolla smartphones will be selling at least in Finland, hopefully also very soon in China..
INSTALLED BASE OF SMARTPHONES BY OPERATING SYSTEM AS OF 30 JUNE 2013
Rank . OS Platform . . . . Units . . . Market share Was Q2 2013 . Main Manufacturers of current base
1 . . . . Android . . . . . . . 959 M . . . 64 % . . . . . . ( 58 %) . . . . . . Samsung, Huawei, Sony, ZTE, LG, Lenovo, SonyEricsson, Coolpad
2 . . . . iOS . . . . . . . . . 308 M . . . 20 % . . . . . . ( 20 %) . . . . . . Apple
3 . . . . Symbian . . . . . . 97 M . . . 6 % . . . . . . ( 8 %) . . . . . . Nokia, Sharp, Panasonic, Fujitsu
4 . . . . Blackberry . . . . . 62 M . . . 4 % . . . . . . ( 5 %) . . . . . . RIM
5 . . . . Windows Phone . . 40 M . . . 3% . . . . . . . ( 2 %) . . . . . . Nokia, Samsung, HTC
6 . . . . bada . . . . . . . . . . 20 M . . . 1 % . . . . . . ( 2 %) . . . . . . Samsung
Others . . . . . . . . . . . . . . 16 M . . . 1 % . . . . . . ( 1 %)
TOTAL Installed Base . 1,504 M smartphones in use at end of Q3, 2013
Source: TomiAhonen Consulting Analysis 15 Nov 2013, based on manufacturer and industry data
This table may be freely shared
So congrats Android. When you add tablets, Android active user base is over one billion already. By end of the year we will have more than 1 Billion smartphone users alone on Android, and globally, more Android users than all forms of Windows, including desktops, laptops, netbooks, tablets and smartphones... wow. I did tell you last year, that Android has won the war, but still, who would have thunk it. In our lifetimes we were to see the king Microsoft toppled. Well, if Nokia could die the Microsoft death, why not Microsoft itself?
Thats your market picture now at the end of Q3 of 2013.
Ok, we are nearing the end of Elop related Nokia stories on this blog, thankfully. Since we have just had the last Quarterly results where Elop was mostly in charge (July-Sept Quarter ie Q3 - Elop was removed from CEO post on Sept 3, 2013) we can now do the exact performance review covering the full 983 days that Elop was the cancer that was destroying Nokia. From the day he started, Sept 21, 2010, Elop was Nokia CEO for 2 years, 11 months and 12 days. This is the headline picture of epic failure:
(the above picture may be freely shared)
Note: All above data is indexed to last 12 months (4 quarters) under predecessor Kallasvuo. It compares like-for-like time, the last 12 months/last 4 quarters of Nokia performance under Elop, ending in Q3 of 2013, vs the last 12 months/last 4 quarters of Nokia performance under his predecessor, Kallasvuo, ending also in Q3, of 2010.
It is clear, that the 3 year period under Elop was a disaster. All metrics, every single conceivable metric for Nokia CEO shows not mild decline, but huge decline - this in an industry that was strongly growing. During his 3 yars at Nokia, the Nokia corporate revenues fell 40%. Nokia handset sales revenues fell 40%. Nokia handset market share fell 54%. Nokia smartphone sales revenue fell 69%. Nokia smartphone market share collapsed 90%. Nokia profits were wiped out to the tune of 92%. Nokia lost over 13 Billion dollars in shareholder value. From the day he joined Nokia, to the morning when it was announced he has been removed from office, Nokia share price had fallen 60%. When he started, Nokia's credit rating was near perfect; as he leaves office less than 3 years later, it was rated junk. This has been the worst performance of any CEO of any Global Fortune 500 sized company in a comparable period of time. It is a world record in corporate failure by CEO.
So that is what this blog is about. This is the story of how Nokia was destroyed. And to keep the words to a reasonable count, I have been drawing pictures for you. So it will be easier to see through the graphs and diagrams than just reading another 10,000 words...
NOKIA BEFORE ELOP
Nokia was a corporation in trouble before Elop joined. Elop was hired as a 'savior' to Nokia's problems. This is how bad it was under previous CEO Olli-Pekka Kallasvuo. Nokia had seen revenues decline from its peak in 2008. Nokia had seen profits decline severely from its peak also in 2008. Nokia had reported its first quarterly loss (although the full year was still profitable) - that loss was driven by Nokia's troubled Networking division, not its handsets units which were both highly profitable. Nokia's share price had fallen in the 4 years and 3 months Kallasvuo losing 56% of their value. Nokia's highly praised triple-A rating was downgraded to AA+. Nokia as a corporation was still healthy when Kallasvuo left, but not nearly as incredibly strong as it had been under the legendary Jorma Ollila the CEO who guided Nokia in its strong growth years across the turn of the Millenium.
So to be clear, Nokia had reported one QUARTER of a loss, but in annual terms, Nokia was a profitable company. Its big revenue growth had turned into decline but that decline was actually halted around the time the Nokia Board decided to seek a replacement to Kallasvuo, and Nokia revenues had returned to growth by the time Elop joined Nokia. Nokia's troubles were in its Networking division, its two handset units, 'smartphones' (Nokia called them 'converged devices') and 'dumbphones' (Nokia calls them 'featurephones') were both highly profitable at the time. Nokia's problems were mostly those of 'execution' of its strategy - some Nokia phones had been technically failures like the N97 flagship and others were incredibly delayed like the N8 flagship which was launched with a one year delay. Elop was introduced by then Nokia Chairman Ollila with a mission to fix those 'execution' problems.
There was no suggestion by Nokia management that Nokia's handset division was in trouble or that specifically its future, the smarthphone unit was in any way in trouble. We have since learned, that the whole issue of Nokia replacing its smartphone strategy came up late in the year with Elop in charge as CEO, it was not part of his hiring negotiations. We have also found out only after Elop left Nokia, that he had in his employment contract a new clause his predecessors did not, which would pay Elop under the extraordinary condition that the handset unit were to fail so badly under his tenure, that it would be sold. So yes, to be very clear, its been confirmed by Nokia and reported throughout in the press, that Elop had a contract, that would pay him a 25 million dollar bonus in case the handset division itself were to see its business collapse.
ELOP PERFORMANCE OVERALL
Lets examine Elop's big-picture Nokia CEO tenure first. I have again indexed the performance to Kallasvuo's time, but this time, to the PREVIOUS year under Kallasvuo, the one ending in Q3 of 2009, so we can see what direction Nokia was moving from Autumn 2009 to Autumn 2010. Now lets see the three big measures for Nokia overall - its total revenues, its profits, and its total handset sales (includes both dumbphones and smartphones). This was how Nokia was doing under 'failing' Kallasvuo and into his last year, and how the next three years progressed under Elop:
(above data may be freely shared)
Again, all performance metrics are worse under Elop with progressively worse performance. So on a corporate top-level basis, we see that under Kallasvuo, his last 12 months, Nokia revenues were flat, but profits grew strongly and handset unit sales grew mildly. Since Elop took office all three see massive falls. The revenues initially stay flat, then take a steep dive. The profits vanish and turn into huge losses, recovering now to miniscule profits, less than one tenth the size of profits Elop inherited. And the handset unit growth was turned into decline instantly.
So what do we learn? Elop took over a company whose overall sales revenues were flat. He turned them into decline. He took a profitable company whose profits were strongly growing, wiped those out to produce a huge loss in his 3 year tenure. And he found mildly growing handset sales, those he turned into declines. Lets be very clear. Nokia was not fully healthy when Elop came in, yes, that is true. He was supposed to save Nokia. Instead he helped kill the sick patient.
