IHS Global Insight Perspective | |
Significance | Nokia recently reported a sharp profit drop of 15%. It has warned that while it sees the global mobile market growing 10% in 2010, its own growth will remain flat. |
Implications | Nokia has struggled with the rise of internet-led services and believes Stephen Elop's strong software background and his knowledge of the U.S. market will be important assets. |
Outlook | The incoming CEO is being seen as a new influence who will accelerate innovation and make Nokia worthy of its position as the leader of the handset market. |
Nokia has announced it has replaced Chief Executive Olli-Pekka Kallasvuo, with virtually immediate effect, as the world's number-one handset manufacturer continues to struggle to make inroads into the smartphone market. CEO Kallasvuo will be replaced by former Microsoft employee Stephen Elop, the head of the U.S. computer giant's business division, with effect from 21 September 2010.
Canadian citizen Elop, who is 46 years old, joined Microsoft in 2008 from Juniper Networks and is credited with successfully managing the launch of Microsoft's Office 2010 suite of applications earlier this year. Nokia's board chairman Jorma Ollila stated that "the Nokia Board believes that Stephen has the right industry experience and leadership skills to realize the full potential of Nokia," adding that the time is right to accelerate the company's renewal.
Kallasvuo will give up his seat on the board of directors with immediate effect, although he will continue to chair the board of joint venture Nokia Siemens Networks (NSN) in a non-executive capacity. Reports are suggesting Kallasvuo is set to receive a severance payment in the region of 4.6 million euro (US$5.84 million).
Outlook and Implications
- A New Broom: Rumours have been flying that Nokia was seeking to replace Kallasvuo following several quarters of disappointing growth and two profit warnings at the handset giant in the last nine months (see World: 23 July 2010: Nokia's Q2 Operating Profit Drops 15%, Fuelling Speculation About Future of CEO). Speaking following the company's second-quarter earnings report, Kallasvuo conceded that rumours that he might be replaced were "not good for Nokia, and in one way or other we should be able to solve the problem to end the speculation". Under Kallasvuo, Nokia has struggled to keep up with new rivals such as Apple, Research In Motion (RIM), and Google, and although it has not seen a significant drop in its global market share it has failed to gain traction in the lucrative smartphone market. The Finnish company has lacked a hit smartphone model since the launch of its N95 in 2006, as it has been unable to crack the North American market, where the operator has performed particularly badly, despite pledges to make it a top priority. The incoming CEO is being seen as a new influence who will accelerate innovation and make Nokia worthy of its position as the leader of the handset market.
- Nokia Continues to Struggle: Nokia recently reported a sharp drop of 15% year-on-year in its second-quarter operating profits, as its estimated mobile device market share remained unchanged from the pervious quarter at 33%. More worryingly, Nokia has predicted that while global mobile market will grow 10% this year, its own growth will remain flat. Elsewhere, Nokia has revealed it is considering selling a stake in NSN, as the equipment vendor continues to struggle with a global components shortage, exacerbating the continuing lull in operator spend due to the economic downturn (see World: 31 August 2010: Nokia and Siemens Confirm Interest in Selling NSN Stake). However, Nokia is not thought to be looking to exit NSN completely, as the vendor recently bought Motorola's wireless networks business, which will see it gain the majority of the struggling U.S. giant's wireless network infrastructure assets. Nokia is now largely relying on its N8 handset, its first phone using the new Symbian software, to crack open the smartphone market. It recently announced alterations to its company structure with the merger of its smartphone and mobile units into a new business unit, Mobile Solutions.
- A Shift in Focus to Services: Nokia has struggled with the rise of internet-led services, and the vendor believes Elop's strong software background, his knowledge of the U.S. market, and his experience of change management will be important assets. Nokia and U.S. chipmaker Intel have recently stated that their Linux open-source software joint venture MeeGo has made a strong start, following its formation in February 2010, merging Nokia's Linux Maemo software platform with Intel's Moblin (see World: 24 August 2010: Nokia and Intel Remain Optimistic on Joint Software Venture). Meanwhile, Nokia has announced that it will close its Ovi Files service from October, as the vendor moves towards integrating its capabilities into broader horizontal offerings, leading to some existing services being discontinued (see World: 2 September 2010: Nokia Discontinues Cloud-Computing Service Ovi Files). Nokia has also recently rebranded and re-launched its "all-you-can-eat" music service, following disappointing take-up of the original offering (see Netherlands: 3 September 2010: Nokia Relaunches Music Service with DRM-Free Dutch Offering).