Steve Elop Is Killing Nokia? I Don't Think So

| About: Nokia Corporation (NOK)

Lately the anti-Elop camp is raising its voice regarding how "unsuccessful" Nokia's (NYSE:NOK) CEO is. In one of these attempts, Tomi Ahonen listed the 19 reasons why Elop should go. This article also inspired another article at SeekingAlpha, agreeing that Steve Elop should be fired for "destroying" Nokia. I completely disagree with the notion that Steve Elop has destroyed Nokia, and that he deserves to get fired. I will explain why I feel that way in this article.

It was mentioned that Nokia was doing fine until Mr. Elop became the CEO of the company. It is said that Nokia was the top distributer of mobile phones in the world and it was quite profitable prior to Mr. Elop. While this is true, this only represents part of the truth. Imagine that a few decades ago, everyone owned a black-and-white TV. Back then, colored TVs were for the "wealthy" people, and some people thought that they would never become a commodity. At first, the companies that produced black-and-white TVs had a market share near 100%. In time, the market share for the black and white TVs fell to 90s and 80s, but this was still strong. The companies that produce these black-and-white TVs could either start producing color TVs or they could ignore the trend and act as if color TVs will never enter in the house of the common man. At the end, color TVs claimed 100% of the market share once they became more affordable.

The same issue goes with phones too. At first, everyone had cheap feature phones or low-end smart phones. When high-end smart phones came in the market, many people thought they were the "rich men's toys." Nokia could continue to build low-end phones and make small profit on them until they become completely obsolete, or the company could move on to high-end phones. Of course, moving to high-end phones would become painful at first, because it would require a major turnaround, and that is exactly what Steve Elop has been trying to accomplish. One simply can't argue that Nokia's low-end phones were profitable until Steve Elop took office when they realize that low-end phones might become a thing of history within a decade or so.

Many people also argue that Steve Elop is "Microsoft's Trojan" whose goal is to reduce the market cap of Nokia to a level where Microsoft (NASDAQ:MSFT) could acquire Nokia at a cheap price. When Steve Elop became the CEO of Nokia, the company's market value was $40 billion. Today, the company's market value is $9.6 billion. During last summer, at some point, it was as low as $6.3 billion. So, if Microsoft sent Steve Elop to Nokia so that he could make Nokia cheap enough for Microsoft to swallow, when will Microsoft actually buy Nokia? Isn't bringing a company's value from $40 billion to $6 billion good enough discount for Microsoft? At the time Nokia's value was $6 billion, this money was (and still is) like change-money to Microsoft. Obviously, the whole "Trojan horse" theory doesn't add up. In fact, excluding Nokia's cash, Microsoft could buy the company for as little as $2-3 billion, but didn't do so.

Steve Elop is also heavily criticized for picking Windows over Android. The company needed to differentiate itself from the competition and Android simply wouldn't do it. There were too many companies that were already on Android, and many of them weren't even profitable. It's funny how a lot of people think Android will make every company a cash-cow, when in fact, Samsung is the only company embracing Android that could claim such a title. By choosing Windows as an operating system, Nokia continues to receive money from Microsoft, protects itself from possible Apple (NASDAQ:AAPL) lawsuits due to cross licensing between Apple and Microsoft, and the company will enjoy a huge marketing campaign Microsoft is about to start on Windows 8. Microsoft considers Windows 8 its most important product ever and the company will do whatever it takes to promote this product.

Besides, before Steve Elop took the office things weren't as rosy as anti-Elop camp would like you to believe at Nokia. Mr. Elop admits that there was too much chaos in the company when he took the office. For example, there were a lot of great ideas by the engineers and designers; however, none of the ideas were being implemented because there were too many decision-makers who couldn't agree on anything. The company's decision-makers were running from meeting to meeting without agreeing on anything. The company simply became too big with too many offices. Things had to change.

The aforementioned article also claims that Lumia has the "highest return rate ever" without specifying actual numbers. It says that Nokia has too many angry customers who aren't happy with Lumia. The fact is the opposite. A recent Nielsen study shows that 96% of the Lumia 900 users are either "extremely satisfied" or "satisfied" with their phone. The phone also enjoys overwhelmingly positive response from the consumers at where the average score of 4.6 out of 5.0, which is the highest score for any smart phone at Amazon. I don't know where the author got his numbers when he claims that consumers are angry with Lumia and it has the highest return rate ever.

In conclusion, I don't think Steve Elop is killing Nokia. Most of the arguments made against Steve Elop are irrelevant. Of course I am not saying that Mr. Elop is absolutely perfect. I've criticized his practices many times as you can see in my previous articles. For example, I criticized Mr. Elop for making Lumia 900 an AT&T (NYSE:T) exclusive phone. I've also criticized him for the weak marketing efforts of Nokia. He should have eliminated the company's dividend payments long time ago, and so on. But everyone makes mistakes. Steve Elop tries his best to turn Nokia around and it will take a lot of time and effort. I believe that he deserves more credit for what he's accomplished at Nokia within a short time.

Disclosure: I am long NOK, MSFT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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