WHERE WAS THE DAMAGE DONE
So lets take a look at where the damage was done at Nokia. Nokia's business was in 2010 essentially in three almost identical-sized units, the Networking Division and the two handset units, the dumbphones unit and the smartphones unit. In Q3 of 2010, the smartphones unit generated 35% of Nokia revenues, the dumbphones unit another 35% and the rest was mostly the networking unit at 30% (the mapping unit 'Navteq' ie 'navigation' produced a few percent of revenue and made big losses). Lets see how these three units fared, last 12 months under Kallasvuo, vs last 12 months now under Elop, so we see where Nokia was damaged the most:
(above data may be freely shared)
The Nokia networking unit (known previously as NokiaSiemens Networks) has actually improved under Elop. Its revenues are flat, yes, but look at the profitability. When Elop started, here is where Nokia made its losses. Now, after 3 years of Elop, the Networking unit has returned to ultraslim profits again. This is not the healthiest recovery but it IS a recovery. The return to (super-slim) profits was achieved without really sacrificing any sales revenue, this is technically a good performance. However, when we examine Elop the CEO and his statements over the past 3 years, you hear a lot of 'handsets' and even more of 'smartphones' and even more than that you hear of 'Windows' and 'Lumia' and some 'Asha' but hardly a word about 'Networks'. Except for the mandatory replies to the quarterly results conference call with investment analysts, Elop has uttered hardly a peep about the Networks unit. His whole attention has been focused on the other side of Nokia, the handsets business, especially the smartphone unit. So one might argue, partly in jest, that the Networks unit was able to achieve profitability when Elop did NOT focus on wrecking their business, and mostly left them alone, to their own devices. They are clever people at Nokia, they knew what was wrong, and they fixed it, all quietly while the CEO was not watching.
In the dumbphones unit, Nokia performance under the 3 years of Elop rule resulted in dumbphone sales revenues falling by half, and profits by more than half. Clearly the handset unit has been damaged severely by Elop. But look at the smartphone unit - Nokia's flagship unit, the future of the company. The smartphone revenues have collapsed by two thirds, and the profits turned into losses. Yes, the Networking unit has actually fared ok under Elop, slightly improving. But the more Elop has paid attention, the bigger is the damage. Elop paid more attention to the dumbphones unit than the networking unit, and the damage was bigger there. But Elop paid most attention to the smarpthones unit and that has been utterly demolished under Elop.
NOKIA PROFITS AND LOSSES
Lets dig a bit deeper. Lets see which unit performance has driven Nokia bad results and when. So lets examine the profits by quarter. And then unfortunately we arrive at this problem humans have with examining graphical data:
(Above picture may be freely shared)
The above data is pure quarterly profit data, and the picture looks 'mixed' and its difficult to find clear trends. There is 'noise' in the data, until we recognize there are seasonal moments in Nokia performance, usually Q4 calendar quarter is a particularly good period and Q2 a particularly bad quarter. Now when you see the data, you spot those quarters giving (mostly) exceptional points to the data.. How can we solve this? There is a good statistical tool that eliminates seasonality, it is called the 12 month moving average. It is good for spotting trends but it of course then always reflects the past 12 month period at any given point in quarterly data in this case. The above picture is redrawn now with 12 month moving average profits and looks like this:
(The above image may be freely shared)
When the seasonality is removed, the Nokia profits data shows very clearly the trends. Before Elop started, Nokia had a strong profit-growth period. Almost immediately after Elop joined, after Q1 of 2011, the Nokia profits turned into a crash-dive and by 2012 Nokia had an Annus Horribilus, until this year, the loss-making has gradually improved to now crossing back to slight profits. This 12 month moving average removes the seasonal peaks and gives us a tool to accurately see where the real trends are. Lets use this tool now to compare the three business units and see if any of the three business units has driven the above pattern. All three business units are here in this graph. These are all now in 12 month moving averages and the purple line helps identify Nokia corporate profits/losses from the three business units:
(The above image may be freely shared)
When you examine the data, first of all, the Networks unit (green bars) and Nokia corporate performance do not match at all. Nokia was generating strong profits all the way through mid-2011 while the Networks unit was generating losses. Yes, towards the end of the period, the Networks performance starts to mirror that of Nokia corporate, but not at the beginning.
Similarly the dumbphones unit (orange bars) performance is not a good proxy for Nokia overall performance, as the dumbphones unit never becomes unprofitable using the 12 month moving average, while the Nokia corporate losses grow to be very substatial all through 2012.
But look at the blue bars, Nokia smartphones unit and compare to the purple line. They are in near-perfect synch. Nokia's overall profits and losses tend to be somewhat higher than the smartphone unit, but for almost every quarter when Nokia corporation made a profit, so did the smartphone unit. Same for losses. Same for profit (or loss) growth and decline. It is nearly a perfect match, what truly troubled Nokia in the past 3 years, it was not at the Networks unit, and it was not at the dumbphones unit. It was at the smartphones unit. Here are those two 12-month moving averages isolated so you can see clearly:
(The above image may be freely shared)
If you want to understand why Nokia produced a world record failure in the past 3 years, it was not because of perennial loss-making in the networking unit. It was not because of the gradually diminishing profits of the dumbphones unit. To see where Nokia suddenly collapsed, we have to examine the smartphones unit - that performance drove Nokia from growing profits in 2010 to massive losses by 2012. Something happened in the smartphone unit. Lets dig further.
ITS THE COMPETITION, DUMMY!
Lets burn some platforms, shall we? So, we saw already that the networking unit was the weakest and the smartphone unit the strongest unit Nokia had when Elop took over. So of course, if a CEO is going to 'fix' something, he should not mess with success and try to fix what isn't broken.. but lets do this 'management riddle' - which company is in biggest trouble:
(Above image may be freely shared)
Yeah. The Blue line in the above represents a company that had growing smartphone sales, and was profitable. The green line also represents a company that had growing smartphone sales and was profitable. The red line also represents a company with growing smartphone sales and profits. Each in fact set their company record in both smartphone unit sales and in profits that year. Which would you want to be? Which is strongest of the three? Which in fact - has so much a bigger lead in this industry, that is so huge, its difficult to find a paralle. None of the big PC makers we can remember, IBM, HP, Dell, Compaq, Apple, Lenovo, Acer, Toshiba, Asus, Samsung, Sony, Fujitsu, Siemens, you name it - none have EVER had any year in the PC industry, as big a lead.. as the Blue line in the above picture. How about cars? Toyota, GM, Volkswagen, Fiat, Renault, Nissan... Giant car-makers yes, none have had as big a lead in the car industry - in any year EVER - than the blue line company had in smartphones in 2010. When I tell you that the blue line was not just biggest, and more than twice as big as number 2, but from 2009 to 2010, the company represented by the blue line grew MORE than the two rivals, and I tell you the rivals were Samsung and Apple. You had to be utterly crazy at the end of 2010, to decide 'my company is in trouble and I must end this strategy'. Boeing would love to be the blue line. Pepsi would dearly love to be the blue line. Apple !! would love to be the blue line. But yes, Nokia in 2010 was the blue line. It was the dominant DYNASTY in smarpthones. It crushed the competition in 2010. Nokia was not just twice as big as Apple (green line) or 4x bigger than Samsung (red line) - Nokia GREW MORE in 2010 than either of those rivals - so no, Apple was not 'gaining' on Nokia in smartphones - Nokia WAS PULLING AWAY from Apple.
