’)Invest in Nokia?
International human press newswire (ithp.org)
On February 2nd 2011 Nokia rose nearly 5% as rumors began circulating Wall Street that the mobile giant would team up with Windows for its new ecosystem. Currently Nokia is struggling to gain U.S market share due to competition from Apple’s iPhone and Google’s Android system. Nokia however still has a significant presence in the world with 1.3 billion people using their phones to connect every day. (yes 1.3 billion!)So why invest in Nokia? They seem to be another “Blockbuster” that didn’t prepare for Netflix. This may be the obvious logic but if Nokia adopts a new powerful operating system that catches on in America they will be unstoppable. Smart phone sales will surge and we believe Nokia prices could go back to 2007 when the stock almost hit $40. The Windows Phone 7 operating system is currently looking like Nokia’s best bet because some analysts think it’s just too late to adopt Android. The 5% increase today most likely could be traced back to an analyst from Berenberg Bank which urged Nokia’s CEO to adopt the Windows 7 phone. ITHP got hold of the letter and has decided to publish it.
Dear Stephen (Nokia CEO) and Steve (Microsoft CEO),
I hope I find you both in good health. As you know, I have followed the technology industry for over 13 years. Times are a-changin’, as they say, and many of the predictions I put out in the market when I was at Merrill Lynch wearing polo necks, Timberlands and jeans, trying to look like SteveJobs, are now, a decade later, coming to fruition. Yes, my timing has never been a forte! We are finally seeing the convergence of communications and computing creating sizable opportunities for future winners, but also challenges and threats for slower-moving incumbent vendors. You both must remember how a whole host of mainframe makers lost out in the shift to PCs and client servers such as WANG, Unisys, IBM and Burroughs. Or how Xerox and Kodak have been eclipsed by Adobe and Sandisk. And, Steve, you and Bill must remember how you ate IBM’s lunch. That’s brought a smile to your face, Steve, hasn’t it? Well, this ’convergence’ thing is as seismic a shift and may take that smile off!
I know you are both sick and tired of hearing how great and innovative Apple and Android (Google) ecosystems are, and that they have hundreds of thousands of applications, growing revenue at 50%+ per annum and gaining market share globally. I remember the days when Nokia (with Jorma Olilla at the helm) ruled the roost, European market share was above 50% and U.S. market share was in the 35% range. Well, those days are long gone, and as you so sweetly put it, Stephen, in your recent Q4 earnings release, ’Nokia faces some significant challenges in our competitiveness and our execution. In short, the industry changed, and now it’s time for Nokia to change faster’.
That is a positive, Stephen, as it shows that Nokia is no longer in denial – unlike your predecessors who were wedded to a ’Not invented here’ syndrome. Indeed, one of the internal candidates for the CEO post described a shift to alternative platforms as ’peeing in your pants for warmth’. It is good to see that you are challenging this internal viewpoint. Steve, you are not going to get off scot-free! Microsoft also faces very big strategic challenges as smartphones and tablets attack your highly profitable installed base business. Windows Phone 7 is good, but let’s bebserious, guys: two million units in Q4 in a ~100m market; that is just not going to cut it!
So why I am ranting on here? Well, Stephen, you have just announced that you are going to ’build, join and CATALYSE’ an ecosystem. If you really want to achieve that, you have to try to bebdifferent. So here is my proposal to you on what you should do at your Capital Markets Day on 11 February:
1. Android a no-go for now. This may have been a good idea one to two years ago, but it is not today. You will never be able to catch up with Samsung, which should rule the Android show midterm given its economies of scale, product breadth (TVs, PCs, phones and tablets), as well as its captive component base. And that market is going to get even more crowded with China Inc (ZTE, Huawei et al) joining Sony Ericsson, HTC, Motorola and PC vendors. And more significantly, how is anyone going to differentiate on Android long-term?
2. Announce an EXCLUSIVE deal with your ex-colleague, Steve: you get access to their WP7 intellectual property (IPR) scot-free and access to the US market where your share has dived to the low single-digit level, and in so doing cut your bloated handset business R&D budget by at least €1 billion, or 30%, which should add 300bps to your operating margin. Get rid of your own proprietary high-end solution (MEEGO) – it’s the biggest joke in the tech industry right now and will put you even further behind Apple and Google. Focus your high-end portfolio around WP7, and over time you can take the cost down (that’s Steve’s job and cost base) to get this into the mid-range market. Push your Symbian solutions into the low-to-mid-range smartphone market as quickly as possible to defend market share versus Android’s upcoming lowered cost ecosystem.
3. You are going to have to cut headcount severely in Finland, where Nokia accounts for around 7- 8% of GDP and employment (including ecosystem), but I am sure the Government will be more amenable to restructuring with your share price down 70% since the introduction of the iPhone in 2007. It could obviously get worse if you wait. And the best time to announce it is now. 4. Tell the market by what time you expect the initial products from your exclusive deal with Steve to be released.
Steve, you are probably thinking, ’What do we gain on the back of this?’ Well, two million units shipped in the last quarter is not really much to write home about, given $500 million in marketing programmes (ouch), but with Nokia on-side, you get access to a potential 20-25% global share over time – and EXCLUSIVITY. Right now, do you really think HTC, Samsung and LGE are pushing your products ahead of Google’s? You need to tie yourself to a high-volume player to be relevant, which I know goes against your DNA. But do not forget that your MS-DOS software was originally only for IBM and then claimed a near-monopoly in the market. And, Steve, if you are successful, we will all forget your quotes from 2007. Do you remember this one: ’Apple is a cute, little, tiny niche guy?’ Or this one: ’No chance Apple iPhone is going to get any significant market share?’ (Ouch x2.) More importantly, your shareholders are going to be impressed that you have not gone after an expensive acquisition strategy in what is really (let’s face it) a consumer electronics industry. When you are both next in London, let’s go for lunch and I can take you through my thoughts inmore detail.
With compliments,
Adnaan
We’re all going to be hearing a lot more about Nokia in the coming weeks. Nokia will be hosting an investor meeting on February 11th during which we suspect executives will give clear information on Nokia’s strategy for the coming year. If the Windows phone is a success Nokia has its current OS Meego which will most likely merge or disappear altogether. In short we predict in the coming two months a lot of activity in Nokia stock. It may skyrocket or fall greatly depending on their decision.
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