Nokia At Risk Of Joining RIM And Palm
Watching Nokia slowly fall from the leadership role in the mobile industry is gut-wrenching. The company is at real risk of becoming a has-been like Palm.
Organizational changes Nokia announced Thursday mark the umpteenth time the company has attempted to reinvigorate its sagging smartphone business. They likely won't be the last strategic changes undertaken by Nokia, a company desperately struggling to ward off the undertaker.
The worst part about the announcements coming from Espoo, Finland, are not the 10,000 layoffs, not the closed plants and refocused business units, but that we've heard it all before. Once every eight months or so, Nokia heaves itself upright with shifts in its internal organization, shuffled executives, and facility changes. I feel like I've written this same story a dozen times since 2008, and each time it becomes more depressing.
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Nokia will reduce its headcount once again, this time trimming its workforce by about 20%. It will close up several plants in Europe and Asia, and will reorganize several existing plants to handle different tasks. It's going to cut off some organizational fat and promises to focus on its core smartphone business even more so than it already does. Several long-time executives are leaving the company later this month and will be replaced by others. Nokia promises it will invest in technologies that will make its phones stand out, and will renew efforts to make its feature phones successful in developing markets.
[ What would you think of a free Nokia Lumia 900? See Seton Hall Gives Nokia Windows Phones To Freshmen. ]
"We are increasing our focus on the products and services that our consumers value most while continuing to invest in the innovation that has always defined Nokia," said Stephen Elop, Nokia president and CEO. "We intend to pursue an even more focused effort on Lumia, continued innovation around our feature phones, while placing increased emphasis on our location-based services. However, we must re-shape our operating model and ensure that we create a structure that can support our competitive ambitions."
Blah, blah, blah. Excuse me if I don't believe a word of it.
Nokia needs to do one thing: sell more smartphones. Let's repeat that: Nokia Needs To Sell More Smartphones. Any effort that doesn't help it do that is wasted.
Nokia has taken a huge gamble on Microsoft's Windows Phone platform. So far, that gamble hasn't paid off. It announced in February 2011 that it would dump Symbian as its main smartphone platform and would instead go with Windows Phone. The result was an almost immediate plunge in sales of Symbian smartphones, which crushed Nokia's revenue throughout 2011. The company fielded its first Windows Phones, the Lumia 800 and Lumia 710, in late 2011 and the followed them up with the Lumia 900 and 610 later in the year.
Sales have been OK, but not spectacular. Nokia has not said exactly how many Lumia phones it has sold to date. We do know one thing about Lumia sales: they aren't anywhere close to sales of Google Androids and Apple iPhones.
The danger facing Nokia is that it smartphone sales may not sustain it financially in the long term. Nokia has pared down its sprawling business units, but is still burning through cash. Nokia's finances are facing a two-pronged attack. First, the transition from Symbian to Windows Phone requires a significant capital investment. It doesn't help that the company has reorganized itself repeatedly over the years and has had to clean house at the executive level. Second, the nosedive in Symbian smartphone sales has crushed Nokia's revenue, further constraining its cash position.
What's bothering investors is that Nokia has two bonds coming up that it might default on. Its bonds are already rated at junk status. The first amounts to 1.25 billion Euros of 5.5% maturing in 2014. That represents more than a quarter of Nokia's current cash reserves. The second bond, for 500 million Euros at 6.25%, doesn't mature until 2019. Some analysts polled by Reuters don't think Nokia will have the cash to pay either.
We've read about problems such as these before. I'm talking about Palm and Research In Motion. Palm tried very hard to relaunch itself as a premier smartphone maker with webOS and the Pre, Pixi, Veer, and other smartphones. Sales of those devices, however innovative they may have been, weren't enough to keep the company afloat. Despite the fact that HP acquired Palm, it didn't back it up financially and the entire company was eventually lost.
RIM is in a similar position. It is struggling to relaunch itself with a new platform and new hardware, but its time is running out. The company has hired bankers to explore strategic options (which often means a sale of some sort), and sales of its BlackBerry smartphones have taken a beating thanks to Android and the iPhone.
Nokia and RIM are both in danger of entirely failing to compete with Android and the iPhone. Some question whether or not Nokia should have chosen Android instead of Windows Phone. It if had, there's no doubt it would be selling more devices--though at the cost of its soul.
I don't want to see Nokia go the way of Palm, but it is looking more and more probable of late. We can only hope that Nokia's latest organizational change is the one that sticks and effects actual change in the company.
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