On Monday, Moody’s, the ratings agency, downgraded Nokia’s debt to near junk status. The share price has been in freefall in the past year, with some analysts painting a bleak future for the Finnish company. Yes, it’s bad. But Nokia is already planting the seeds of its turnaround.
There’s no doubt that fortunes are made and lost in the worldwide cellphone business at frightening speed. Taiwan’s HTC, flying high just 18 months ago, stumbled badly when it released a range of handsets that didn’t set the market alight. The phones, like the Sensation, are great devices, but the company was clobbered because it didn’t quite capture the imagination of consumers as much as Samsung’s Galaxy S2 and Apple’s iPhone 4 and 4S models.
Over in Canada, Research in Motion (RIM) has been pummelled, its share price down a staggering 76% in the past 12 months, as consumers in developed markets like the US switched from BlackBerry to the iPhone and smartphones running Google’s Android. That the BlackBerry is still hugely popular in some developing markets, including SA, hasn’t helped RIM as investors have taken fright. If RIM’s share price falls much further, it will be priced for bankruptcy.
As Nokia’s share price continues to slide — it’s down by more than 50% in the past year — analysts are starting to wonder if CEO Stephen Elop’s decision to leap off the “burning platform” into the hands of Microsoft will come to be studied in business schools as one of the biggest strategic miscalculations in business history.
Despite winning plaudits from critics, Microsoft’s Windows Phone operating system — on which Nokia has staked its future in the smartphone wars — has failed to ignite the same sort of passion in consumers as Apple’s iOS, which powers the iPhone and the iPad, and Google’s Android, which appeals to hardcore geeks and to cost-conscious consumers.
Elop’s decision to stump for the Microsoft platform was certainly a risky one. The software giant, though still hugely profitable, lost its mojo years ago and is seen by younger consumers as that company that makes the software that your dad uses on his laptop and to run the office e-mail server. iPads are cool; Excel isn’t.
It would have been far easier for Elop to have adopted Android from Google, but that would have turned it into just another low-margin hardware manufacturer churning out (probably rather good) smartphones. But the real money isn’t in hardware anymore.
Rather, as Apple has shown, it’s in the ecosystem of applications and multimedia that the value lies. Arguably, Elop and his team have a better chance of monetising and controlling that ecosystem with Microsoft, with which it can co-operate much more closely than it could ever have done with Google. It also helps that Elop is a former Microsoft executive who is on good terms with the software company’s CEO, Steve Ballmer. The future success, or otherwise, of both companies is now deeply intertwined.
Anyone who has used Windows Phone knows it’s a solid platform and a spectacular improvement on the old dog known as Windows Mobile. It still needs some refinement before it’s mature, but it’s fast becoming a viable alternative to both iOS and Android.
Nokia has other tricks up its sleeve. Its free mapping software, coupled with its voice-guided navigation software, is the best in the industry. And it offers a full music store at competitive prices — even in SA, where Apple, still very much a US-centric company, couldn’t even be bothered to launch the full iTunes Store.
Nokia has serious challenges, not least among them consumer antipathy towards Microsoft software, but it’s wrong to assume the company jumped off a burning platform only to drown in the cold Baltic sea. — (c) 2012 NewsCentral Media
- Duncan McLeod is editor of TechCentral; this column is also published in Financial Mail
