On Friday, CNET published an interview that was conducted recently with Nokia's (NOK) CEO Steve Elop about the company's past, present and future. A lot of interesting points were made in the interview, which should help ease some of the worries of the investors regarding the company.
When asked about HTC's new line of Windows (MSFT) phones, which are strikingly similar to Nokia's Lumia phones in design, Mr. Elop brushes this off by saying that the two phones weren't really that comparable. Mr. Elop believes that the Lumia phones are several steps above and beyond the competition.
"If you look at competitive devices -- you know, standard hardware platform, standard implementation of the software and everything -- what we've been able to do with the Lumia products is go a big step beyond...whether it is the optical image stabilization, wireless charging, navigation capability, City Lens -- those are all examples of capabilities that we have above and beyond Windows Phone."
Basically, Mr. Elop doesn't believe that other Windows phones will post a serious challenge to Lumia. Nokia's Lumia brand might be above and beyond the competition; however, it will not mean anything until the customers actually recognize this. If the customers think that the competition's Windows phone models are just as good as Nokia's, some of them might pick competition over Nokia. This is why marketing is very important. If Apple can sell 5-10 times as many high-end smart phones as Nokia, this is not because Apple's (AAPL) iPhone is 5-10 times as good as Nokia's Lumia. The biggest difference maker is marketing. In the free-market, a product is just as good as people think it is.
When the interviewer asks Mr. Elop how he plans to help customers differentiate Lumias from the competitor's phones, he goes on to say:
"I think what you will see in the stores, for example, is an experience to say, "Look how much better the photography is." So you'll see us in retail execution making sure that such message gets across."
I am really curious to see how the company will "make sure that the message gets across." Mr. Elop seems to focus a lot on the photography capabilities of Nokia's phones and how Lumia is better than competition at taking photos. Even in the interview, he says that the company will post pictures taken from Lumia next to pictures taken from phones of the competitors and let the consumers decide the phone that is best at taking high quality photos. This is a good focus; however, it is also dangerous to mostly focus on one thing. If the company mostly focuses on photo-taking abilities of Lumia phones, it might lose attention of many consumers that care more about things other than taking photos with their phones. For example, it will be great if Nokia can show the consumers how its mapping technology and GPS is superior to the competition, especially when Apple's mapping software has attracted a lot of negative attention.
Mr. Elop doesn't comment clearly on whether Nokia will file a lawsuit against HTC; however, he implies that the company doesn't really plan on taking legal action about its rival.
"We don't comment on specific legal things like that. Always we make sure that our trademarks, our intellectual property, and designs are protected, so we do that routinely. But I think also when people see the quality of design, the fit and finish, and so forth, copying is one thing. Doing it correctly is something very different. We're very proud of what we've done with these devices."
After saying this, if he takes legal action about HTC, it is like telling the public that HTC's phones are comparable to Lumias. By not taking legal action, Mr. Elop means to say that the two phones don't really compare. This reminds me of the British judge who threw out Apple's case against Samsung saying that Samsung's tablets are not "cool enough" to be confused with Apple's iPad. Mr. Elop pretty much says that HTC's Windows phones are not cool enough to confuse the customers.
Mr. Elop also adds on to say that the company's focus will continue to switch to smart phones from feature phones. He also says that the US market is very important because when a product is strong in the US market, the rest of the world wants to own that product too.
When asked about Nokia's future dividend policy, the CEO states that the company's management hasn't really discussed whether to cancel the dividend or not for the next year. Usually Nokia's annual dividend is decided in the spring of each year, and shareholders usually have a say in the decision. I believe that Nokia shouldn't have paid dividend this year when the company was desperate for cash, and it would be crazy if it actually paid dividends next year. In my opinion, the company should stop issuing dividends until it posts positive cash flow for 3-4 quarters in a row. I would rather invest in a financially healthy company than one that wastes what little money it has on dividends.
Mr. Elop told the interviewer that the company's operating expenses are coming down sharply and the plan is to cut the operating expenses by $3 billion annually when all is said and done. Of course, reducing the headcount of the employees is a big part of this plan, and the plan will come with a large initial expenditure as the company will pay severance money to thousands of employees. I believe that Mr. Elop's optimism about cost-cutting in the company is the best part of the interview. If the company can cut $3 billion annually from its operating costs, it can generate positive cash flow even if its revenue stays flat in the short term, and Mr. Elop believes that the company is well on its way to accomplish this goal. On the other hand, the CEO refused to give specific numbers as the company's earnings announcement nears.
Finally, Mr. Elop said that Nokia, Microsoft and the carriers will work together to market the new line of Windows phones. He said that a lot of notes were taken and a lot of lessons were learned during the launch of Lumia 900 and Lumia 800, and that the company would make sure that it wouldn't repeat the same mistakes again. It looks like Nokia and Microsoft will actually hire people to go into stores and promote Lumia phones, because the in-store marketing was very weak for Lumia 900s.
I really enjoyed reading Mr. Elop's interview. He seems very honest and candid about the company's challenges and the issues moving forward. On the other hand, some might think he is too comfortable with the company's current tough situation, because he didn't really say anything that makes him look like he was worried about anything. While I am not as optimistic about Mr. Elop, I feel much better about Nokia's prospects after reading the interview. Knowing that Nokia will work together with its partners to actively market the new Lumia phones should help some Nokia investors sleep better at night.
One recent news story that I didn't like about Nokia came from the AT&T (T). It looks like Lumia 920 will be exclusive to AT&T for the time being. I really don't like this, because Nokia could easily double its US market exposure by simply adding Verizon (VZ) to the mix. When a company needs to sell as many phones as possible, it shouldn't limit itself to a select number of carriers.
I am still long Nokia. I expect Nokia's next quarter earnings to be similar to the last quarters; however, things should start picking up during and after the holiday season. Hopefully, Nokia has learned from Apple's current supply issues and it will make sure to produce and deliver enough phones to meet the demand during the holiday season.