Wounded Nokia chief to face frustrated investors

HELSINKI Fri Apr 30, 2010 5:32am EDT

Nokia's CEO Olli-Pekka Kallasvuo makes a speech during Capital Markets Day at Dipoli Conference Centre in Espoo December 2, 2009 file photo. REUTERS/Lehtikuva/ Pekka Sakki

Nokia's CEO Olli-Pekka Kallasvuo makes a speech during Capital Markets Day at Dipoli Conference Centre in Espoo December 2, 2009 file photo.

Credit: Reuters/Lehtikuva/ Pekka Sakki

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HELSINKI (Reuters) - Nokia Chief Executive Olli-Pekka Kallasvuo will next week face shareholders who are frustrated more than ever before.

The share price of the world's largest cellphone maker has missed the market recovery. The firm will be one of the few to miss profit growth in 2010, the year of economic recovery, and software problems continue to haunt its smartphone lineup.

It means Kallasvuo, who has spent more than half of his life at the company, could give his last speech to shareholders if Nokia cannot roll out a serious challenger to Apple's iPhone for the key holiday-sales season at end of the year.

The track record shows the chances are slim -- Nokia's last hit smartphone model was unveiled in 2006, the year when Kallasvuo, a long time company lawyer, took over at the helms of the Europe's top technology firm.

One year after iPhone's 2007 launch most smaller rivals have rolled out similar models. Last week Nokia delayed Symbian 3, its software platform revamp seen as a first step to make its smartphones competitive again, triggering a sell-off in its shares.

Analysts say there is more downside likely ahead.

"We are waiting for Wall Street to swing into panic mode regarding Nokia sometime during this spring or summer - this happened over the earlier platform transition screw-ups in 1997, 2001 and 2004," said MKM Partners' Tero Kuittinen.

After a blogger in Russia unveiled a critical review of the first phone using the new software, the company this week rushed out details of its new flagship N8 model, which failed to impress the market.

TIME FOR NEW BLOOD?

Analysts say Nokia could in the near future replace Kallasvuo -- who himself has done a reasonable job -- to soothe investors.

"It feels like it would please the investors," said Gartner's Carolina Milanesi.

Analysts at Jefferies cut Nokia's rating to "underperform" last week after the earnings report, saying: "Much appears amiss still with Nokia -- pressure on management may yet precipitate changes, a potential crumb of relief amidst the gathering gloom."

Alan B. Lancz, president of wealth management firm Alan B. Lancz & Associates, which holds Nokia stock, says investors are frustrated.

"Symbian 3 really concerns me," Lancz said. "If next quarter we see these delays and declines in margins -- the management will feel more and more pressure."

Lancz, and remaining analysts with buy recommendations, base their rating on Nokia's valuable assets.

The company has strong assets in manufacturing and it is well positioned across emerging markets. Its brand -- built in the 1990s on easy-to-use, durable, relatively simple mobile terminals -- is among the highest valued globally.

CONNECTING SOME PEOPLE IN U.S., ON THE WEB

When taking over the company Kallasvuo made one big promise -- he would focus fully on fixing Nokia's problems in the United States, spending a week each month on the problem.

At a time Nokia was struggling in the single largest phone market -- its market share there was just 20 percent, compared to global market share of around 35 percent. Now Nokia has just 7 percent of the U.S. market, according to Strategy Analytics.

"After a decade of continuous decline in the U.S., investors are right to ask whether Nokia really has the desire to fix the problem," said Neil Mawston, analyst at Strategy Analytics.

The big strategic shift under Kallasvuo's management -- to build up Internet services offering -- has so far cost more than $10 billion to shareholders, but signs of payback are limited.

Some of the new services have failed to gain traction, some other Nokia has ended or outsourced. None have come close to matching the success of Apple's App store.

Analysts doubt Nokia will reach its 2011 targets of 300 million users or annual revenues of 2 billion euros, and the company has admitted most of revenues would likely come from smartphone unit, which has to internally pay for services installed on the phones.