I know you don't believe me saying so. Here are the official numbers from Apple and Nokia. You be the judge:
Smartphone sales year 2009 and 2010:
Nokia in 2009: 67.8 million smartphones sold, in 2010 103.6 million, growth of 35.8 million new sales
Apple in 2009: 25.1 million smartphones sold, in 2010 47.5 million, growth of 22.4 million new sales
(Sources: Nokia and Apple annual data)
It is a FACT. Apple grew 22.4 million in year 2010, Nokia grew 35.8 million (note the 103.6 million is the revised Nokia number, the initial number reported first by Nokia was 100.3 million which still would have been 32.5 million for the year and far more than Apple's 22.4 million). So - the FACT is that the iPhone was LOSING to Nokia in 2010, falling FURTHER behind, as Nokia was PULLING further ahead. The facts are irrefutable! Why were you then under the impression that every press article you read said that Nokia was losing badly to Apple. I cannot help it, if US tech press and business press were mesmerized by Steve Jobs and the 'Apple Distortion Field' but the facts are facts. What Nokia clearly needed in 2010 when hiring a new CEO, was someone who is good at communicating the facts, like Steve Jobs was for Apple. Nokia was falling severely behind in the propaganda wars, and the previous CEO, Kallasvuo, was not at his best in talking to the press or investors, haha.. He was 'too honest' like a Finn and didn't emphasize the good news enough 'like an American'.... Which was much of the appeal in Elop. While he wasn't exactly always strictly truthful, he certainly knew how to be interesting as a speaker and loved talking to the press and any large audience. But back to the facts. Nokia is the blue line in the above 'riddle' and only a 'delusional madman' would decide that Nokia was in trouble and write a memo about it.
BURNING PLATFORMS MEMO AND ELOP EFFECT
On February 8, 2011, Stephen Elop authored what is known as the 'Burning Platforms' memo. In it he was critical of Nokia and called his own products uncompetitive. It has since been compared to the disasterous Ratner Effect and like the Ratner Effect to Ratners jewelry sales, Nokia's handset sales immediately collapsed. Elop added to the Ratner Effect by also causing an Osborne Effect three days later (Osborne announced his future computer generation too early, with none to sell soon, that caused his current sales to collapse as customers waited for the newer better ones to be launched). I call the combined use of the Ratner Effect and Osborne Effect to destroy your company sales as the 'Elop Effect'. We can see how the worlds' most dominant dynasty in smartphones was duly demolished, in this graph:
(The above image may be freely shared)
This is what happened to the three companies right after the Elop Effect. Apple (green line) continued to grow, but at a slower rate than the industry, and with that peculiar strongly seasonal sales pattern that is the new launch of the iPhone before Christmas. Nokia )blue) collapsed. The one who took all the marbles? Samsung (red line).
And to be very clear to those who want to rewrite history. Apple did NOT - repeat - DID NOT - take the business that Nokia abandoned. It was Samsung who not just took all of Nokia's marbles, grabbed some from Apple as well. This is the five year performance of Nokia, Apple and Samsung selling smarpthones (all with latest market share ending September/Q3 to keep the numbers comparable with Elop tenure)
(Above image may be freely shared)
Yes. First - since the Elop Effect, ie from 2011 on, Apple has NOT GAINED market share, its market share has peaked and been in slight decline. Anyone who writes that Apple or the iPhone killed Nokia is a fool.
Secondly, obviously it was Samsung who stole most of Nokia's business. Or more precisely, as Elop abandoned it with his new strategy and horrid 'execution' of that new strategy, Samsung was most nimble to pounce and grab everything that Nokia left to take. Ironically, Samsung has been executing perfectly the abandoned Nokia strategy even to the point of migrating from its own smartphone proprietary smartphone platform bada to a Linux based new platform Tizen (which replaced Nokia's linux based MeeGo, with the same partner, Intel even). Yes, as Nokia cut product lines under Elop, Samsung expanded. As Nokia refused to exploit its natural strengths from larger screens and better cameras than on the iPhone, to lower-cost smartphones including ones with QWERTY inputs, Samsung did all that. Today after three years of Eloppian damage, Nokia is slowly returning to some of its strengths. So Nokia is following now Samsung (at least larger screens, better cameras) which was following Nokia's original strategy.... Talk about a failure in new strategy when you have to learn the solutions from your biggest competitor, who is still executing your old strategy. Remind me again why we had to do this new strategy thing?
(Elop had a 25 million dollar bonus clause added to his CEO contract, which would pay him if he was able to demolish the handset unit). Ah, yes. That was why. Lets continue. Was there an Elop Effect or is this all my imagination?
ELOP EFFECT PINPOINTED
So lets examine the evidence. We know the networks unit didn't cause the Nokia troubles the past 3 years, the Networks unit has gradually worked itself out of loss-making. We know the dumbphones unit didn't drive Nokia into severe losses, the dumbphone unit has remained profitable all through this period. It was the smartphone unit. But some say, the unit was severely in trouble well before Elop came along, and this was inevitable. That Elop came in when nothing could save Nokia, not even a miracle. Lets examine the evidence again. Since we know it was the smarpthone unit, and we have profit data after Nokia revised its accounting reports in 2011, and gave the smartphone data back to Q1 of 2010, lets look at the performance by smartphone revenues, smartphone profits, and smartphone unit sales. This is what happened in smartphone unit sales:
(The above image may be freely shared)
The unit sales established not just a Nokia record growth, but a world record growth in one 12 month period, for Nokia smartphones! And that strong growth is turned instantly into a world record collapse. The timing - immediately after Q4 of 2010 has ended ie during Q1 of 2011. This points to an Elop Effect (or something else that happened in that time). Lets next look at smartphone revenues for Nokia:
(The above image may be freely shared)
Yep. Same picture, slight variances, mostly that there is even no happy ending in this graph of revenues compared to units (the slight up-tick is missing at Q3 of 2013). Yeah. Something hideous happened right after Q4 of 2010 that turned Nokia's always-growing smartphone unit into perennial decline. Ok. That is what unit sales say and what revenues say. What about the profits? And now, to not smooth out any detail, I am not using 12 month moving averages as we did in the earlier part, lets find the exact point if possible, using profits as our guide. What happened to Nokia smartphone unit profits:
(The above image may be freely shared)
The Profit picture could not be more stark. Nokia smartphone unit sets a Nokia-record profit into Q4 of 2010, then suddenly it all collapses. During Q1 of 2011, the fall is catastrophic, and passes to loss-making into Q2 of 2011, after which the smartphone unit never recovers. So yes, you can measure by unit sales, you can measure by revenues, you can measure by profits. All point to a catastrophic incident after Q4 ended in 2010, that utterly collapsed Nokia smartphone business. Every single data point for the smartphone unit points clearly that the change in Nokia smartphones happened exactly in Q1 of 2011.
