Nokia’s Q2 earnings report is atrocious; CEO Elop not to blame

by Mike Macias on July 22, 2011 at 0:57 am · 26 comments

Should Nokia’s current CEO Stephen Elop be entirely blamed for the mess his company is in? His new plan to make Windows Phone the primary OS for Nokia smartphones has only been in place publicly since February. Has Nokia’s marketshare tumbled that fast because of a newly announced game plan?

Before I dive deeper into thought let’s first take a quick look at the numbers. The report was huge but I’ll only show you the main bullet points.

Operating loss of -€487 million
Devices and Services division losses = -€247 million
Total smatphones sold = 16.7 million. Compare that to iPhone’s 20+ million reported earlier this week.

Rafe Blandford from All About Symbian created an amazing analysis and breakdown of all the numbers. Take a look at this chart they posted:

Nokias Q2 earnings report is atrocious; CEO Elop not to blame nokiasmartphoneshipmentsq211 650x383

Nokia smartphone shipments in last few years

Download the full report of Nokia’s 2011 earnings at this link (PDF).

You get the point. Nokia no longer sells the most smartphones worldwide. That title belongs to Apple.

Nokia’s current dilemma stems from problems that were seeded years ago when they failed to acknowledge a changing market. They took too long to act and now Elop and company have to face those demons.

There’s been much discussion of Nokia’s downfall in mobile communities today bringing mixed emotions, various opinions, and exaggerated predictions for the future of Nokia. It’s easy to point the finger at Stephen Elop and blame him for these horrendous numbers but at the same time you have to look further back. Back to the N97. Back to the 5800 XpressMusic. Back to Symbian S60v3. Version 3 is the key. Symbian S60v3 was key to the success of the Nokia N95 and Nokia’s dominance in the smartphone market. The Nokia N82 was/is my favorite phone ever. The E71 was the most reliable smartphone ever – even to this day. But things started to change about 4 years ago and Nokia didn’t take the new competition seriously. They hoped that the iPhone was just a gimmick but instead it became a monster.

The iPhone is in a league of its own right now. I’m not saying it’s the best phone you can get – I’m saying it’s the most popular in a time when everyone wants a smartphone. When Nokia was king years ago the smartphone was not a mass market device. Most people had a basic phone. Smartphones were limited to people who had money or business users. Geeks and gadget lovers. Hackers and hooligans. Now the masses can’t wait to get their hands on the latest Android device or the iPhone 5. It’s all about hype and Nokia was left out in the cold. Longtime Nokia users, E90 users, are disgusted at what they see from Nokia. Many have moved on to Android and others stuck around to chug along with the Nokia N8 – like me. There are so many positives to owning Nokia hardware that ultimately outweigh the negatives. But that is only my opinion. In Quarter 2 of this year the world’s biggest smartphone maker didn’t deliver. They didn’t deliver anything captivating that the majority of consumers wanted. Why not? What went wrong?

Some blame Nokia’s demise on Stephen Elop’s comments about a burning platform.

“We too, are standing on a “burning platform,” and we must decide how we are going to change our behaviour.” - Read full memo here.

That stung as a Nokia fan. But he was ultimately right. The future should not continue on with Symbian as the only solution. Should he have said those words? Of course not – especially if he knew the next “big thing” from Nokia wouldn’t be ready until at least the fall season (WP7/Nokia devices). It’s ignorant to bash a platform that you hope to sell millions more of. Did his comments effect Q2 sales figures? I’m sure they did, but no much. Not enough for Nokia to hold on to their worldwide smartphone lead. Nowadays when you talk about smartphone sales you have to think millions per quarter – per manufacturer. Apple sold nearly 21 million iPhones in Q2. Nokia sold 16 million. Samsung and HTC posted amazing numbers this year. Do you think millions of people didn’t buy an N8 because Nokia decided to go with Windows Phone starting later this year?Do you think that many people actually heard Elop’s comments that leaked out about the burning platform known as Symbian? The reality is Elop’s comments and Windows Phone decision did not have much to do with the massive loss of sales and marketshare. The ship has been sinking for awhile and it has finally capsized this year.

