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Thu 5 May 2011 12:35 PM

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Can Nokia ring the changes?

Newly-appointed CEO Stephen Elop aims to put the Finnish phone maker back on top

Can Nokia ring the changes?
Stephen Elop, the newly appointed CEO of Nokia

Ambiguity is one of those words that every shareholder dreads. Stephen Elop, the newly appointed CEO of Nokia, makes no qualms about the fact that many of his plans to turn the mobile phone maker around involve that very word — at least for the time being.

“From our shareholder perspective we’re in a period of ambiguity; there is certain information as relates to the reduction of our operating expenses [and] associated reduction in headcount that we have not yet provided an answer to but will soon,” he says.

In the meantime Nokia shareholders and customers will have to wait and hope that it won’t be long before Elop, who joined the firm from Microsoft in September, announces the key details of a new strategy aimed at putting the mobile phone maker back on top.

The Finnish firm has lost its once dominant role in the mobile phone sector amid increased competition from cheaper Chinese manufacturers and its failure to adapt to the growing smartphone market. Net income — excluding one-time items — declined 7.9 percent to $2.26bn last year as the firm lost to rivals such as Apple’s iPhone and Google’s Android software. Global market share dipped to 28.9 percent last year, according to the IT advisory firm Gartner.

Under Elop’s stewardship Nokia has implemented some serious changes; the biggest of which can be broken down into three areas; a new smartphone strategy; increasing market share in new markets and investing in the future.

“We are focused on three critical elements of our strategy. The first is ensuring we have a winning smartphone strategy,” explains Elop. “We’ve also talked about the strategy surrounding the next billion, recognising that there are several billion people in the world today who are within cell phone signal range and who have not yet had their first internet experience and we have an opportunity to provide that to them.

“The third pillar of our strategy relates to what we call future disruptions, which [involves] being very clear from an investment perspective [that] we need to invest in what come next. We have to make sure that we continue to take a leadership mindset and plan for that future activity,” he adds.

Some of the key details regarding the firm’s new smartphone strategy have already been made public. In February, Elop announced Nokia would phase out its own operating systems, Symbian and MeeGo, and adopt Microsoft’s Windows 7 as its main smartphone operating system.

The decision to partnership with Microsoft marks a clear u-turn given that Nokia has spent a huge amount of time and resources to improve its Symbian software. It could also mean some of the most significant job cuts at Nokia for the last two decades. In April, Finland’s biggest private-sector office-work union, Pro, told Bloomberg the decision could place as many as 6,000 jobs under threat.

Job cuts aside Elop insists this new approach will help win back customers lost to the likes of Apple and Google. Since Apple introduced its first iPhone in 2007, Nokia’s share of smartphone sales by volume has declined twenty percentage points to 30.8 percent in the fourth quarter of 2010, according to Gartner.

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“We made the decision from a position of strength [that] we needed to and should take aggressive action to move forward….to accelerate [the speed] at which we could bring innovation to the market [and] to make sure we are taking advantage of the greatest innovation within Nokia,” he says.

Elop is confident that the partnership between Microsoft and Nokia will not only win back old customers but also gain new fans.  “We expect to be very successful. There are no numbers we are putting out there in terms of how much market share [we hope to win back],” he says.

“There is no question in our minds that with the right strategy we can absolutely, not only do very well in understanding existing customers, [but also] win back previous customers. My hope is to also grab customers that know nothing about Nokia.”

Although the smartphone market remains a critical to Nokia, it is not the only area Elop is concentrating on. Making their devices available around the world is also key. Last month, the firm launched a television and social media campaign aimed at capturing “value conscience” consumers in the US, a country it has been traditionally been unable to crack. “There are entire markets in this world where our current experiences are unable to introduce products into the market place, the US is a good example of that,” admits Elop.

The company has had significantly more success in the Middle East and Africa, where it has an estimated 60 percent share of the market. Despite its historical success Elop plans to ramp up investment in a bid to capture the Arabic-speaking market.

“If you look at the Middle East and Africa we have some wonderfully positive examples of [providing local content], for example, the applications we contributed to… in Ramadan. At the same time there are some great examples where we are not as far along as I would like. Elements of our services that aren’t in Arabic for example. Clearly given the opportunity [and] our overall mission, these are things we will address.”

Under the new strategy Nokia will ringfence a disproportionate portion of its research and development budget for the region. “Regions that have the opportunity for disproportionate growth attract disproportionate amounts of spending in order to support those regions and the Middle East is a good example of that,” he says. “There is a real opportunity here that we think Nokia can participate in quite substantially. There are announcements ahead about specific service capabilities that are being introduced uniquely for this region.”

Despite the uncertainty surrounding the finer details of Elop’s plans and his reluctance to publically commit to figures he says this will be short term. “Of course there is ambiguity about what happens to the business in the meantime…. and of course it becomes incumbent on us to demonstrate that we can execute well and that we deliver well against our commitments so there is ambiguity for the shareholders.

“At the same time I’ve had a great deal of positive feedback from our large shareholders about the importance of having a creative strategy and that we’ve made some very good decisions as part of that. So belief in the strategy but ambiguity in the short term.” Let’s hope so for the shareholders’ sake.

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