By the way, how badly did the smartphone unit collapse. Check out this. It does not get worse than this. This is world-record failure:
(The above image may be freely shared)
Yes. Nokia set a world record in growth in 2010, Nokia grew more than any rival, grew more than Apple's iPhone. Elop saw that, didn't like it, and generated a world-record collapse instead. Why? 25 million dollars of why. But does anyone else agree? Nokia's Chairman and Elop's first boss, at the time the Windows Lumia strategy was presented to the Nokia Board by Elop, and approved there, was quoted in Finland's largest newspaper just now some days ago, saying the Windows strategy had been a big failure. On Microsoft's side, earlier this year, Microsoft Chairman Bill Gates singled the Windows Phone strategy by Steve Ballmer as one of his biggest mistakes. Obviously that Nokia has to resort to selling the unit now in Nokia Corporation's distress and throwing Elop out of the company with that move, is further proof that Nokia's current Board sees that the Windows adventure was a total catastrophy, so disasterous, that the only way out is to sell the whole bloody business unit to get rid of it.. Note, the losses are nowhere near ending - the latest losses are again increasing now into Q3.
WHAT CAUSED IT NOT
So we know the timing. Something severe happened exactly in Q1 of 2011. Was there a fantastic new smartphone by a rival maker that changed the industry, like say the Motorola Razr once, or the iPhone or the Samsung Galaxy is now. No. No new significant smartphones by rivals introduced in Q1 of 2011. Neither was there some other technology that came along that made smartphones obsolete at that time. In fact, the smartphone market has grown exactly 2.5 times larger from Q4 of 2010 to today. Well, did Nokia make some other mistake or change at that time. Maybe Nokia cut its marketing budget, like Blackberry did recently that expedited its decline in smartphone business? Lets see. The marketing expenses do bounce around quite a lot by quarter, so we need to take the 12 month moving average to find the pattern. This is Nokia handset marketing and sales expenses by Quarter, using 12 month moving average:
(Above image may be freely shared)
That picture is flat as a billiard table till Q2 of 2012, after which we see a significant fall forming. (Sorry, we don't have more precise info than the data for the combined handset unit, I'd love to see this for the smartphones unit). But no, back around early 2011, there is no dramatic change to Nokia marketing and sales budgets that could explain the collapse of Nokia smartphone business. What about average prices then? Did Nokia commit the pricing error of suddenly doubling its prices so its sales fell in half? Again, average prices bounce alot from one quarter to the next, but when we remove the seasonality to find any trends, this is what the end-user average sales prices have been for Nokia smartphones:
(Above image may be freely shared)
Remember, we are looking to see a dramatic jump in this data from Q4 of 2010 to Q1 of 2011, to show any pricing impact that could have caused the collapse of Nokia smartphone sales. Did that happen? No. We can see a slowing down of the price decline trend (that was driven at the time of Nokia moving aggressively to lower-cost smarpthones if you remember, before the Elop Effect ruined the strategy - and obviously has since been taken over by Samsung, stealing most of the low-end market as we've just heard in the recent results). Yes, the decline in average price slowed from Q4 of 2010 to Q1 of 2011, but there was still the same direction. What we need is a dramatic big jump. By dramatic I mean much bigger than those we can see, at Q3 of 2011 and Q4 of 2012. But nothing even that mild a jump around Q1 of 2011... No, what caused the collapse of Nokia smartphone sales in early 2011, was not a dramatic Nokia change in its pricing either.
What about the product then? Did Nokia release a total turd as a phone in Q1 of 2011? There was no antennagate like Apple had recently had. There were no exploding batteries as Sony had recently had. No, no lousy phones released. Nokia had just on its hands a hot flagship smartphone, the N8 which would go on to win many awards including cameraphone of the year. During Q1 Nokia released the highly praised E7 flagship with QWERTY slider, alongside the N8, which until the Elop Effect was very well reviewed and at least in China before the Elop Effect had strong sales for the Chinese gift-giving season at Chinese New Year. There were no bad phones from Nokia, quite on the contrary, after the ill-received N97 flagship, the much awaited N8 was highly rated as was the E7. So its not price, its not promotion, its not product. According to Philip Kotler's 4 P's (Wikipedia will tell us that the Four P's actually originated from Jerome McCarthy in 1960) if its not Price, not Product nor Promotion, then it is Place or 'distribution' which is the last remaining possibility of impacting our marketing success. (and please don't write about the newer P's I know some already count up to 7 Ps..)
WAS IT THE SALES CHANNEL?
Right after Elop unveiled his new strategy in February 2011, Nokia wrote in its next Form 20-F to the New York Stock Exchange and the SEC, about Nokia's competitive strengths like this:
Our ability to maintain and leverage our traditional strengths in the mobile product market may be impaired if we are unable to retain the loyalty of our mobile operator and distributor customers and consumers as a result of the implementation of our new strategy or other factors.
(bold in original) Nokia continued:
We have a number of competitive strengths that have historically contributed significantly to our sales and profitability. These include our substantial scale, our differentiating brand, our worldclass manufacturing and logistics system, the industry’s largest distribution network and our strong relationships with our mobile operator and distributor customers.
And Nokia added this:
As discussed above, however, the proposed Microsoft partnership and the adoption of Windows Phone as our primary smartphone platform are subject to certain risks and uncertainties. Several of those risks and uncertainties relate to whether our mobile operator and distributor customers and consumers will be satisfied with our new strategy and proposed partnership with Microsoft. If those risks were to materialize and mobile operator and distributor customers and consumers as a consequence reduce their support and purchases of our mobile products, this would reduce our market share and net sales and in turn may erode our scale, brand, manufacturing and logistics, distribution and customer relations. The erosion of those strengths would impair our competitiveness in the mobile products market and our ability to execute successfully our new strategy and to realize fully the expected benefits of the proposed Microsoft partnership.
Yes, in other words, Nokia had world-leading carrier relations and retail channel management. It had been a key to building Nokia to its dominant position and yes, Nokia testified to the NY Stock Exchange and the SEC, if these carrier relations and retail support were to vanish, all other Nokia strenghts out of scale and brand would also diminish. So yeah. This is Elop at Q2 results. First, was it good or bad? "..our Q2 results were clearly disappointing." Was this planned or a surprise? "The challenges we are facing during our strategic transformation manifested in a greater than expected way in Q2 2011." And what exactly is the problem that so suddenly made a clearly disappointing quarter for Nokia? The only problem area identified by Elop in Q2 of 2011 results is "..to manage unexpected sales and inventory patterns.." That was the only problem Elop discovered in Nokia as his surprise disappointment in Q2 of 2011. Unexpected sales and inventory patterns (as sales were collapsing). So inventory? That is what? Distribution. Retail. Carrier relations.
Its exactly what Nokia warned about. Exactly what Ollila talked about. Exactly what Elop himself talked about later, when he looked back at his Burning Platforms memo when responding to a shareholder question in the Nokia shareholders annual meeting of 2012. Yes, his Burning Platforms memo had damaged Nokia smartphone sales. Yes, carriers did have a boycott against Nokia (and later, in the summer of 2011, would also add a separate sales boycott against all Windows based smartphones while Nokia wasn't then yet even selling those, but Elop admitted to this too, at the shareholders' meeting in 2012).
When Elop talked about Nokia's sudden profit warning in May 2011, he mentioned many things that were great and coming about Windows, or of issues that hadn't developed overnight like China's domestic TD-SCDMA technical standard, and of general but unspecified competitive pressures but the only explicit problem he identified was again in the "distribution channel". Elop complains about the lack of retail support or carrier problems in nearly every Quarterly results at some point either in writing or the investor analyst conference call, or both. I could go on and on. Every single time the three ratings agencies downgraded Nokia in the past 2.5 years, from AA ratings to Junk, they have never said it was because Nokia prices were wrong, its marketing was out of date, its products non-competitive or its ecosystem had fallen behind, etc. Every single time they specified that the retail problems or failing carrier support were the reasons - often the only reason - why Nokia was again downgraded.
