After spending the 1990s and early 2000s as the dominant force in the mobile device market, Nokia (NYSE:NOK) is now fighting for its very survival. Many people believe that it will be successful, but many others believe that it will not be around in a couple years. There are too many rumors and speculations in the market regarding Nokia and many things need a clarification. Wall Street Journal recently conducted an interview with Nokia's CEO Steve Elop in order to find answers to a number of questions surrounding the company and its future.
In the interview Mr. Elop was clearly upset with the fact that most of the $40 billion spent by the company on innovation and research weren't really put to use in the products developed by the company. According to the story, Nokia designed a smart phone and a tablet way before anyone did. The company's former chief designer Frank Nuovo was responsible for many of these innovative designs. The company did its research, acquired its patents and did all the work except for actually launching these products to the market. If only these products were launched in the market before or around the same time Apple did, things would have been much better for Nokia. The company's first attempt at anything that resembles a smartphone came in 1996 with Nokia 9000. Even then, the company's executives knew that the mobile phones would have to do way more than just making calls and texting in the near future. Back in 1996, the consumers were probably not ready for a phone that can do so many things at once. After Apple moved in the market using its great marketing ability, things developed too fast and Nokia was too far behind.
Mr. Elop also admitted that the company became too comfortable as it had a lot of market share in the world of mobile devices and it didn't react fast enough to the changing environment. The company's market share peaked in 2007, reaching 40% before falling to 21% in the last quarter. Back then, the management of the company thought that it would always continue to be a major player in the market and that their loyal customers would never forsake them. Of course they were wrong and they lost a lot of market share to Apple (NASDAQ:AAPL), Samsung and many other cheap mobile phone manufacturers.
Mr. Elop defended the decision to drop the Symbian operating system in favor of Windows (NASDAQ:MSFT) by saying that the company was able to come up with a new phone good enough to compete with Apple's iPhone in less than a year, and if it had to allocate resources to develop its own software, it would have taken much longer than that. I agree with Mr. Elop. I believe that Nokia was in an emergency situation, the company had to act quickly, and it ended up outsourcing its software to Microsoft in order to only worry about the hardware part of the equation. Of course it was a bad idea for Mr. Elop to describe the Symbian operating system as a burning oil platform as the company would continue to sell phones based on this operating system for several more years.
This is not the first time Nokia is fighting for survival. In the past, the company has tried to make money off of a number of different products in a number of different industries. Every time the company stopped making money on its products, it changed what it was building and continued to make money. The company has produced many things from lumber products to rubber products, from electronics to software.
According to the interview, when Mr. Elop first joined Nokia, he started to talk to a number of engineers in the company, particularly those in the research and development team. He was amazed with the creativity, brilliance and usefulness of their ideas; however, he was also shocked to see how none of those ideas actually materialized in the phones. The company was too big and there were too many stakeholders in every decision for the company to be able to decide on anything. Every feature to be added to a phone would be discussed by tens of engineers around the world who never seemed to agree on anything. I like the fact that Mr. Elop moved ahead to reduce the layers of decision in the company in order to make it easier for engineers to present their ideas to the management and get them approved.
I like the fact that Steve Elop has done a great job of diagnosing the problems in the company. While he fixed many of those problems within a short time, he has to fix many more of these problems moving forward. If we look at his capabilities and what he's accomplished already, I can't see why he wouldn't be able to continue getting the job done. Nokia is a very large and complex company with offices and production plants in many countries. A company of this size simply can't turnaround overnight. It will take time before Nokia's turnaround is complete; however, I believe that the company is capable of being successful in its efforts like it has been for more than 100 years.