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Nokia Advances After Report It's Searching for New Chief

Nokia Oyj rose as much as 5.2 percent in Helsinki trading after the Wall Street Journal reported the world’s biggest maker of mobile phones is looking to replace Chief Executive Officer Olli-Pekka Kallasvuo.

Nokia, which approached the heads of several U.S. technology companies for the post, will make a decision by the end of the month, according to the report yesterday, which cited unidentified people familiar with the situation. Nokia spokeswoman Arja Suominen declined to comment.

A new CEO would need to convince investors Nokia is capable of delivering devices that can compete with Apple Inc.’s iPhone and Research In Motion Ltd.’s BlackBerry. Nokia shares have lost two-thirds of their worth, wiping out 60 billion euros ($77.9 billion) in market value, since the iPhone’s introduction three years ago. Cupertino, California-based Apple’s value has doubled in the same period.

“A new broom sweeps clean and Nokia would definitely benefit from a new CEO,” said Ulf Moritzen, who helps manage about 1 billion euros at Hamburg-based Aramea Asset Management including Nokia shares. “The company needs to react faster to market trends.”

The stock climbed as much as 35 cents, the biggest gain since May 10, to 7.12 euros and was up 3.5 percent as of 11:28 a.m. The shares had declined 22 percent this year, valuing the company at 26.2 billion euros.

Downward Trajectory

The company’s downward trajectory began on Kallasvuo’s watch, after Apple began shipping iPhones in June, 2007. Nokia has been unable to develop a smartphone with the same mass appeal as the iPhone, which changed the industry with its thousands of applications. The Finnish company has been forced to cut prices, sacrificing profits to defend its market share.

One of the candidates to replace Kallasvuo, 57, refused Nokia’s advances after meeting Chairman Jorma Ollila, 59, because the position requires moving to Finland, the Journal said.

“An American CEO would mean a profound change in Nokia’s corporate culture,” said Tero Kuittinen, an analyst at Greenwich, Conn.-based MKM Partners who has a “neutral” rating on the shares. “Of course, Finland’s executive talent pool isn’t that deep, so any homegrown pick could easily be regarded as too provincial by foreign investors.”

The company’s share of the global mobile-phone market eroded as new manufacturers carved out niches at the high and low ends. It fell almost 2 percentage points in the first quarter to 36.6 percent, researcher IDC said April 30.

Price Drop

The must-have brand a decade ago, Nokia saw its average smartphone price drop 18 percent in the last nine months with buyers unwilling to pay top dollar. Nokia charged, on average, 155 euros in the first quarter for a smartphone, down from 190 euros in the third quarter.

Apple commanded an average of $622 per iPhone in its fiscal second quarter, including services and products.

Nokia spent 6 billion euros on research and development last year, almost six times as much as Apple. Although only half Nokia’s R&D money went to the devices and services unit, analysts and investors have said the spending hasn’t delivered handsets that could really take on its more nimble rivals.

“Nokia spent four times more on R&D in its devices business than Apple has spent as a group over the last three years with little to show for it,” said Adnaan Ahmad, a London- based analyst with Behrenberg Bank, in a June 24 report.

Kallasvuo Tenure

The company’s last hit smartphone was the GPS-equipped N95, announced a few months after Kallasvuo took over as CEO in 2006.

Kallasvuo joined Nokia in the legal department in 1980 and shifted to finance in 1988, where he was one of the executives who turned the company around in the early 1990s. Kallasvuo was named chief financial officer in 1992, the year Ollila, who transformed Nokia from a rubber and wood-based conglomerate into the world’s largest maker of mobile phones, took over as CEO.

One of Kallasvuo’s first decisions as CEO was to merge the company’s network operations with Munich-based Siemens AG. Their joint venture Nokia Siemens Networks has been a drag on profit since the very beginning.

As CEO, Kallasvuo drove the development of services such as music downloads and GPS navigation to increase the value of Nokia handsets and retain customers. The efforts did little to stop Apple, RIM and devices based on Google Inc.’s Android software from taking market share from Nokia in smartphones.

All Segments

In the main handset business, Kallasvuo insisted on remaining in all segments from 25-euro basic phones to gem- studded luxury models. As part of his services drive, he bought U.S. map company Navteq Corp. for $8.1 billion, and built up the software organization with toolmaker Trolltech ASA and social networking startups.

He opened the Nokia Music Store and the Ovi downloads portal and put information services for rural farmers on the company’s cheapest handsets.

While Kallasvuo succeeded in extending Web browsing and services to lower-priced markets, he failed to come up with a rival to the iPhone in high-end smartphones.

Kallasvuo was credited with helping persuade investors to stick with Nokia during the transition from conglomerate to phone maker. He stepped out of corporate finance for two years in the late 1990s to lead the company’s Americas business from Dallas, returning to the CFO post in 1999.

In 2004, he was named head of the mobile-phone division, a position considered a stepping stone to the top job. When Ollila became chairman, Kallasvuo took over as CEO on June 1, 2006.

“He has done basically nothing to improve the long-term competitive position of the company,” said Michiel Plakman, who helps manage 7 billion euros including Nokia shares at Rotterdam-based Robeco NV. “The position of the company has eroded during his tenure. And I’m not even being harsh.”

To contact the reporters on this story: Diana ben-Aaron in Helsinki at dbenaaron1@bloomberg.net; Pavel Alpeyev in Tokyo at palpeyev@bloomberg.net.

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