The problems go back to the success of the Nokia N95. The N95 was on top of the world when it was released. It had a long list of features and specs that other devices couldn’t match. The N82 came around and became the imaging king. Nokia kept pushing devices powered by Symbian S60v3 because they were so widely popular at the time. The world was infatuated with the N95 and Nokia’s entire lineup. Owners of a Nseries device had so much pride in what they owned and showed it to all of their friends. I witnessed this firsthand. But there was a problem. Nokia was popular everywhere except where the future mattered most – North America. Carriers in the USA didn’t care for Nokia’s “open” devices running Symbian. And Nokia didn’t care for the US consumer market. This is when Apple came up with the iPhone and realized the potential it had. They found a hole in the market. Smartphones were not a mass market item 5-6 years ago in the States.

Eventually the iPhone become a phenomenon in North America. The touchscreen craze went rampant and Nokia decided they would simply tweak their Symbian operating system ever so slightly and S60v5 was born. The Nokia 5800XM was released and did well throughout the world. Nokia capitalized with the 5800 in places where the iPhone was either too expensive or simply not available. Another device called the N97 was unleashed and Nokia put some major marketing dollars behind it. The device sold in droves everywhere but the US. Stateside iPhone flourished and Google started pushing the Android platform. Both of which were more smooth and sleek compared to S60v5 powered Nokia devices. Symbian was now seen as clunky and slow. The N97′s processor and memory wasn’t powerful enough to keep up with Nokia’s new rivals. Longtime Nokia fanatics dealt with the pain of the N97 in hopes of “better firmware coming soon”. The video ads for the N97 showed amazing speed, transitions, and animations. None of which appeared in a firmware update.

Nokia decided to re-code much of Symbian S60 to make it more streamlined and modernized. Symbian^3 was born and the hype machine was started. The excitement of an updated OS started to build around Nokia communities but died out quickly. People were underwhelmed when they realized the Symbian^3 UI looked nearly identical to Symbian S60v5. There were hundreds of tweaks and improvements but overall it wasn’t enough to blow people away. iPhone and Android users scoffed at screenshots and visuals of Nokia’s upcoming lineup.

The high-end side of the Nokia lineup last year consisted of the N8 and E7. The Nokia N8 is an amazing device and sales have been very good since October 2010. The E7 was announced at Nokia World in September of last year but not released until this Spring. This device has its own issues that Nokia could have avoided. As Alvin pointed out today in his E7 review, these issues are too big to turn a blind eye. Other devices like the C7 and C6-01 were also released but didn’t gain much hype. This year the iPhone became widely available throughout the world and Android has done amazingly well. Solid N8 sales were not enough to hold up the giant called Nokia. The US smartphone market is now the world leader and Nokia has almost zero presence. The rest of the world now has access to the same devices as Americans and have proved their interest with their wallets.

So this is where Nokia is at. All of this build up went into effect long before Elop took over. I agree his memo about a burning platform did not help the situation but the truth is the masses don’t pay attention to CEOs and their comments – not like we do. Maybe a few million people heard Elop’s comments about Symbian and the fact that Nokia was moving on with Windows Phone. Elop had to tell the world their new plans and there was no way around it. But it’s not like the N8 was available at an AT&T store. It’s not like the E7 was on its way to Verizon. It’s not like Amazon was creating a Kindle app for Symbian then abruptly stopped. The North American market has little to no interest in buying an unlocked device for $400+. With a portfolio with carriers Nokia has no chance.

Does this spell the end of Nokia? Of course not. They are still a giant and I’m sure they’ll gain their marketshare back even if it takes a few years. I’m excited about WP7 powered Nokia hardware and even more excited about the N9. But that is the future and this article was meant to be about the past. Nothing Elop could have said (or not said) in February would have stopped the train wreck that the Q2 numbers represent. I expect the numbers for the rest of the year to be worse. Nokia’s turnaround won’t be noticeable until this time next year. It will be a long hard road but I predict next year will be a different story.

http://twitter.com/hewbass Matthew Bassett

“Do you think millions of people didn’t buy an N8 because Nokia decided to go with Windows Phone starting later this year?”

Yes. Not so much because of what Nokia actually decided, but because of what they (or Elop) announced.

Bear in mind people don’t get a free choice of what they get. They get whatever it is that the Network Operators choose to offer them.

