Nokia Names Microsoft’s Elop CEO as Apple Wins Market

Nokia Oyj hired Stephen Elop, the head of Microsoft Corp.’s business unit, as chief executive officer, seeking to reclaim ground lost to Apple Inc. that has wiped $61 billion off its market value.

Elop, a 46-year-old Canadian, will take over as president and CEO of the world’s largest mobile-phone maker starting Sept. 21, the Espoo, Finland-based company said. He will replace 30-year Nokia veteran Olli-Pekka Kallasvuo, becoming the first non-Finn to head the company. Kallasvuo will remain on the board of Nokia Siemens Networks. Nokia rose as much as 6.9 percent.

“We view the appointment of a leading software executive to the CEO role as a positive,” said Jesper Kruger, an investor at ATP, Denmark’s biggest pension fund, with 50 billion euros ($64 billion) in assets including Nokia shares. “Earlier management grossly underestimated the challenges related to moving from a hardware-driven business model to software.”

Elop, who ran Microsoft’s biggest business, said today that the two companies may do more work together. Microsoft and Nokia have both struggled with software for smartphones, sidelined by the rise of Apple’s iPhone and handsets based on Google Inc.’s Android operating system. Three years after Apple introduced the iPhone, Nokia is grappling with developing a smartphone with the same mass appeal. It has been forced to cut prices, sacrificing profits to defend its market share.

“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.

CEO Search

In a statement posted on Microsoft’s website and circulated to employees, CEO Steve Ballmer called Elop a “good steward of the brand and business in his time here.” Ballmer named no replacement for Elop and said the division’s team of executives will report directly to him in the interim. Frank Shaw, a Microsoft spokesman declined to comment on a replacement.

Nokia rose 5 cents, or 0.7 percent, to close at 7.79 euros in Helsinki. The stock has declined 13 percent this year.

The CEO search started in late May and the board considered several internal and external candidates before zeroing in on Elop, Chairman Jorma Ollila said.

“It’s particularly Steve’s strong software background and proven track record in change management that will be the most valuable asset,” he said.

A computer engineer by training, Elop joined Microsoft in January 2008. Elop, who has a management degree from McMaster University in Hamilton, Canada, came to Microsoft from Juniper Networks Inc., where he was chief operating officer.

Safe Choice

He also brings to Nokia experience as CEO of graphics software maker Macromedia Inc., before that company was bought by Adobe Systems Inc. He previously worked as chief information officer at restaurant chain Boston Chicken Inc. His resume doesn’t show any jobs in the mobile-phone business.

“Nokia’s board has made a safe choice when they should have made a courageous choice,” said Nick Jones, a London-based analyst at Gartner Inc. “In the current state of the market when the two main competitors, Google and Apple, are very much headed by recognizable visionaries, you need someone who is charismatic and can explain how you’re driving the industry forward in new directions. Elop’s an execution guy and the thing to watch now is who will he appoint to complement his skills.”

The announcement of Elop’s appointment comes just days before the Finnish company’s annual Nokia World event next week in London to show it can claw back ground lost.

Nokia is likely to show off its high-end Symbian smartphone line, including the touchscreen N8, its latest effort to take on the competition.

‘Clear Challenges’

“The clear challenges the company faces are well understood within the four walls of Nokia worldwide,” Elop said. “The answers to those challenges are also well understood. My role is to surface those, to make sure we’re dealing with them efficiently.”

Before today, Nokia’s stock had fallen more than 60 percent since Apple’s June 2007 introduction of the iPhone, cutting its market value by 48 billion euros, or $61 billion. Its current market value of 30 billion euros compares with Cupertino, California-based Apple’s $240 billion, and is a shadow of its 1999 peak of 203 billion euros, the highest in Europe.

Nokia was slow to catch the wave created by the emergence of the iPhone, which with its multitude of applications for everything from music, restaurants and games, to the weather and news, took the mobile phone from a calling handset to an all-purpose consumer device.

Kallasvuo’s Watch

Nokia’s downward spiral came on Kallasvuo’s watch. The 57-year-old executive took the helm in 2006 from Ollila. Kallasvuo insisted on remaining in all segments from 25-euro basic phones to gem-studded luxury models.

Nokia’s multiple devices with different configurations made designing more difficult, time consuming and expensive, developers said. They said the devices were also clunky and didn’t have the iPhone’s sleek touch and feel that made their applications and software look good.

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 and Android devices from taking market share from Nokia in smartphones.

Nokia share of the smartphones market has been on the decline. In the second quarter, it fell to 37.4 percent from 45 percent, according to researcher Gartner Inc.

The competition has eaten into its profit margins. In July Nokia 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. The company posted a 40 percent drop in second-quarter profit.

Cultural Question

Elop now needs to show he can turn the company around to meet its goal of rebuilding device margins to 10 to 11 percent for the year, as the company has pledged.

His more immediate challenge may be to shake up the business culture at Nokia.

“Nokia’s business culture tends to be very consensus oriented versus the star system more prevalent within North American tech companies,” Rod Hall, a JPMorgan analyst, wrote in a note. “We have some reservations about the choice of a North American.”

Investors want to see if Elop can change Nokia, said Ben Wood, a London-based analyst at CCS Insight.

“The question is whether Elop is going to deviate from Nokia’s current strategy,” he said.

    Before it's here, it's on the Bloomberg Terminal. LEARN MORE