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Comments (3)
ulludapattha wrote:
Nokia CEO Olli-Pekka Kallasvuo’s(OPK) present predicament reminds me of a famous childhood story: “The Boy Who Cried Wolf!”. OPK has for the past three years, i.e., ever since Apple launched its revolutionary iPhone in June 2007, kept on “promising Nokia’s iPhone Buster or Killer” to be launched soon! Just as it happened in the story about the boy, who cried wolf, all investors rallied behind OPK and kept on believing in him and ran to his help. Now, investor patience has run out. They are not ready to rally around OPK any more or to run to save him. OPK’s credibility has vanished. So, when OPK declared last week that Nokia’s answer to the iPhone will be delayed and may probably come out sometime next fall, no one believes in him any more. This is exactly, what happened in the story to the boy. Once, when he saw a real wolf and he cried out loud “WOLF”, no one came to save him. And the boy was killed by the wolf.
Sadly, enough, it appears that OPK will face the same fate as the boy, who cried wolf.
Lesson: You can fool some people for some time. But you cannot fool all people for all time.

Apr 30, 2010 9:58am EDT  --  Report as abuse
kassie01 wrote:
@ulludapattha. Can you pls tell me what the iphone can do more/better then lets say the aged nokia E71 (besides the touch screen)? It would be great to have an expert like you tell me what the big plus would be

Apr 30, 2010 8:48pm EDT  --  Report as abuse
ulludapattha wrote:
1. Firstly, when I said that Nokia’s CEO OPK was in a similar position to that of the boy who cried wolf, I meant to say that even if the new Nokia N8 based on the new Symbian 3 platform turns out to be technically better than Apple’s iPhone no one is now willing to believe OPK’s promises. After repeated disappointments in the past three years OPK has lost credibility among US investors.

2. Technical superiority in a consumer product like a mobile phone is no guarantee, that it will win the minds and the hearts of consumers. In the early 80s Sony’s VCR with the Beta- format was technically far superior to that of JVC’s VHS- format. But, with better and more aggressive marketing, the VHS- format won the race. Sony’s Beta- format was driven out of the consumer market, even though professionals still prefer to use the Beta video format in TV studios worldwide.

Nokia has not been able to catch up with the competition in smart phones. When Apple introduced the iPhone in June 2007, it revolutionised the mobile phone and changed the whole landscape. All of sudden, the previous market leader and trend-setter Nokia appeared old fashioned and obsolete in this race.
Nokia appears to be making mistakes all the time. For example:
1. Who needs a HD- screen in a Netbook? Nokia’s Netbook offers a HD- screen and a few other goodies, which Netbook users really do not appreciate or need.
2. Who needs a 12 Megapixel camera in a mobile phone? Nokia’s upcoming N8 boasts that it has a 12 Megapixel camera.

What consumers really need is a user- friendly UI ( User Interface). One does not have to be technically educated or sophisticated to use an Apple iPhone. This is what consumers appreciate and like. Ease of use even though the iPhone may be technically inferior to Nokia’s smart phones. After all, gone are the days, when a mobile phone was a status symbol and only senior executives had them. Gone are the days, when a mobile phone weighed almost 5 kilos( no kidding!). Nokia entered the US markets with its own Mobira Talkman in 1986 through a deal with Tandy Corporation. Nokia’s phone was sold across the US in over 600 Radio Shack outlets. Motorola’s AMPS- platform phone was even heftier and more clumsy. Nokia’s phone soon overtook Motorola on its own home turf. So, Motorola accused Nokia and its US partner Tandy in spring 1988 for patent infringement in its complaint to the ITC. That is another interesting story, which the younger generation seems to be unaware of. The present ongoing Nokia vs Apple- patent battle has much similarity to the Motorola vs Nokia/Tandy patents battle 22 years ago.Its time the world knew about this historical issue. Then consumers worldwide can put these issues in the right historical perspective.
Apple’s Steve Jobs delivers whereas Nokia’s OPK just promises. This is the difference between Jobs and OPK.

May 01, 2010 5:41am EDT  --  Report as abuse
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