Almost certainly what the Network Operators wanted to hear on February 11th was that Nokia was going to have a root and branch clean up of their management structures and their processes, in order to be able to deliver on their promises. Instead what was announced was a complete change of strategy to the smallest OS currently in the market, from the largest one.

This has two issues for the network operators: 1). they still don’t trust Nokia to deliver. 2). they can no longer easily convert existing satisfied Nokia customers to another Nokia smartphone.

The result for Nokia was that Network Operators have basically stopped buying Nokia phones — they are clearing out their existing inventory. This has even had an unexpected impact on Nokia’s dumb phone business.

For sure Nokia was declining before Feb 11th (but there were indicators that they had the potential to turn that decline around: look at the sales take up of the N8 in the first few months of it’s release, even with the disadvantages of Symbian^3), but instead of turning the decline around, Elop has accelerated it. In Q3 and Q4 you will see this accleration increase.

There is a chance, a small chance, that in Q2-Q3 2012 Nokia will slow their decline as they get WP devices into mass production — but that is making the big assumption that they will have customers (i.e. the Network Operators) for these devices. Had Nokia executed on this when they still had a huge market share, then they might have succeeded (and even then that is not a sure thing) — but once Nokia have lost the market volume they had to their competitors, the Network Operators will be able to meet the needs of their customers without either Nokia or WP.

Now: instead of being the (although declining) leader in the market, they are going to have to break into the market as though they are completely new players. For that they need as fundamental a shift in things as the original iPhone. Windows Phone is not it.
http://aegisdesign.co.uk Shaun Murray

Totally agreed with Matthew Bassett here. Nokia’s customers were the carriers not consumers directly. Even in the UK before the N8 Nokia’s presence in stores was rapidly declining. They turned that around with the N8 which created genuine buzz but after February that’s in decline again with shop assistants telling you that Nokia have canned it.

It’s compounded by their developer story. Before Feb 11th they were having a tough time with apps because a lot of the apps people want are developed in the US but post Feb 11th even European developers saw sense and started looking at other platforms if they had not before.

I don’t think they’ll turn it around with WP. It’s marginally popular in the USA but it’s as popular as dog crap on your shoe here in Europe.
http://aegisdesign.co.uk Shaun Murray

Totally agreed with Matthew Bassett here. Nokia’s customers were the carriers not consumers directly. Even in the UK before the N8 Nokia’s presence in stores was rapidly declining. They turned that around with the N8 which created genuine buzz but after February that’s in decline again with shop assistants telling you that Nokia have canned it.

It’s compounded by their developer story. Before Feb 11th they were having a tough time with apps because a lot of the apps people want are developed in the US but post Feb 11th even European developers saw sense and started looking at other platforms if they had not before.

I don’t think they’ll turn it around with WP. It’s marginally popular in the USA but it’s as popular as dog crap on your shoe here in Europe.
http://twitter.com/SteveBarker66 Steve Barker

I can’t speak for the rest of the world, but the stores I visit in the south of England still offer Nokia devices and still promote them in-store, so I don’t see evidence of your assertion that carriers are effectively boycotting Nokia.

Now, that may be just local to me, but a quick internet trawl through the carriers around the world shows that Nokia devices are still being offered – including the latest models like E7 and E6.

If the network operators don’t trust Nokia as you say, why do they bother to stock or offer their products at all?

What is interesting is that although Nokias are offered, the emphasis is definitely on Android and iPhone now; Nokia is frequently relegated to the ‘other manufacturers’ option.

I don’t believe this is because of problems with the models themselves, but more to do with the ecosystems surrounding the devices. When I speak to staff in store, they tell me they tend to offer Android or iPhone to customers expressing an interest in apps and services, and suggest Nokia to older or more traditional users who value build quality and device spec over choice of apps and services.

I think this underlines the need for Nokia to ally itself to a strong and effective ecosystem. We know Nokia make great handsets, and the UI of Symbian is still highly usable even if the UX lags behind Android and iOS, but it is the ecosystem of apps and services that is still way behind the two newer OS’s.

Much as I love Symbian for my own use, I can see the logic in Nokia moving quickly on to Windows Phone to be part of what promises to be a great and competitive ecosystem.
http://twitter.com/hewbass Matthew Bassett

I didn’t say the operators had stopped selling Nokia handsets, I said they had stopped buying them.