SO WAS IT ONE-OFF PAIN FOR LONG TERM GAIN?
One could argue, that the change Elop suggested takes time to happen, and it would get better over time. Yes, one could argue that. If you are learning to high-jump, probably your first jumps are not very high, but with practise you can get to become better at it. Or then, again, you might attempt to learn jumping at a cliff, make your first jump over the cliff, fall to your death, and end your life as stuff-on-a-rock. So lets see, was this 'no gain with no pain' or was this poison. Lets now take three measures we can fit onto one graph, that help us compare the four relevant points in time, before and after the Elop Effect. So the measures I will use are Revenue Growth rate (or decline), then Unit Sales Growth Rate (or decline), and finally Profit or Loss. Each can be expressed as a percentage, and the higher (positive) number the better. For the four periods, lets first take the last 4 quarters before the Elop Effect.
(Above image may be freely shared)
So. Before the Elop Effect, last 12 months, the four Quarters from Q1 to Q4 of 2010, Nokia smartphone unit saw 20% revenue growth, 48% unit growth and had a profitability for the 12 month period of 9%. Elop didn't like that. His Elop Effect caused immediately the collapse and from the first quarter we have the full Elop Effect, ie from Q2 (because the Elop Effect happened in the middle of Q1) we find the next 12 months up to Q1 of 2012 to do the following. Revenue growth turned into decline of 40%, strong unit growth into big fall of 37%. And profits turned into losses of -10%.
That was still selling mostly Symbian. So it was supposed to then be 'fixed' with the new promise of the Windows strategy on the Lumia smartphones from Q4 of 2011. Did it? Lets see how the performance 'improved' into the next 12 months to Q3 of 2012. Already bad performance got worse on every measure. Revenue decline worsened to 44%. Unit sales collapsed 50%. Losses doubled from the already-loss-making time to -21%. And finally there were those who said that Windows 8 would be the savior. That with Nokia's revised Lumia series, now with the new Windows Phone 8, from Q4 of 2011, to now, Elop's departure at Q3 of 2013. What happened? Did the new Lumia with Windows Phone 8 finally validate Elop's beleagured strategy? Revenue still fell 41% from what it was with the first Lumia. Unit sales fell even more than with the first Lumia at 51%. And those hideous losses were only marginally less atrocious continuing the loss-making at -17%.
Yes, the new Elop strategy for the smartphone unit was an instant disaster and a continued catastrophy. By any reasonable interpretation it was a total mess. Except if your name is Elop and you tricked the Nokia Board to add a clause into your employment contract, that actually paid you 25 million dollars for wrecking the Nokia handset business. For any normally intelligent CEO, the above would be cause for resignation and perhaps even suicide, but for Elop this was cause for celebration. No wonder he was always so upbeat and positive about the ever worsening Nokia results, and promising how things were going to improve. They DID improve for Elop, who came ever closer to his 25 million jackpot the more he ruined Nokia. That is why you see, the situation never improved at the smartphone unit, it only got worse.
GREATEST MANAGEMENT FAILURE OF ALL TIME
Am I being too harsh on little 'Call me the General' boy, Stephen Elop? Maybe this is normal in business. Surely there are far bigger disasters that management have inflicted on their companies. I'm sure there are, but not at the level Elop was at. Not when you're a Fortune 120 sized company. Not the US Fortune 500 list, I mean ranked 120 in the Fortune Global 500 which is far more exclusive. At that level there is nothing that comes even close. Consider New Coke. Yes, Coca Cola's disaster new drink. It caused Coca Cola to fall behind Pepsi for the first time in history (and Pepsi so celebrated, they gave every employee a day off and ran huge ads in the press). Or what of the recent problems Toyota had with its brakes that caused 12 million cars to be recalled. These are classic management blunders, costing tons, and surely they must be bigger. What of BP's oil spill with the Deepwater Horizon drill on the Gulf of Mexico a few years go? I've actually collected the five most notorious management mistakes that occured while Elop was alive, by Fortune Global 500 sized companies, who also were the market leaders or near the top of their given industries, for some contrast. Lets see how Elop's little smartphone mishap compares:
(The above image may be freely shared)
Yes. Elop has indeed set the record for management failure, not just in handsets but in any global industry. Worse than Mercedes Benz's A-Series, the car so dangerous, you could not drive it into any curve or corner without it tipping over. Worse than Coca Cola's New Coke. Worse than the Exxon Valdez tanker oil spill in Alaska or the BP Deepwater Horizon oil spill on the Gulf of Mexico. Worse yes, than even the Toyota brakes problem recall. And look, the damage was deeper and longer than any of those classic disasters. Incidentially, Coca Cola, Daimler-Benz and Exxon never fired their CEOs for those problems but Toyota, BP and Nokia did fire theirs. Congrats Stephen 'call me the General' Elop. Your name will be synonymous with world record failure and you did it with the Elop Effect.
OTHER MEASURES - FORTUNE, INTERBRAND
So the ratings agencies dropped Nokia one notch from AAA rating to AA, this was seen as a major problem under Kallasvuo. Note, AA is 'so bad' it is still what the US treasury bonds are rated today. Second best ratings class in the world. But this was a severe problem under Kallasvuo. Did Elop get Nokia back its AAA rating? Of course not. The ratings agencies have issued several revisions of Nokia's ratings. Not once has it been up, invariably its been down. Down to A, to BB+ to B etc all the way down to Junk. Moody's rates Nokia now as Junk. Standard and Poor's rates Nokia now as Junk,. Fitch's rates Nokia as Junk. Is that cause to celebrate Elop or to fault him? What of the Fortune Global 500 ranking? Here is the trend: The Fortune Global 500 ranking comes out in the summer, so just before Kallasvuo was kicked out, we saw his last ranking and we get 3 more under Elop:
Fortune Global 500 Rankings for Nokia:
2010 (Kallasvuo) . . . 120
2011 (Elop) . . . . . . . 143
2012 (Elop) . . . . . . . 174
2013 (Elop) . . . . . . . 274
2014 (next CEO) . . . 374 (estimate, based on current performance - if handset unit is not sold)
or 2014 (next) . . . . . (dropped out of 500) - if handset unit is sold
So yeah, thats a dramatic fall. Not the biggest fall in Fortune history, obviously, as many companies have faced catastrophic conditions, wars, natural disasters etc. Or have sold major parts of their business (Fortune ranking is based on sales revenues, so if you sell a third of your company, you instantly shrunk by 1/3 according to Fortune) or faced an industry in severe crisis or have a national currency in crisis - the Fortune 500 list is denominated in US Dollars so foreign currency exchange rates apply for non USA based companies, etc. But for a healthy profitable company, in a growth industry, out of pure organic growth/decline (not though mergers or divestitures) and ignoring pure accounting fraud like Worldcom, Enron and Lehman Brothers - this is probably also a Fortune Global 500 record for true self-inflicted damage through purely 'organic' means. Genuine damage by management, not accounting tricks or exchange rate fluctuations etc.
