Wounded Nokia chief to face frustrated investors

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

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

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.


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.


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.