Year in Review 2011: Nokia's Painful Year Ends With a Spark of Hope
The news: The year opened with Nokia (NYS: NOK) CEO Stephen Elop stating that the cellular industry had changed, "and now it's time for Nokia to change faster." This encouragement was less to do with handsets, and more focused on the battle shifting from devices to the ecosystem.
A few weeks later, Elop took the stage with Microsoft (NAS: MSFT) CEO Steve Ballmer to announce that Windows Phone would be Nokia's primary smartphone platform -- an alliance that represented a fundamental break from Nokia's past and culture, and an admission that its smartphone strategy to date had largely failed. Elop also used the occasion to warn of a massive cut in Nokia's workforce, prompting employees in Finland to walk out in protest.
By April, the impact of the Microsoft partnership became apparent with the announcement of 4,000 job cuts, together with 3,000 employees working on the Symbian platform being transferred in an outsourcing deal with Accenture as part of an overall move to reduce annual spending by 1 billion euros in Nokia's key devices services business by 2013.
By mid-year, Nokia surprised analysts with a statement that its second-quarter sales and profits would be substantially lower than expected. This prompted the company to say that it would no longer be suitable to provide an annual target for 2011 -- a move that drove the company's already-battered share price down 18 per cent.
Worried industry observers and analysts then indulged in a frenzy of speculation that ranged from Microsoft planning to acquire Nokia's key devices and services unit, to the company being dismantled and sold.
While none of this came true, the extent of Nokia's problems was highlighted by Bloomberg suggesting that the breaking up price could be more than 50 per cent of Nokia's current worth. Once valued at $300 billion, Nokia had seen its market value plummet around 77 percent, valuing the company at around $25 billion. Industry pundits remained nervous over Nokia's future and pumped the share price up nearly 15 per cent on the news in mid-August that Google was to acquire the handset division of Motorola. However, the stock retreated when Microsoft gave no indication of snapping up Nokia.
In late October, after months of integration and preparation, Nokia unveiled the much-anticipated Lumia 800 and Lumia710, its first Windows Phone devices. The devices were greeted largely with praise for their design and capabilities. While noting that Nokia's new handsets were not iPhone or Samsung killers, the price, sleekness and integration of Microsoft's operating system attracted particular comment.
By November, Elop was calling for volume shipments of the Lumia handsets, adding that the company would push its Windows smartphone prices down to kickstart sales, leading to higher prices and profits over time. "We are interested first and foremost about volume," Elop said. "Our highest priority is to help Windows phones to compete with Android. This is the first showcase product." By December, the company was reporting that the Lumia 800 had sold out in the UK and elsewhere in Europe, although Nokia has not yet provided precise shipment numbers.
Why it was significant: Nokia's ongoing misery during 2011 was watched worldwide as this former paragon of the handset industry was torn apart in an effort to survive. The previous management was pushed aside or sent into retirement as desperate measures were implemented to stop Nokia from becoming little more than a memory. Its close partnership with Microsoft was viewed as a lifesaver by some and a pact with the devil by others. However, the handset market changed fundamentally in 2011 and Nokia, while retaining its brand image in less developed markets, has fallen from favor elsewhere and has an almost impossible struggle on its hands competing with Apple's iPhone and Google's Android. Its progress in 2012 will be watched with huge interest by the cellular industry, none more so than those that don't want to see the smartphone market become a duopoly.
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