Then what of Interbrand? They rank the most valuable brands on the planet (Coca Cola is number 1 again). Nokia has been in the Top 10 globally for the whole past decade. Yes, far above Mercedes Benz or Rolex or most such brands. Here is how Interbrand has judged the Nokia we've now seen under Elop in this new decade:
Interband Ranking for Nokia past 4 years:
2010 (Kallasvuo) . . . . 8th
2011 (Elop) . . . . . . . 14th
2012 (Elop) . . . . . . . 19th
2013 (Elop) . . . . . . . 57th
Interband also calculates the worth of the brand. In 2010 the Nokia brand was worth 26.2 Billion dollars. How much has it fallen? Today Interbrand rates Nokia brand worth only 7.4 Billion dollars. According to Interbrand, Nokia's performance under Elop has eliminated 72% of Nokia's value. Or in dollar terms, wiped out 18.8 Billion dollars. That is a bit more than what the Financial Times just calculated, as Nokia's market capitalization, Elop has destroyed 13.5 Billion dollars of Nokia shareholder value in his 3 years as CEO.
I will end on the 'history will remember you for this' graph. The Misery Graph. I have written many times, that Nokia legacy will be not how its given products were great or not, not on its patents or its loyalty or its profits or its maps or whatnot. Nokia will only be considered in the view of history on one metric - did Nokia win or lose the transition. What transition? THE transition it faced. Nokia took the world crown from past master, Motorola, when the handset industry shifted from analog mobile phones to digital mobile phones. Motorola dominated the analog era, Nokia became the biggest riding the new technology and digital. So what was the next disruption? Smartphones. Would Nokia only last one generation like most tech companies, who then die in the next 'paradigm shift' or would Nokia be the rare exception who masters the next shift as well.
So that is why we may judge Apple or Blackberry or Sony or Samsung or Huawei or Lenovo on different terms when it comes to smartphones, but in the long run judgement of history, Nokia will only be judged on one - would it die like Motorola, by missing the big shift, or would it manage to hold its lead through the difficult transition into the new age, from dumbphones to smartphones.
And my regular readers know this. The smartphone was not invented by Apple in 2007. It was invented by Nokia ten years before. Nokia's true competitor was not Apple in 2010, it was Samsung as we can see in the above graph early in this story - why? Because Nokia to phones is like Toyota to cars. Toyota makes cars of every type and kind, for every market, in every price range. From luxury Lexus to cheap taxicabs to rugged four wheel vehicles to vans to citycars to hybrids and just about anything you'd want. And Apple is like Porche, who produces only a few products and aims at the very high end of value with high profit per unit and ignores most segments. Has products which even over time are difficult to tell from one another. So while Toyota occasionally competes with some sports car against Porsche, obviously Toyota's main competitors are General Motors, Volkswagen etc, not a luxury-sports niche car-maker like Porsche. If Toyota made the strategic mistake of ignoring Volkswagen and Ford and GM and Nissan and Fiat and Renault, but only focused on trying to beat Porsche, they'd go bankrupt immediately, as their whole organization is built on optimizing the benefits of scale. From sourcing to manufacturing to distribution and sales. It would be suicide to suddenly focus only on one tiny rival, no matter how profitable that one tiny rival might be.
Nokia invented the smartphone. Then, Nokia led the migration from dumnbphones to smartphones - among its true competitors, those handset makers who were full-portfolio handset makers who made anything from slick superphones to ultracheap basic communication. Like Samsung, like LG, like previously Motorola, SonyEricsson, etc. In that transition race, Nokia was ahead of all its traditional rivals in 2010. Remember, we are not comparing Nokia performance now to pure smartphone makers like HTC, RIM/Blackberry, Apple, Palm etc. No, they do not need to manage a transition from dumbphones to smartphones. But Nokia's traditional rivals would have to. And against Motorola, Samsung, SonyEricsson, LG, Huawei, ZTE etc, Nokia was ahead of the pack in migrating its consumers from dumbphones to smartphones in 2010. It was so far ahead, it was ahead of the global migration average number, which includes the pure smarpthone makers of course (which all start at 100%, which pushes up the global average number obviously.)
That is why I coined this next graph the Misery Graph. Up to the Elop Effect, Nokia was safely above the global average in migrating customers from dumbphones to smartphones. Why 'misery' - because Nokia was the global market share leader in dumbphones (as well as in smartphones). If Nokia managed only to use its existing market share in dumbphones as it migrated to smartphones - Nokia would easily end up the biggest smartphone maker too (as it already was at the time) - and if it just continued on that path, successfully, and profitably, it would 'win this decade' and win the race to smartphones. As long as Nokia stayed on that path, that it held its migration rate above the industry average. If that held, today Nokia's smarpthone migration rate would be about 60% (the industry is at about 55%). But look what Elop did:
(The above may be freely shared)
Yes, Elop truly came and snatched defeat, from the jaws of victory. Nokia was first, among all full-portfolio handset makers, in leading the migration to smarpthones and the only one at the time, that was ahead of the industry average migration rate by end of 2010. Nokia was the only full-portfolio handset maker who had also achieved that difficult transition without missing a beat, all of Nokia's full-portfolio rivals like Motorola, Samsung, LG and SonyEricsson, had reported at least one quarter of a loss in their handset divisions while attempting this costly endeavour. Nokia had passed that test with flying colors, never once reporting a loss in its handset unit up to Elop. This was the ultimate measure for Nokia and Nokia was winning the war. If it maintained its global market share lead of dumbphones into smarpthones, it would inevitably win also the smartphone wars of this decade. That was at stake when Elop suddenly derailed the victory train. We know why of course, he had 25 million sweet reasons to cause the collision. But that is the end effect. Today Sony has completed its transition, all of its phones are now smartphones. LG is at 71% and Samsung at 70% migration. Motorola went bankrupt in the attempt and the migration was too costly for Ericsson who pulled out of the handset business altogether. Only Nokia was winning this war, until Elop demolished that. So here's three cheers for misery!
BUT WAIT, THERE IS MORE...
Hey, if this is my big 'lets do the proper performance review of Elop' then we cannot ignore a couple of his most famous ie infamous promises. The 150m promise or the 1-to-1 promise etc. So, lets take his most famous strategy promises and rate those too. Elop promised us a 1-to-1 transition from Symbian to Windows once the strategy had been fully implemented. He talked at one point about 1-to-1 revenue transition and at another point about 1-to-1 unit sales transition. Do you remember this graph from February 2011:
(Above image may be freely shared)
I want to correct that for the obvious omission, this is the same data but adding the missing year, remember, Nokia handset business was not static when Elop took over, it was growing. By revenues, driven by the smartphone unit, towards the end of the year 2010, Nokia handsets unit was growing strongly, so it looked like this:
(Above image may be freely shared)
So Elop promised, that after he announced, there would be no erosion of Nokia handset business - before Windows based Lumia would launch. That the dumbphones business (gray on the bottom) would remain essentially flat. That the light-blue part (Symbian) revenues would remain the same, then transition on a 1-to-1 basis to his new Windows based Lumia smarpthones. And by the time the transition was done, which we now know, happened at the end of Q1 of 2013, the revenues in the smartphone unit would be the same as they were when he announced this back after Q4 of 2010.
So we have a three-part strategy. Nice. Now we also have the final results, straight from Nokia's own Quarterly results in this fun game. Lets see how it panned out. This is what happened over at the Symbian unit:
(Above image may be freely shared)
Yeah. That was a total flop right there, to start us off. Symbian did not materialize in the way Elop promised. How much abandoned revenues were in that light blue sector that is now missing compared to the promise? Try 11.9 Billion Euros (16.0 Billion US dollars) wiped out, never to return to Nokia shareholders. Even if we assigned to that the minimal profits that the dumbphone unit managed around say 4%, we'd get lost profits of at least 478 million Euros (640 million US dollars). Ok. Can't be all bad, lets take the second leg, the migration from Symbian to Windows. We know that at least had to do better, didn't it?
