Nokia CEO Elop's Bold Moves: Wall Street Expects No Less
Nokia CEO Stephen Elop is living in the fast lane, and Wall Street wouldn't have it any other way.
In just four months, the former Microsoft (MSFT) executive hired to turn around the stumbling cell phone giant, has slashed its workforce by 1,800 and, on Friday, announced a bold strategy to dump its market-share-losing mobile operating system, Symbian, as well as to curtail its focus on its MeeGo-Intel (INTC) partnership.
Instead, Elop is virtually putting all his eggs in one basket: Microsoft's Windows Phone 7 operating system. That bold move and other steps he has taken to date since arriving in September have earned him a B+ grade from industry analysts.
"The primary reason is that in a short period of time, he has digested the company's position, assessed its weaknesses and shortcomings, developed a strategy and taken a bold step," says Charles Golvin, a Forrester Research analyst. "Whether it's the right step will be proven out over time."
Symbian held 37.6% of the global mobile operating system market last year, while Microsoft had 4.2%, according to research firm Gartner. Over the years, Symbian's market share has been steadily declining, as developers chose to write fun and exciting applications for Android and the iPhone's iOS, analysts said.
'Burn the Ships and Focus on Android'
Elop's strategy, however, is not a blind one. Motorola Mobility (MME) CEO Sanjay Jha took similar measures in 2008, after he arrived at the down-and-out cell phone maker, which was using Symbian and other operating systems at the time. Jha, in a matter of months after his arrival from chipmaker Qualcomm (QCOM) zeroed in on Google's (GOOG) Android, according to a New York Timesreport.
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With a keen awareness that he had only a year to deliver a competitor to Apple's iPhone in order to appease Wall Street and investors, Jha told Motorola's Verizon Razr project manager to "Burn the ships and focus on Android," according to the Times.
Fast-forward a couple years to Elop's "burning platform" memo, which likened Nokia's reliance on Symbian to the condition of a worker trapped on a burning oil rig who must decide between the lesser of two evils -- staying on or jumping off -- according to a Wall Street Journal copy of the memo.
"This is the same exact situation Sanjay came into two or three years ago. He needed to respond to the iPhone, but Motorola was a big company comfortable with the way it had always done things and not willing to adapt," says Jonathan Goldberg, a Deutsche Bank analyst. "Sanjay made a few important decisions, cut costs, focused on Android and put everything into one basket with Android. At least Nokia wasn't as bad off as Motorola when they did this. Nokia has lost a lot of market share, but at least it's vaguely profitable and still the No. 1 handset maker."
Planned Transition Period Is Too Long
Goldberg also applauded Elop for initiating fast changes. However, the analysts note that the true test of Elop's reign will be whether he can successfully execute on his strategy to deliver net sales growth in Nokia's devices and services that exceed the market's performance, and boosting its operating margins to above 10% in the next two years.
Elop's big plans make the coming years a crap shoot for Nokia's investors, which may have contributed to the stock plummeting as much as 14.3% in intraday trading to $9.32 a share Friday. Nokia noted in its announcement that it expects its transition period to last two years, which analysts say is too long in the smartphone market.
"Two years is practically an eternity in the smartphone market," Golvin says. "I understand the time needed to transition the product portfolio and the hard shift for their software and hardware investments. But. . .that window may test the patience of Nokia investors."
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