Nokia's CEO: After One Year on the Job, Not Much to Celebrate
byOct 11th 2011 11:15AM
Former Microsoft (MSFT) executive Stephen Elop may be thrilled to have his first year as CEO of Nokia (NOK) out of the way.
After all, in the past 12 months, the struggling mobile-phone maker has seen its share price plummet roughly 40% while the broader markets have risen. And the bad news just keeps coming:
- Nokia's U.S. market share with users 13 and older fell to 5.3% in July, down from a 7.8% market share a year earlier, according to market researcher comScore (SCOR).
- Just a few weeks ago, the company announced another major round of 3,500 layoffs as part of its cost-cutting moves -- and that's in addition to its announcement earlier this year of 4,000 job cuts.
Investors may be loath to break out the bubbly to celebrate Elop's first year on the job. Not so fast, say some Wall Street soothsayers. Here are some of their high-level takeaways on his first-year performance.
Elop's No Flop -- At Least Not Yet
"He inherited a tough situation, and you can't blame him for not having made enough impact in his first year," says Mark McKechnie, an analyst with ThinkEquity Research. "He's done a good job at assessing Nokia's situation and did a bold move in committing to Microsoft's Windows Phone 7. He had to do something bold, and he did. But did he make the right bold move is up in the air."
Elop's bold move entailed announcing plans to scrap the company's longtime mobile operating system, Symbian, in favor of Microsoft's Windows Phone 7 OS. Symbian has been taking a beating against smartphones loaded with Google's (GOOG) Android operating system and Apple's (AAPL) iPhone iOS. Earlier this year, Android kicked Nokia's Symbian from its longtime No. 1 spot, and Apple's iOS iPhone later moved ahead of Symbian to take the No. 2 position, according to Canalys.
McKechnie, however, says Elop may have bet on the wrong horse with Windows Phone 7. (The company is expected to unveil its first Windows Phone 7 in late October.) Android is further along in the market and already has an ecosystem of developers writing apps it. And Microsoft is suffering from a branding issue among smartphone buyers.
Jonathan Goldberg, a Deutsche Bank analyst, says it'll take roughly another year to know whether Elop is worth his weight in gold as a Nokia CEO, and whether he made the right choice with Microsoft. Nokia's Windows Phone 7 will be designed by a third party. However, early next year, Goldberg expects Nokia to announce its internally designed Windows Phone 7 smartphone and start shipping the devices toward the end of next September.
Goldberg gives Elop a "B" grade for his first year at Nokia, but said the CEO and company may soon find themselves broadsided by cheap $100 Android smartphones from companies such as Huawei Technologies. The impact of those devices could derail Elop's plans of turning around the company, particularly in markets outside the United States and Europe.
"For the same price point of $100, why would a customer pick a Nokia feature phone when they could get a smartphone for the same price?" Goldberg asks. Feature phones account for approximately 80% of Nokia's business; while high-end smartphones account for about 20% of its revenues. "It's not easy to develop an [operating system] for a feature phone, and time is not on their side."
The decision to forgo a two-pronged attack in simultaneously developing a Windows Phone 7 and a response to a cheap Android phone with a souped-up feature-phone operating system may eventually lead to a much lower grade for Elop when his second anniversary rolls around.
Motley Fool contributor Dawn Kawamoto owns no shares in any of the companies listed. The Motley Fool owns shares of Apple, Google, and Microsoft. Motley Fool newsletter services have recommended buying shares of Microsoft, Apple, and Google, as well as creating bull call spread positions in Apple and Microsoft.