(Above image may be freely shared)
So yeah, misery gets worse. One can certainly understand that the transition stage was 'challenging' and even a hyper-genius 'call me the General' type of strategic thinker like Elop might get the initial Symbian sales wrong, but you can't fail if you select Windows, right? The new Lumia would surely resurrect Nokia smartphones to its former glory and recover to the same level of revenues as Nokia had with Lumia. Elop talked specifically about 1-to-1 revenue transition in his shift from Symbian to Windows (and pointed out very explicitly, that MeeGo was excluded, that might be a wrinkle that Windows might not be able to match, but old Symbian.. definitely yes!). So did it? As we see from the above picture, Lumia failed spectacularly. It only now after full end of Symbian, has managed to capture 29% of the promise, ie Elop fails this leg of his strategy by 71%. Thats pretty bad, folks. What has this cost Nokia so far? Through Q3 this failure has abandoned more Nokia smartphone revenues at the level of 22.4 Billion Euros (30.0 Billion US dollars). As the Lumia series has not for one day generated any profit at all, we can't honestly say that this failure has cost Nokia any profits, but had Nokia stayed with Symbian instead, that would have even at a 4% profitability level been worth 895 million Euros of abandoned profits so far (1.2 Billion US dollars).
Well the one good thing is, this was a 3 part strategy, and while the other two parts went bad, at least there was the solid featurephones foundation, that even a moronic Elop memo can't wreck. Or can it? Lets see how solidly the dumbphone division managed under this new Elop strategy:
(Above picture may be freely shared)
Yeah. Would you believe it, even the dumbphones unit revenues collapsed under the stupid Elop strategy. How badly? They fell 68% from the promise. And how much was wiped out of the rosy gray area in the promise to the sad gray area in the reality? That amounts to 14.0 Billion Euros so far and counting (18.7 B US dollars) and if we only say the profits lost would be at 4% level, Elop's failed third leg lost Nokia another 560 million Euros (750 million US dollars) of profits.
All three legs of the strategy failed. Comprehensively. This is the truth graph to show reality vs the promise:
(Above picture may be freely shared)
So yeah. The red part in the graph represents the extent of Elop's total failure across all three legs of his infallible strategy. How big is big? He is 48.2 Billion Euros in the hole compared to his promise. Thats 64.5 Billion US Buckaroos. His strategy failure is so thorough, his broken promises (red part of graph) has already grown to be bigger than all blue parts dark and light, and all grey parts since his strategy was announced - COMBINED !!! This strategy ever since Q2 of 2011, has already gone 57% into the red (and its only getting worse - the ratio of failure vs success of the strategy now in Q3 is 68%!)
Which brings me to his 150 million promise. That was the number of Symbian based smartphones that Nokia promised to deliver when Elop announced the Windows strategy. Well. How close did we get? Nokia gave us only 74.7 million smartphone sales - and that includes several million MeeGo smartphones. But lets use the 74.7M number. Even at that number Elop broke half of his promise to Nokia loyal customers and especially long-term loyal Nokia developers, partners, component suppliers, you know 'smartphone wars are won by ecosystems' Elop thinking..
Ok, then if the strategy failed on the revenues, maybe it succeeded at least on the 1-to-1 transition from Symbian to Windows, by unit sales? Or did it. This is the proportion of that failure:
(Above image may be freely shared)
Yes, again gargantuan level of failure. If Symbian was so hideously bad, that it had to be ended, how uch worse then is Windows Phone if it scares away 69% of those loyal Nokia owners who were offered a Lumia but went to a competitor instead? We can see how Elop got his job. He is excellent at promising utterly impossible things. Unfortunately for a Fortune Global 500 company CEO, it is a very bad tendency to over-promise and under-deliver. But hey, want to see that above picture with the truth, the whole truth and nothing but the truth part, added. Are those 'successfully migrated' Lumia owners now all happily loyal Nokia customers or are they imprisoned bitter Nokia-haters who can't wait to get away from Windows Phone at the first chance they get? We actually know! There have been two global surveys by Yankee Group and by Bernstein that answered that loyalty question of early Lumia and Windows Phone owners. This is that above graph, corrected for Nokia satisfaction level:
(Above image may be freely shared)
So while nominally Nokia has 'achieved' 31% migration to Lumia, nearly half of those are so disgusted by their new Nokia toys, they can't wait to get rid of them and will never buy another Windows based smarpthone again. So only 17% of the previous Symbian user base is actually satisfied by their newest Nokia smartphone with the Windows system. In layman's terms, for every 6 attempts to convert 5 have been lost forever as loyal customers - four are already using a rival device and the fifth can't wait to go.
LUMIA VS SYMBIAN IN APPLES-TO-APPLES COMPARISON
So then they now celebrate how Window Phone is 'growing so fast' among smartphone operating systems. But we have to take this in context of Nokia, how would Nokia do 'normally'. We now have 4 periods of the very latest and best Lumia, under Windows Phone 8. How did it do, against the last 4 quarters of the same time period (ending in Q3) before the Elop Effect? Lets normalize the sales so that in 'Q0" the quarter before the first quarter, five quarters back, we 'zero' the sales, and then add incremental new sales per quarter. While we are at it, lets also see how the original Lumia did in its first four quarters, as they too started in Q4 and we end in Q3. Last Symbian new sales from Q4 2009 to Q3 of 2010. First Lumia sales growth Q4 of 2011 to Q3 of 2012, and now, Lumia relaunched with Windows Phone 8, from Q4 of 2012 to Q3 2013. This should be interesting. Lets see:
(Above image may be freely shared)
Yeah, no happiness here. Note, first, that the best performance was by Symbian. The note how similar original Lumia and 'new and improved Windows Phone 8' Lumia are, nearly identical for first 3 quarters (until Microsoft 'Osborned' the current Windows Phone line of Nokia, by announcing it cannot be upgraded to Windows Phone 8). But then recognize, these are actual unit levels, but the market has grown 2.2 times bigger from the blue line to the orange line, and another 1.4x bigger up to the purple line! So these Windows Phone devices are doing FAR worse than the graph would suggest. I wonder if there would be any more applicable statistic, that would accurately account for the change in the market. Hey, market share would do that! If we use the same idea, but instead of measuring actual unit sales in millions, we measure market share gains in points, we now have a harmonized scale that is applicable over time. How does Nokia old Symbian sales pattern compare to first Lumia and second Lumia. I think this graph would also answer the question - how much does 'carrier relations' and 'retail support' matter when you launch your phone. Compare:
(Above image may be freely shared)
NOTE - this above image is subject to easy mis-interpretation! Please read my explanation here of what it indicates and what cannot be inferred from the graph. This is not a 'normal' market share graph! The comparison here is not 'across' so you should not compare blue lines across - these are within the period, you can only compare each Q4 number (blue, red and white), or each Q1 number etc.
So why the confusion. The graph would suggest Nokia's Symbian market share gained 8% in Q4 of 2009, then another almost 4% to a cumulative 12% by Q1 of 2010. That is not what this graph attempts to illustrate. This graph has harmonized each period, to be comparable to the SAME period before, through the unit of 'market share' that is only accurate within that same period. To put it simply, if the world had not grown, the above would indicate real market share gains. But in reality, the actual market ALSO grew, but because I brought in different times into this graph, adding detail, we lose other detail (time comparison 'across' from one period to the next). You can make no infrences about 'market share' gains or losses based on this graph, I have that info elsewhere. By this graph, we can compare Lumia unit sales equivalent performance to a market that sells 1 Billion smartphones now, to Symbian unit sales equivalent performance 3 years ago when smartphones sold 298 million smartphones in the year. The only possible measure is what market share that unit sales level would have been out of that given point in time.