They still have inventory to get rid of (and I believe are having a hard time shifting that). The retail outlets don’t like that: unsold inventory costs them money (even if it’s only the cost of taking up the space of something that they could sell).

I am sceptical of this “great and competitive ecosystem” of which you speak — not some much that it would be competitive, but more in the “What’s in it for us” as users.

My experience of MS is bugs, viruses, lock-in, incompatibility and inflexibility. My expectation is more of the same from the mobile phone adventure. I think that many phone users have the same expectation…
http://pulse.yahoo.com/_OUE2GFS536P6HDA3IS53VPVUBE Chris

There is one (or two) factor this story forgets, but other than that, i largely agree. The helpful salesmen and women in stores and online reviews. Basically, the people that you go to when you want to know something about a device you might want to buy.

I like nokia phones, but like many people, when it comes to deciding if i want a new phone, i check the reviews. And when i go to a store to buy one, i’ll ask the assistant to show me one working. Most people will not be aware of stephen elop, or his statement of a burining platform or the move to windows phone. But tech reviewers and mobile store assistants might, and they will helpfully say that Nokia might not support a device for long and they wouldn’t advise us getting it unless we really want it – after all, they want to make sure we have a device we will enjoy and one we won’t return. And for some assistants, that means a device like theirs (especially in the US this means android/iphone and nothing else) because they can give you their personal recommendation.

And so, you go to your store to buy a nokia astound and are helpfully told that “it’s an interesting device, but the UI is horrible, but if we really want to give it a go they will get one out. Alternatively, why not try this T-Mobile G2/MyTouch 3G which are also good value now and have more apps.” Or as one guy at a T-Mo store said ” I really hate symbian, it’s horrible. The iPhone is so muchh better and android’s not bad. Nokia are going windows phone but that’s a mistake and i wouldn’t get one of those either – they should have gone android”.

Even before that, nokia was mis-understood – the S60 5th edition Nuron – “Isn’t a smartphone and is not really suposed top be for browsing the web. I’m not sure if you can put Opera on it, i don’t think it does apps”. That was at a Best Buy Mobile.

Now, the above is here, in the US, where nokia doesn’t have much of a presence anyway. The last example isn’t likely to happen in most countries, but the first one is a reasonable thing.

It is reasonable to think consumers might research their next phone before they buy, and researching nokia devices on review sites from many parts of the world right now, and you will hear about the burning platform. And then you may doubt if a nokia is a good device to purchase right now.
http://www.themobilefanatics.com Mike Macias

Thanks for the comment Matthew. You make great points. I still attribute the carriers buying less and less N8s to competition’s offerings rather than Elop’s comments and decision.

You are right about the way Nokia can slow their decline. They have to have a good relationship with Network Operators out of the gate and a big part of that needs to sparking interest in the US.
http://www.themobilefanatics.com Mike Macias

If they still have old inventory to get rid of in Q2 then this problem dates back to sales in Q1 and before. Nokia couldn’t get by with N8 alone and the E7 was doomed before it started shipping. The C7 and C6-01 are nice offerings but couldn’t overcome the buzz of Android iPhone.

If they market the E6 correctly and can get it in the hands of some reasonable reviewers I think they’ll do well. The E6 might be a surprise player for them to help the N8 with mass sales.
http://www.themobilefanatics.com Mike Macias

Agreed. Nowadays consumers walks into a store and ask for a phone that they can read their Kindle books, listen to Pandora or Last.fm, get apps for their airline, or shop on Amazon. No matter how hard Nokia pushed Qt and tried to recruit developers the fact remains that nobody thinks Symbian is “pretty” enough or fast enough. The big players didn’t want to get near Symbian and it took years for Nokia to accept that.
http://www.themobilefanatics.com Mike Macias

Hi Shaun, thanks for the comment.

The problem is Symbian was around long before Android and iPhone and the fact that big companies and developers found those two platforms more important than Symbian speaks volumes to what’s been going on for years at Nokia.

