Can Nokia Save Itself?

Nokia’s Lumia 920: last gasp, or the beginning of a turnaround?

Sometimes, a long jump from a burning platform doesn’t end too well.

When ex-Microsoft executive Stephen Elop took the reins of Nokia back in 2011, he memorably compared the Finnish phone-maker to a burning old platform in the North Sea. “I have learned that we are standing on a burning platform,” he wrote in a widely circulated memo. “And, we have more than one explosion—we have multiple points of scorching heat that are fueling a blazing fire around us.”

Elop suggested competitors such as Apple and Google had “poured flames on our market share,” with the damage accelerated by Nokia’s failure to embrace big trends. His solution: abandon Nokia’s homegrown operating systems, including Symbian, in favor of Microsoft’s Windows Phone.

Nokia’s Windows Phones managed to attract some significant buzz at this year’s Consumer Electronics Show, and early sales seemed solid. But now there are signs the situation could be deteriorating.

Reuters reported Oct. 23 that Nokia plans to issue convertible bonds to the tune of roughly $980 million, increasing its cash holdings ahead of the crucial holiday shopping season. “It is a rather cheap way to get extra financing,” Evli analyst Mikko Ervasti told the newswire. “They need buffers (and) their 2014 bond also requires financing.”

Nokia’s issues are compounded by its credit rating, which three major credit agencies downgraded to junk status earlier in 2012. The company has significant liabilities and a dwindling amount of cash on-hand.

Meanwhile, sales of Nokia’s Windows Phone devices plunged from 4 million units in the second quarter to 2.9 million units in the third. Compare that to the tens of millions of units sold in the same period by Apple and the various Android smartphone makers. “In Q3, we continued to manage through a tough transitional quarter for our smart devices business,” Elop wrote in an Oct. 18 statement, “as we shared the exciting innovation ahead with our new line of Lumia products.”

That dip in Windows Phone sales may have something to do with Windows Phone 8, which Microsoft announced over the summer. Current Windows Phone devices (i.e, versions 7.x) won’t be able to upgrade to Windows Phone 8, a consequence of Microsoft’s decision to have the latter share a kernel, file system, graphics support, and other elements with the upcoming Windows 8. Nor will Windows Phone 7.x devices run Windows Phone 8 apps.

On top of that, Microsoft refuses to say whether the current Windows Phones will upgrade beyond the upcoming version 7.8. Faced with the prospect of a dead-end operating system variant, a portion of customers considering a Nokia smartphone may have opted to hold off until the Windows Phone 8 devices hit the market.

Nokia’s flagship Windows Phone 8 device is the Lumia 920. Among its other features: a camera with PureView technology, built-in wireless charging, and “City Lens,” an augmented-reality app that overlays information on images of the environment. It’s a nifty device, but it’s also entering an arena packed with nifty, next generation devices.

Should Nokia Have Switched to Windows Phone?

Ever since Elop issued that “burning platform” memo, it’s been widely accepted that Nokia had to do something radical to save it from the predations of its competitors. However, an anti-Elop camp has emerged over the past few quarters, arguing that Symbian was still very much a viable operating system and that Elop’s strategy blasted some sizable holes in those pillars holding up the platform.

“Nokia was the most prevalent brand on the planet, in the pockets of 1.4 Billion customers—that’s more than drink Coca Cola daily and yes, obviously, its more than the total installed base of Microsoft Windows worldwide, and more than even today, Facebook has users,” Tomi Ahonen, a blogger and former Nokia executive, wrote in a widely circulated October blog posting. “Every smart CEO would learn why they are ahead—and not touch one iota of that massively successful strategy his company had.”

Of course, other companies have been in similarly dire straits and not only survived, but eventually prospered (Apple is perhaps the best example of this in the tech world). Can Nokia, armed with its slate of Windows Phone devices (and a small subset of Symbian phones), do the same? The answer to that question hinges on its performance over the next few quarters.


Image: Nokia