Nokia's Green Seeks R&D Edge Back From IPhone, Android

Nokia Oyj Chief Technology Officer Rich Green says he wants his team to be in “dirty jerseys” as the Finnish company seeks to regain the edge in smartphones from Apple Inc. and Google Inc.

“They should be in the game, playing, and not on the sidelines with a clean jersey telling people what to do,” Green said in an interview.

The former Sun Microsystems Inc. executive, who was named to the position four months ago, is charged with making choices that get products to market faster and attract third-party application writers. Apple’s iPhones and devices based on Google’s Android have eroded Nokia’s dominance as they rolled out regular upgrades and built large apps portfolios.

Green is among the top executives Nokia Chief Executive Officer Stephen Elop, who takes the helm today, will lean on to revive the fortunes of the world’s biggest maker of mobile phones as analysts predict Android-based devices will overtake the Finnish company in smartphones. Green, like the new CEO, will have to find the right pace to roll out features to lure developers and win back users.

Green wants to “futureproof” the software interfaces programmers use “so that when developers make an investment in writing applications on our platform they know they’ll be long lived.” Nokia wants “to radically grow our developer community and the contents of our apps store,” he said.

Nokia shares slid as much as 2.5 percent in Helsinki today on reports it is delaying shipment of the N8, its latest smartphone. Nokia denied there were any delays.

Biggest Budget

Concern over its shrinking market share and margins has pulled shares down more than 26 percent in the past 12 months, making Nokia the worst-performer on the Euro Stoxx 50 index.

Nokia’s research and development budget of 5.9 billion euros ($7.7 billion), including 3 billion euros for devices and services, is the largest in the industry. The company spent almost six times as much as Apple on R&D last year. Although it employed more than 17,000 R&D workers in devices and services, Nokia still isn’t leading the charge in smartphone innovation.

“Why can you not see that they have the biggest R&D budget when you get their products?” said Bengt Nordstroem, the CEO of Stockholm-based consulting company Northstream AB. “Something’s not working when the people who have the biggest budget and the most resources cannot translate that strength into something that means something to customers.”

Nokia’s R&D efforts are symptomatic of the broader structural challenges that lie ahead for Green and Elop, both newcomers to the Espoo, Finland-based company. It may be among operations that risk being shrunk as competition intensifies.

Research Center

“If financial pressures on the company increase, Nokia may be obliged to review its software R&D strategy, perhaps partnering, outsourcing or even selling off selected elements,” said Gavin Byrne, an analyst with researcher Informa Telecoms & Media in London.

Nokia may need to continue the effort announced last year to cut the smartphone product lines and platforms so that apps can run on the largest number of models with the least rework.

The Nokia Research Center, which conducts research with a horizon of three to 10 years in a dozen locations from Berkeley to Nairobi, employs 500 people. Headed by Henry Tirri, the labs come under corporate development and their projects have included everything from Chinese character and speech recognition and more efficient spectrum use to wearable devices.

‘Herding Cats’

Nokia also has projects with universities such as the University of California Berkeley, where it studied using mobile phones to collect traffic data. The company recently opened a lab with Intel Corp. at Finland’s University of Oulu working on 3-D visuals that could include simulations like “Second Life” and holographic projections reminiscent of “Star Wars.”

The devices and services research teams are also spread around the world, including Beijing and Bangalore. Some of the Ovi cloud services are now run with Yahoo! in Silicon Valley, while there are maps groups in Germany, music in Denmark and design in the U.K. and Finland.

“Herding cats geographically is really, really tough,” Green said. Nokia needs to “focus the charter in specific areas to one locale instead of smearing the responsibility for a given task or product across too many regions,” he said.

The company’s smartphone development efforts have also been split among three potentially competing platforms, Symbian 3, Symbian 4 and MeeGo. It’s also expanding the Series 40 platform for the low-end phones that make up the bulk of its shipments and are gradually approaching smartphones in sophistication.

R&D Centers

A plethora of devices with varying software and interfaces has turned off developers. For Elop -- who said at the Nokia World event last week in London that like his “supervisor” at Microsoft Corp., CEO Steve Ballmer, his credo is “developers, developers, developers” -- making handsets, services and apps work together seamlessly will be critical.

Nokia in July posted a 40 percent drop in second-quarter profit. It said that the operating margin in devices could fall as low as 7 percent in the third quarter. The margin was 12.5 percent last year and 18.2 percent in 2008.

“We expect R&D to decline at least slightly from the 3 billion euro figure invested over the past few years” as Symbian 3 is completed, Barclays wrote in a Sept. 13 note.

Some see more drastic measures.

“I do expect Elop to take the axe to the R&D headcount,” said Tero Kuittinen, an analyst with Greenwich, Conn.-based MKM Partners. “It’s difficult to do now, though, because this is such a critical phase for Nokia smartphone development.”

Apple’s Example

Nokia is concurrently handling the rollout of Symbian 3 as well as two systems that will appear in next year’s products, Symbian 4 and MeeGo. It’s also retraining developers in a new version of the Qt tools that will let them reuse code between platforms.

“It’s clear they are not too efficient in research and development now, and they will probably do more with that, but it’s a bit early to speculate how and whether it will affect headcount before we know what they will do about platforms,” said Michael Schroeder, a Helsinki-based analyst at FIM Bank.

Elop may need to follow the example set by Steve Jobs, who slashed R&D costs after he returned to Apple in 1997. Jobs argued that Apple should use its best brains to build snazzy new Mac products rather than futuristic gee-whiz technologies.

“My job is to take the organization through a period of disruption and ensure that we are meeting the needs of customers while delivering superior financial results,” Elop said at a press briefing in Espoo, Finland, on Sept. 10.

‘Silicon Valley-Type’

Green, who’s based in Palo Alto, California, as well as Espoo, said Nokia’s likely to keep the research centers going, although he said he’s prodding them to be more relevant to products Nokia can deliver soon.

“My role is to catalyze certain aspects of technology transfer from research to product,” he said.

Green, who said he doesn’t know Elop, says he can’t say what the new CEO will want to do. For now, he’s just “looking forward to having another Silicon Valley-type to talk to.”

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

To contact the editor responsible for this story: Vidya Root in Paris at vroot@bloomberg.net

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