Stephen Elop May Not Have What It Takes to Revive Nokia

Huh??

That grunting sound sums up the reaction to Nokia's (NOK) announcement Friday that the mobile phone giant has hired Stephen Elop as the company's new CEO.

Elop, a highly respected executive at Microsoft (MSFT), has been busily running the software giant's Microsoft Business Division -- aka Office Suite central -- for nearly three years. Wall Street watchers note that its a big job. It's a stable business. In fact, it's so stable that's its hard to mess up.

Nokia Needs Help

Yet Elop is about to embark on a career as head of the struggling handset maker, which has seen its market share fall from 50% to 32% during the past three years. He takes the job with virtually no experience in dealing with handset makers or telco carriers. Elop is not only an outside hire; he's also an outside-the-industry hire.

One thing Elop has going for him is a deep background in software, experience that Nokia needs to accelerate its move from a commodity hardware handset maker to one that might differentiate itself with its software and services. Unfortunately, Nokia has been toiling away at this strategy for nearly a decade, with less than steller results, notes Jay Goldberg, a Deutsche Bank analyst.

"If you look at their acquisitions in the past three years, they've been mainly software companies," Goldberg said. "Yet they still don't have a coherent [operating system] strategy, nor a response to the iPhone -- and its been out for three years."

Outpaced and Outmaneuvered

Nokia hopes to develop a portfolio of new phones that range from high-end models that compete with the iPhone to low-end handsets that can fight encroachment by Media-Tek of Taiwan, which markets its wares in emerging markets where Nokia's distribution system is lacking, said Deepak Sitaraman, a Credit Suisse analyst.

Add to that potential confusion in the marketplace as Nokia gets ready to roll out its new MeeGo operating system while maintaining its tried-and-true Symbian OS.

"MeeGo is Nokia's experiment for the high-end device, and we expect that toward the end of the year or early next year," Sitaraman said. Meanwhile, Symbian 4 is expected early next year.

Nokia, which began to look for a new CEO in late May, said it hired Elop for his software background and proven track record in change management.

"The board of directors felt now was the right time to accelerate the company's renewal and bring in some new executive leadership with slightly different skills and strengths in order to drive the company's success," said Jorma Ollia, Nokia's chairman, during a webcast to announce Elop's hire.

Restating the Obvious

Elop characterized the current mobile environment as one in which a fundamental shift is taking place in the marketplace, with smartphones, tablet computers, cloud computing and services delivered over the Internet.

"It's not only about smart phones, the device. It's about the entire experience. It's the platform. It's about the applications. It's about the services. Any strategy is this space must encompass the delivery of all those capabilities, so the end user experience with the smartphone is complete," Elop said.

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Well, yes, of course. Strip away Elop's bizblab jargon, and his comments simply restate facts that are glaringly obvious to anyone who has even passing familiarity with the smartphone marketplace. Yet beyond restating the obvious, analysts could not recall any major challenges Elop encountered during his tenure running the Microsoft's business division. Nor do they remember any game-changing products he introduced. There is little evidence that he is either a bold thinker or an innovator.

"He was well-regarded and a very good manager. He ran the biggest unit, and Microsoft and is known to execute well," said Brendan Barnicle, a Pacific Crest Securities analyst, who added that Elop lead a very successful Office 10 launch.

All Roads May Lead Back to Microsoft

Wall Street will likely give Elop six months to develop a plan and explain how he intends to fix the issues that Nokia faces, Sitaraman said.

Although Elop lacks deep knowledge of the telecommunications market, Sitaraman noted, roughly a year ago he led Microsoft's strategic relationship with Nokia. As part of that effort, the software giant's productivity offerings were offered across Nokia's Symbian ecosystem.

Perhaps the best move Elop can make in his new position as Nokia CEO is to keep a close eye on Microsoft's anticipated Windows Phone 7 operating system debut, which is rumored to begin shipping on devices starting Oct. 11.

If Microsoft's WP7 falls flat on its rear, investors will likely be up in arms, since hope rides high on the mobile operating system to become a significant growth-driver for the Redmond giant. And if WP7 is a bust, who knows, maybe Microsoft CEO Steve Ballmer may call up his buddy Elop to build an even deeper relationship with Nokia...