Nokia Investors Left Without Buzz, Increasing Pressure on Elop

Nokia Oyj shareholders didn’t feel the buzz at the company’s showcase event in London this week, increasing pressure on Chief Executive Officer Stephen Elop to speed development of devices to rival Apple Inc. and Google Inc.

Neither the appointment of Microsoft Corp. executive Elop as CEO nor a new range of smartphones displayed at the Nokia World show in London revived Nokia’s stock price, which has dropped 14 percent this year. Citigroup analysts yesterday downgraded the stock to “sell” from “hold.”

With handsets that haven’t caught up to Apple’s three-year- old iPhone, even after schedule delays, Elop has to get the 60,000-strong devices division churning out products more quickly. The N8 and three other smartphones based on the Symbian3 operating software that Nokia showcased were hampered by delays, contributing to three reductions in forecasts.

“He must get Nokia faster at software execution,” said David Wood, founder of independent consulting firm Delta Wisdom and a former executive at Nokia’s Symbian Foundation. “New product creation just takes too long and devices are significantly later than expected.”

Elop, a software engineer who starts his new role on Sept. 21, needs to assess operating systems that are costly to update and not slick enough to wow analysts and reviewers. He also needs to squeeze more out of Nokia’s $7.7 billion annual research and development budget -- the industry’s largest -- to deliver devices consumers want, and stem shrinking margins.

Not ‘Sexy’

“You look at what else is in the market, from the high-end Android products and iPhone, and you see how much more work Nokia needs to do,” said Carolina Milanesi, a research director with Gartner Inc.’s U.K. unit. Nokia’s image for the last few years has been solid, rather than “cutting edge, trendy and sexy,” she said.

Nokia shares were little changed at 7.64 euros yesterday after falling 3.2 percent on Sept. 13, the first day of Nokia World, where 3,000 people attended. They rose less than 1 percent on Sept. 10, the day Elop was named new CEO.

The company has gotten more bounce from previous product news, such as the shipment of the ultimately disappointing N97 and the announcement of the N900 before last year’s Nokia World.

The stock jumped 3 percent on Dec. 2, 2008, when Nokia announced the N97, its first major model with iPhone-apps. They rose as much as 2.5 percent when it shipped on June 2, 2009, and closed up 1 percent. Reviewer and customer complaints about the handset then contributed to a decline. Nokia announced the N900, the first of a new line running Linux-based software, on Aug. 27, 2009. The shares increased 2.3 percent.

‘Too Little Too Late’

“For most observers the launches were pretty neutral, many also say that this was too little too late,” said Michael Schroeder, a Helsinki-based analyst with FIM Bank.

Citigroup analysts said the company’s smartphone handset prices are likely to continue declining on tougher competition from Android, Samsung Electronics Co.’s Bada phones, and Microsoft’s renewed Windows Phone 7.

“Although the new devices look promising with much- improved hardware, none can be called an iPhone killer given the (current) lack of developer support for the Symbian ecosystem and inferior user experience relative to the iPhone,” Zahid Hussein and other Citigroup analysts wrote in a report.

Nokia shares have fallen than 60 percent since the iPhone was unveiled in June 2007 as its app portfolio went from zero with the first version to more than 250,000 today. Android has more than 70,000 apps available. Nokia’s Ovi Store offers 13,000 apps, Niklas Savander, the company’s executive vice president for marketing, said on Sept. 14.

Elop’s Speech

At Nokia World yesterday Elop, addressing an audience packed with developers, acknowledged the company’s dependence on independent programmers who are now choosing whether to build for its new platforms or shift resources to Apple and Android.

“At Nokia, we are capable of building great devices, of taking them to market, of working with operators to get them out there; we can have services, we can do all that,” he said. “But, without you, we cannot create the vibrancy and ecosystem we need to be successful and to compete around the world.”

The N8 features a 12-megapixel camera, high-definition video recording, film-editing software, navigable 3-D maps and the ability to mirror its display on a television screen. Users can customize their phones to display Facebook and Twitter feeds on the top screen. They can also integrate all their social networking into a single feed, using Nokia software or third- party apps such as Gravity.

Shrinking Share

At 37.4 percent, Nokia has the biggest share of the smartphones market according to second-quarter figures from Gartner. Still, Apple and Android devices have eroded its dominance from 45 percent a year ago, as they expanded the market for smartphones.

Apple became identified with the transformation of the mobile phone from a handset into an all-purpose digital assistant, as it accumulated hundreds of thousands of apps for everything from free phone calling to travel dictionaries and virtual musical instruments -- nearly all from third parties.

Nokia was slow to catch the wave. Its plethora of devices with multiple configurations have made writing applications more difficult, time consuming and expensive, according to developers. Nokia’s slow touch screens and small device memory made for sluggish response, and developers preferred the iPhone whose touch and feel made their apps look good.

‘Layers of Jelly’

Nokia’s hardware is now up to speed, according to analysts, though the Finnish company got bogged down in software as it struggled to deliver potentially competing products on three operating platforms -- Symbian 3, Symbian 4 and MeeGo, which it is developing with Intel Corp.

“Nokia software has been described as layer upon layer of jelly, meaning that it is not of known quality,” Delta’s Wood said. “There’s good functionality in there, but it is not reliably proven in the necessary circumstances,”

While that’s changing with the N8, it may still not be enough for consumers to pick it over other devices.

In addition to hastening the process to market, Elop, 46, will need to decide if Nokia really needs to keep all of its operating systems or if it should move to a new platform.

“Nokia has too many pies in the oven,” said Hakim Kriout, a portfolio manager at Grigsby & Associates who holds Nokia shares. “They should stop talking about how great MeeGo and Symbian 4 are going to be when Symbian 3 isn’t even shipping. Elop should focus on making Nokia handsets thinner and simplify software development.”

Barriers to Speed

The new CEO said last week he will take some time to review products and platforms at the Espoo, Finland-based company. Nokia has indicated it won’t adopt Android or another platform controlled by others.

“It’ll be very important for me to understand each of the platforms, how that’s going to move forward across those platforms, where to emphasize which one,” Elop said on Sept. 10. “It’s certainly an area that is a critical part of our overall strategy.”

To be sure, the Canadian-born Elop, the first non-Finn to run the company, will confront a slower-moving, consensus-driven culture at Nokia. He may also find it hard move fast, faced with handsets in the pipeline that have taken years to develop.

“I don’t think he will make rapid changes because it would disrupt the product pipeline,” said FIM Bank’s Schroeder. “It takes 12 to 24 months to bring a product to market. That’s why I don’t see massive changes like replacing Symbian. The road map is locked in until next summer and changing it may be difficult.”

To contact the reporter on this story: Diana ben-Aaron in Helsinki at dbenaaron1@bloomberg.net

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