When you are the biggest smartphone manufacturer in the world and have an OS that’s been around the longest and devs STILL pass you up there is something wrong. Bringing Qt to the scene was a great move but I still don’t think it would have brought the major players. Those companies have devs that knew how to develop for Symbian long before iPhone and Android existed. They just didn’t see the $$$.
http://www.themobilefanatics.com Mike Macias

Excellent points Chris. I completely didn’t think of that. A big part of your point goes to the perception of Symbian even before reviewers and phone store workers heard Elop’s comments. Symbian has been a bad taste in these people’s mouth for years. A lot of that has to do with their own ignorance or biased but another part of that has to do with the “easy sale”. It’s not easy to show Symbian to a non smartphone user and say – “this is for you”. But just hand them an iPhone and they fall in love, usually.
http://aegisdesign.co.uk Shaun Murray

Totally agree. For a long time I was a UIQ user (SE p910 etc) and looked down at Nokia’s awful S60 UI. The E71 went some way to improving it’s standing in my eyes and the hardware was and still is bombproof. Symbian^3 is ok too but not good enough and definitely needs a few bug fixes or .

I thought they might have stuck it out though till they replaced Symbian with MeeGo. I have an N900 too and I love the OS but I’m a Linux server admin for part of my time so I would wouldn’t I. I could see the potential there and just look at the N9 – it’s great.

So yes, their problems are long founded BUT I’m not sure their current downturn is as a result of the market just catching up with their past decisions or the result of their strategy decision on Feb 11th. Personally I lean toward the latter as that drop in sales is dramatic.
http://aegisdesign.co.uk Shaun Murray

I’ve never actually seen a C7 outside of a Three store here in the UK and I’ve never seen a C6-01 at all and I’ve gone looking too as we were going to upgrade one of the kids 5230s to a C6-01.

Those models just don’t seem to have been picked up by the carriers. N8s are easy to get hold of on any carrier, E7 not so much and I’ve not really looked for X7/E6 yet.

The C6-01 puzzles me as I’d have thought Nokia should have sold boatloads of those to ex-5800 / 5230 owners but they just weren’t available anywhere.
http://www.facebook.com/profile.php?id=1464613930 Enzro Greenidge

lets not make it complicated. I sold all my shares in Nokia the day Mr Elop made his announcement. WHY? Because of his poor communication. The move to WP7 wasn’t the problem, the problem was how the announcement was made. As a longterm shareholder i could suffer the lost in share value when the number of units was high and i thought there was a plan to improve the margins. Once the killing of symbian was announced and no WP7 phone was released at the same time, that was it. Mr Elop should have seen the plummet in sales coming. Why would anyone buy a phone with an announced dead OS? After seeing the N9 and the ambiguity from Nokia i am afraid they will be going the way of Palm.
http://www.themobilefanatics.com Mike Macias

Hi Enzro. Thanks for the comment.

I agree that the communication was horrible but you can’t expect them to announce a partnership with WP7 and have a device ready at the same time. That’s a huge strategic move for them and the shareholders demand to be in the loop before a move like that is made. Many of them showed their disapproval with their wallets and hit the road. At the same time you have a handful of shareholders that decided to ride this thing out and stayed in it for the longterm. Others see this horrible price of stock as an opportunity to jump on it while it’s low and cash in when/if this long term strategic plan succeeds. So if you ultimately thought a move to WP7 will succeed in the long term I don’t see the point in selling right now when stocks are at their LOWEST value.
http://twitter.com/hewbass Matthew Bassett

One frustrating thing is that many of these online services that have apps are just starting to port them to Symbian or (even better) to Qt: Linked-in, Foursquare, etc. are all examples (although I note the Foursquare App is not updated and about to expire).

I think Nokia *was* developing momentum behind Qt and to a large extent that has now been destroyed. Bear in mind Qt was only really ready for Nokia’s (old) vision by the end of last year/beginning of this year.

I think that one thing that is not appreciated enough is the WP7 is not really a completely new OS: it is WindowsCE plus a new UI shell and API. This is not so different than what Nokia were aiming for with Symbian/Qt…
http://aegisdesign.co.uk Shaun Murray

The Foursquare app was written for them by Nokia and I wouldn’t be surprised if the same wasn’t true for LinkedIn. Nokia obviously realised the importance of these services and presumably others in a similar way Microsoft was paying devs at the end of last year to get WP7 apps going.
http://twitter.com/hewbass Matthew Bassett

I think you are right about the problem being in Q1 sales or earlier– I think the operators had only just started ordering new S^3 phones in Q3/4 2010, and then suddenly stopped ordering any more around or just after Feb 11th. Similar to Shaun: N8′s are all over the place (like the operators were expecting to sell a lot of them, but didn’t), I’ve never actually seen a C7 in the flesh, and I can’t even find the C6-01 online in the UK (I confess I have not looked too hard, but I am looking for a replacement for my wifes S40 device. It looks like it will probably be an HTC Wildfire).

