Microsoft's Elop Brings Knack for Software, Shaking Up Businesses to Nokia

Stephen Elop, Nokia Oyj’s new chief executive officer, brings a history of iconoclastic decisions that may benefit the Finnish mobile-phone maker as it competes with nimbler Silicon Valley rivals.

As CEO of Macromedia Inc., Elop focused on Flash Internet software at the expense of bigger product lines and orchestrated the company’s $3.4 billion sale to Adobe Systems Inc. in 2005. At Microsoft Corp., he revamped Office and helped boost the business-software division’s sales 15 percent last quarter.

Nokia is counting on Elop’s software expertise and willingness to shake up businesses as it tries to revive its fortunes in the mobile-phone market. While Nokia remains the biggest handset maker, Apple Inc. and Google Inc. are using their operating systems and applications to set the industry’s agenda and build loyalty with consumers and carriers. Elop’s experience may help Nokia take more chances with software and give its phones the same kind of must-have features.

“He’s got a software background, which is becoming more critical in the smartphone space,” said Mark McKechnie, an analyst at Gleacher & Co. in San Francisco. “They’ve found someone with a pretty deep technical background.”

The Canadian-born Elop, the first non-Finn to run the company, will need to challenge a slower-moving, consensus- driven culture at Nokia. Though the company supplies more than a third of the world’s mobile handsets, current CEO Olli-Pekka Kallasvuo has been forced to cut prices to defend its falling market share against Apple.

Stock Drop

That’s hurt Nokia’s bottom line and stock price. The shares have fallen more than 60 percent since Apple’s June 2007 introduction of the iPhone.

“The clear challenges Nokia faces are well understood,” Elop, 46, said at a press conference in Nokia’s hometown of Espoo, a suburb of Helsinki. He will take over for Kallasvuo, a 30-year Nokia veteran, on Sept. 21. “My role is to surface those, to make sure we’re dealing with them efficiently -- that we’re making crisp decisions and moving the organization forward aggressively.”

The company has been bound to the Symbian mobile-phone software at a time when developers are rallying around Apple’s iOS and Google’s Android operating system. That’s hampered Nokia’s sales, especially in North America, and held it back from the burgeoning economy for smartphone apps. Nokia also has a more complex product line marked by varying technical configurations, slowing down the design process.

‘Billions of Dollars’

“Nokia is missing out on billions of dollars in revenues in the U.S. because of their underperformance,” said Neil Mawston, an analyst at Strategy Analytics, a technology consulting firm.

At Microsoft, where Elop served as president of the business software division, he pushed the company to cooperate more with competitors. He showed up for one of his job interviews with an iPhone and a BlackBerry clipped to his belt, in addition to a Windows Mobile device. He also pushed to ensure Microsoft’s Web software worked well on Mozilla Corp.’s Firefox and Apple’s Safari rival browsers.

Office 2010, which arrived in June, includes free, Web- based versions of Word, Excel and other applications. While the move risked hurting one of Microsoft’s biggest and most reliable sources of revenue, Elop wanted to ward off emerging threats from Google’s online software and other rivals. The software also includes the ability to connect to Facebook pages.

Topped Estimates

Elop’s division posted sales of $5.25 billion last quarter, topping the $5.05 billion estimate of Brent Thill, an analyst at UBS AG in San Francisco. Revenue rose from $4.57 billion a year earlier.

On the downside, Elop doesn’t have relationships with mobile carriers, said Sanjiv Wadhwani, an analyst at Stifel Nicolaus & Co. in San Francisco. Nokia will need their support to win over more U.S. customers.

“Elop lacks any visible ties to the operators that control the distribution network in the U.S.,” Wadhwani said in a research note yesterday.

At Nokia, Elop will keep working with Microsoft. The companies have agreed to put a mobile version of Office on Nokia phones, and the devices can access Microsoft’s Exchange e-mail.

“The lines of communication are more open than they are before and perhaps it’ll help with better understanding of each other’s goals and objectives,” Elop said yesterday. “There may be opportunities in the future to do more work together.”

Tighter Bond?

The question now is how close the partnership will get, said Matt Rosoff, an analyst at the research firm Directions on Microsoft in Kirkland, Washington. Nokia could ditch its Symbian operating system in favor of Microsoft’s new mobile software, Windows Phone 7, he said.

“There’s definitely a chance for greater cooperation between these companies,” Rosoff said. Still, the Windows software has lost ground to Apple and Android, making it less likely to spur a turnaround at Nokia.

The company is also working with Intel Corp. on an operating system called MeeGo that could power phones and possibly tablets. Another option is to use Google’s Android software, Rosoff said.

Compared with his predecessor at Nokia, Elop is more of a job hopper. During his year as chief operating officer at Juniper Networks Inc., he oversaw reorganizations that helped expand profit margins and boost sales, closing the gap with networking leader Cisco Systems Inc. Then, days before Juniper was to name him CEO -- the press release had already been written -- Elop quit to join Microsoft.

Forging Local Ties

At his debut in Finland, Elop sought to emphasize ties with his new company, saying he plans to move to Helsinki with his wife and children. He said he’d sampled salmiakki, the salty Finnish licorice, and cited his love for hockey.

Elop got his bachelor’s degree from McMaster University, a Canadian engineering school, and grew up around technology. His grandfather served in both world wars as a wireless operator, and Elop’s father was an electric engineer.

Elop installed one of the first ethernet networks in Canada. He and friends laid down 14 miles (22 kilometers) of cable throughout McMaster’s campus while working for the school’s information-technology director.

“He is clearly an engineer by nature who seems capable of understanding even the smallest technical details,” Sami Sarkamies, a Nordea Bank analyst in Helsinki, said yesterday in a research report.

While he may not be Apple’s Steve Jobs, Elop resembles Google CEO Eric Schmidt, another engineer by training, Sarkamies said.

“Not a particularly bad choice either,” he said.

To contact the reporters on this story: Aaron Ricadela in San Francisco at aricadela@bloomberg.net; Diana ben-Aaron in Helsinki at dbenaaron1@bloomberg.net; Peter Burrows in San Francisco at pburrows@bloomberg.net

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