Nokia Sees Change at the Helm - Analyst Blog

Time is up for Mr. Olli-Pekka Kallasvuo, the beleaguered CEO of Nokia Corp. (NOK). Today, the Board of Directors of Nokia has taken a decision to replace Kallasvuo with Mr. Stephen Elop from Microsoft Corp. (MSFT). Since last July, industry circle was rife with the speculation that Nokia management is desperately looking for a suitable replacement for its existing CEO. The change will take place on September 21, 2010.

Nokia is facing serious problems in the high-end feature-rich smartphone segment. Smartphones are expected to become the next-generation choice, taking over market share from basic mobile handsets. As of today Nokia is nowhere near iPhone, BlackBerry, or Android-powered mobile devices.

The company failed to understand the market’s preference for feature-rich PDAs and as a result gradually lost market share to Research In Motion Ltd. (RIMM), Apple Inc. (AAPL), and Google Inc’s (GOOG) Android-based smartphones especially from a resurgent Motorola Inc’s (MOT) DRIOD series.

While Nokia fails to get any meaningful foothold in the top-tier smartphone market, its core business area of mid-tier basic mobile phone is also facing tremendous pricing pressure from low-cost Asian manufacturers like HTC of Taiwan, Huawei Technologies and ZTE Corp. of China and Samsung and LG of South Korea. As a result, Nokia’s overall market share in the mobile phone segment has come down to just 33% from 45% a year-ago.

Additionally, Nokia Siemens Networks, a 50-50 joint venture between Nokia and Siemens Crop. (SI) is also struggling due to weak global economic conditions. This partnership is now trying hard for cash infusion by means of stake sale to private equity firms. Besides, tough competition from LM Ericsson AB (ERIC), Nokia Siemens Networks is competing against low cost Chinese entities.

We believe there will be immense pressure on Canada-born Stephen Elop to deliver immediately. He has vast experience in developing business software and his North American background may help Nokia to develop mobile handsets and tablets which will be attractive for the American consumer. In fact, the most important challenge for the company is to capture the North American market, where it lags by a large measure.  

The task is no doubt very tough but not impossible. We are seeing how Dr. Sanjay Jha is transforming the struggling mobile device division of Motorola since he took over as the division’s CEO in mid-2009 after serving as CDMA division head of Qualcomm Inc. (QCOM).

According to our view, Nokia needs a clear-cut strategy regarding the operating system of its phones. The choice of the operating system- Symbian or Linux-based MeeGo is up to management but the software must be developer-friendly so that newly launched multimedia applications can run smoothly. Smartphones are generally characterized by very powerful operating systems capable of supporting a variety of services and applications. Unfortunately Nokia is seriously lagging behind.

 

 
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