I do know that my next phone is either going to be Android, S40, or if I am lucky, Meego. It definitely won’t be Windows Phone (*MY* ecosystem, that is the devices and services *I* use, would choke on Windows Phone added to the mix).
http://www.themobilefanatics.com Mike Macias

Interesting point about WP7 compared to Symbian^3. The biggest difference is Microsoft saw the importance in overhauling the UI and bringing something fresh and innovative. Even Symbian Belle doesn’t bring anything new – it’s just a rehash of Android. I’m sure I’ll love Belle on my N8 but I’m more impressed with Nokia’s depiction of MeeGo on the N9. Whether or not you like the look of WP7 you have to agree when all is said and done the average consumer does not know it’s WindowsCE in a new shell. It looks and FEELS completely different.
http://twitter.com/hewbass Matthew Bassett

We’re starting to see a lot of games turn up in the Ovi store now, and not just ones being given away by Nokia — so I guess someone must still be making money on selling through the store.
http://twitter.com/hewbass Matthew Bassett

“It looks and FEELS completely different.”

That’s very true.

Although in function, I expect (and I would love to know from someone more familiar with WP) that it is actually fairly similar to Android (or even S^3!) (in terms of what information it provides you with, and what you can do. Not in terms of the actual experience of using it!).
A Finn

You are totally missing the point, this is Q2 earning, not long term tendency.
Yes, Nokia was in a bad shape due to poor management. But that alone does not explain how Nokia is falling so fast.

What happened :
-Stephen Elop created chaos inside Nokia due to the lack of planning of what would happen after the announcement. That has delayed all products launch and literally killed retail power of Nokia. There is still chaos today inside some parts of Nokia.
-The communication of Stephen Elop made consumers switch to other brands for renewal since all phone currently sold are effectively discontinued. The churn rate from Nokia to iOS is all time high since February.

Is Stephen Elop responsible for the general fall of Nokia? No.
Is he responsible for the fast downfall Nokia is experiencing? Yes.
http://www.themobilefanatics.com Mike Macias

Hi A Finn! Thanks for the comment. Very insightful what you’re telling us.

The general fall of Nokia is the fast downfall we are seeing in Q2 numbers. I’m sure Elop accelerated it a little but the huge loss was going to happen either way.

You mentioned products got delayed because of Elop… I’m guessing you’re talking about the E7, E6, X7, and N9?
Youssef Mrabet

I don’t think those apps are made by Nokia (LinkedIn, Foursquare), otherwise, they would have given first some importance to their Social app that is not even made it Qt!
Youssef Mrabet

WP7 has surely a completely new UI/UX compared to Symbian and anything else. It is very innovative and beautifully executed. But it is too much innovative for the average user. As you already said in your post, smartphone users’ base expended a lot, and all of them are not geeks today. I feel WP UI/UX paradigm went too far for the average users, most of them will be lost in this OS. Meego is brilliant, it keeps the roots, but adds this brilliant and simple swipe idea, it even managed to democratize the multitasking and that’s awesome! I think that average users could be content with Belle’s UI, if it doesn’t bug, responds quickly enough that they don’t try a second tap meanwhile, and provides consistency, that would be enough!
Youssef Mrabet

A good strategy for Nokia would be to drop every smartphone in the pipeline (Symbian, WP), market the N9 and build successors for it that would release in the next quarter with state of the art specs, then half a year later, to stabilize on yearly release…

A unique product (on the smartphone lineup) that would be awesome in every aspect with minimum compromises. Focus would enable them to save costs and avoid any mistakes. it would also enable high margins like Apple.

Marketing will play a big role. Qt will allow building a great ecosystem, among the whole portfolio (from S40 phones, to The smartphone lineup, to tablets eventually). S40 would help filling the gap in the mid-level…