Let me show by example. Take blue line, go to the third blue line, Q2 of 2010 in our case for Symbian. The earlier graph (above) told us that Nokia had added 8.8 million units compared to 'zero quarter' ie Q3 of 2009, and in Q1 of 2010 that was 6.3 million, so Nokia had actually added 1.5 million smartphone unit sales going from Q1 2010 to Q2 2010. What does the total 8.8 million (cumulative) additions since 'zero quarter' for Symbian mean, if converted to Q2 of 2010 market share? The market globally was 61.7 million smartphones so this unit number is equivalent to 14% of Q2 market share in 2009. So far the math is on, and for any one number here, the math holds. BUT THEY CANNOT BE COMPARED ACROSS. Now the misunderstanding, if we now compare 'across' and compare to Q1, this graph now suggests Nokia market 'share' grew by 2 market share points. That didn't happen in reality, because the global market also grew, from Q1 to Q2 in 2010, and that growth rate was more. So Nokia real market share in Q2 had fallen from Q1. Nokia still GREW UNIT SALES - that is what we are showing here, but because we have not now included the market size across the data, we cannot compare the graphs across periods.
Why is this? Because each quarter is now comparable within the quarter. How many Lumia sales would we have to have now for example in Q2 of 2013, to match a number that would be the same performance as market share points as under Symbian. Lumia should achieve cumulative sales reaching 14% market share of Q2 of 2013, when the market size was 233 million units and Lumia should have sold 32.6 million smartphones from zero-level (achieved Lumia sales to that point) in Q4 of 2012, and added 32.6 million more Lumia in the next two quarters. That would not be 'better' performance than Symbian did the last time Nokia tried before the Elop Effect, when operators/carriers still supported Nokia. How much worse is Lumia now? Here we can now do the math - within one quarter, not across. Lumia latest achieved 2% gain. In 2010 Symbian achieved 14%. The failure is 12 points of market share or .. Lumia is achieving only 11% of the performance Nokia did regularly before the Elop Effect. Yes, 89% failure...
Yeah, I know the picture is confusing. Someone may know of a better terminology or better statistic, its literally a quarter of a century since I last studied statistics in my MBA studies, I have forgotten far more than I could hope to remember. But yes, that above graphic is not a measure of market share gains and losses. It is a conversion of unit sales to equivalent points when the market has grown to more than 3 times larger comparing oldest and newest data points. If you are uncomfortable with this methodology, just go back to the previous slide, and remember, that picture is 'flattering' to the Lumia, because even as they are far worse than Symbian, the market has ALSO grown dramatically, so the comparative performance is even worse, when market growth is included into the picture...
I wonder if I still had more I wanted to share? I do want to get all my pictures out, to discuss the Elop catastrophy, so that all the pictures and numbers are in one place, and I don't have to revisit this topic again in some weeks.... Ok, its been long already, let me go through my notes, I may have something more still coming, but am not sure. I'll still finish the blog obviously, regardless
BRING IN THE CLOWNS
Hey, lets do the clowns pictures? I prepared these for back when Elop's damage was only 2 years of age, so these are all accurate, but up to the end of last year, so keep that in mind, compared to now. These just go to show the incredible depth of the delusions of the Imaginarium of Doctor Elopssus. When is someting a 'Burning Platform' according to Elop - and when is something NOT a burning platform. This is interesting if you really take Elop at his word (we now obviously know, the only way to take Elop is to find what is in his bonus clause of his contract). This is Nokia in February 2011. See what Elop thought of the condition. And then see how Nokia fared and what Elop said exactly one year later, February 2012:
(Above image may be freely shared)
Note for context. Elop himself within 4 months had issued at least 11 statements that contradicted or redacted essentially all points he made in his silly memo of February 2011. Remember that we've now learned, Nokia's Board was livid about the memo and Elop's boss, Nokia Chairman Jorma Ollila reprimanded Elop for the memo. Elop himself admitted to Nokia shareholders in 2012, that yes, the memo did damage Nokia smartphone sales. Yet. Did Elop ever apologize for it. Did he ever even say in public he didn't mean what the memo said? No. He clearly went to the Donald Rumsfeldian school of truth-telling. Ignore facts, never admit you were wrong, even when your own words are played back at you, deny deny deny. Like Dick Cheney taught you no doubt. But yes, lets go on. There are MORE clowns. Now, what do you think happened a year after that, in late January 2013? Look at the ever-worsening Nokia situation and read what Mr Pretend-Patton, our Microsoft Muppet said then. This is the most unbelievable picture of delusion in a corporate CEO. This is like 'Comical Ali; if you remember Saddam Hussein's Minister of Propaganda:
(Above image may be freely shared)
Haha, I did like adding those silly clown-faces. By January 2013 I was utterly fed up with the shenaigans of Mr 'Call Me the General' Elop and just wanted this thing to be over with, and for the Nokia Board to fire the incompetent fool. Adding clown faces cheered me up in a little way at the time of ever worsening Nokia news. Did I have any other pictures or stats to share with you? Lets see.
Hey, we gotta do the group picture. What is it that Elop wrecked that now is sold at fire-sale prices as damaged goods to Microsoft? The part of Nokia that by year end 2010 delivered 70% of Nokia revenues and all of Nokia profits. Where revenues and profits both GREW in 2010? The most healthy part of Nokia. The destruction for which Elop was now paid 25 million dollars as bonus - or as the Financial Times calculated, for every 1 Billion Elop demolished in shareholder value, he got paid 1.5 million himself.. nice job if you can find it..
(This image may be freely shared)
Yeah. Elop eliminated 65% of the smartphones unit, 56% of the dumbphones unit when counted at annual sales revenue levels and now this unprofitable crippled unit is shipped over to Microsoft (or maybe not, if Nokia shareholders decide that an Android option for Nokia would be far better value for them and reject this dubious 'value' of the deal to sell the unit to Microsoft)
Ok, I think we got all the main points and data here. I want to return to the first picture. There is no doubt, Nokia was having problems and was reporting disappointing results and its then CEO, Kallasvuo needed to be fired in the summer of 2010. I am not claiming Nokia was in perfect health. But we can see, Nokia's problems were not in the smartphone unit. Elop didn't work diligently to fix Nokia's problems. He took the best part of Nokia, the healthiest part, and demolished that. So lets keep in mind, his predecessor was already by broad consensus so bad, he had to be fired. Now compare the two, Nokia's bad CEO Kallasvuo, and literally the worst CEO of a major global industry leader, of all time. I have slightly updated the graph from the top, with the actual numbers as well as the indexed comparison, and of course added now the reasoning as well. How is it, that Elop was so misguided to deliberately wreck the company he was hired to run. We now know why. Elop had tricked the Nokia Board into adding a new clause to his contract his predecessors never had. That nice little one with 25 million reasons to destroy Nokia. Here are the two CEO's compared one more time. If you, my reader, can find any other Global Fortune 500 sized company ever, with a CEO with worse results than these, please tell me. And journalists out there - here is your Pulitzer prize, please write about the greatest heist in corporate history, how Elop swindled 13 Billion dollars out of Nokia investors to pocket 25 million dollars for himself
(The above image may be freely shared)
And yes, of course, I will be releasing a book about this.