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Nokia CEO Defends Microsoft Deal: ‘I’m Not a Trojan Horse’

This is a painful moment for Stephen Elop, the newly appointed CEO of {complink 3847|Nokia Corp.}. The man is under withering attack from a battalion of foes who have taken him to task for the decision to replace the company's Symbian operating system with Windows OS. But the controversy and uncertainty dredged up by his action are turning out to be even more painful for Nokia investors, who have seen billions wiped off their holdings in the Espoo, Finland-based company over the last few days.

Today, at the World Mobile Congress conference in Barcelona, Spain, Elop was taken to task by investors and analysts. Here are his justifications for the move:

First, Elop says he is not a “Trojan horse.” Yes, he was recruited from {complink 3426|Microsoft Corp.} five months ago, but this doesn't mean his mission was to help his former employer establish a more concrete presence in the mobile equipment OS market. Nokia, according to Elop, will be receiving billions from Microsoft over the next few years to fund the development and expansion of the Windows OS.

To reassure Nokia investors, Elop said he will be selling all of his Microsoft shares soon — he has already sold some, but had to stop for regulatory reasons because the divestment was having a “material effect on both companies.” Second, he plans to buy Nokia shares and add to his portfolio of holdings in the company as soon as possible, just to show his conviction the changes being implemented are in the best interests of the mobile equipment vendor.

Furthermore, Nokia did consider adopting Google's Android rather than Windows OS, but Elop chose the Microsoft offering because he believed it was in the best interests of the industry. If Nokia had picked Android, the mobile OS market would have turned into a two-horse race between {complink 2294|Google} and {complink 379|Apple Inc.}, he said. Selecting Windows OS would create competition and offer OEMs, developers, and consumers a wider variety of offerings, Elop insisted.

Finally, by adopting Windows, Nokia will save on the development cost it is currently pouring into Symbian. This is crucial for Nokia as it is trying to cut down on its R&D and other product development costs. The company will be working on further reducing its total costs over the next couple of years and can use the advantages offered by the Microsoft deal to gain leverage in its operations.

Those were Elop's reasons. I already expressed my take on this in an earlier blog. (See: Nok-Win a No-Win Combination.) However, it bears repeating here that the news that Nokia will be receiving “billions” from Microsoft to facilitate the development and advancement of Windows OS only confirms the perception that other OEMs will gravitate towards Android. Why, for instance, should {complink 4751|Samsung Electronics Co. Ltd.} continue to support Windows OS when funds for its development are being directed to a competitor? Or, does Microsoft also intend to give Samsung and other mobile OEMs “billions” for Windows OS development and customization?

Furthermore, why has Elop, on behalf of Nokia, taken on the task of ensuring the mobile OS market does not morph into a duopoly landscape where Android and Apple iOS are the only players? The argument is ridiculous, in my opinion. Prior to his decision, the market was competitive enough. Symbian had a greater market share than Windows OS. So, the logic of effectively killing off Symbian to adopt a competing product with a lower market share is highly defective. Certainly, Symbian faced an uncertain future, but so did Windows OS, until Nokia adopted it.

And I don't buy the argument that what clinched the deal for Nokia was the chance to lower development costs associated with Symbian. Adopting Android would have offered the company the same deal, but without some of the murky controversy. Additional information gleaned from press reports indicates that Microsoft will not be giving Nokia cash; rather, it would be in the form of “discounted software licenses, marketing cooperation and other non-cash benefits,” according to the UK's Telegraph . (See Nokia chief claims Microsoft deal is worth “billions”).

Elop's move has only thrown the Nokia community of developers, partners, and investors into further uncertainty. On Monday, February 14, the market demonstrated its further disapproval of the company's direction by further pounding its stocks, following a spate of downgrades by investment analysts. Shares fell about 4 percent, shaving billions off Nokia's market valuation.

Here's the bottom line. Elop has three years to make this work. Nokia shareholders and workers won't give him a day more, and if he fails to deliver, he will be eased out. That would be a shame because it would only further setback the company, when what it needs most is vision and forceful direction. Nokia's future is murky; for Elop, there's always Microsoft.

18 comments on “Nokia CEO Defends Microsoft Deal: ‘I’m Not a Trojan Horse’

  1. mfbertozzi
    February 14, 2011

    Bolaji, stock market reaction as consequence of Nokia-Microsoft agreement was quite negative; it seems scenario is “murky”. We have discussed on EBN at Las Vegas-CES time about possible role of Microsoft in smartphone market and its coming for operators is not a full news. Furthermore, Arm reported a record 4Q 2010 on smartphone also due to its possibility to support Windows as OS. We could discuss also another topic, for example: how much does a symbian simulator cost? how much does a win-based simulator?
    At the end: could we assume it is quite early to conclude that step started is totally wrong?

  2. bolaji ojo
    February 14, 2011

    Hi Matteo, It would be naive to conclude definitively that Nokia moving over to Windows operating system is “totally wrong.” That's not the position I am taking and the stock market reaction is based on their perception of Nokia's likely sales growth in 2011 and 2012, the years CEO Stephen Elop has said he plans to use to reorganize the company and position it for future expansion.

    The stock market takes a short-term position and so did my blogs. Still, Microsoft is the winner on both a short-term and longer-term basis. Nokia will energize Windows OS but what has and what will this deal do for Nokia? On a short-term basis it introduces more uncertainty into the company's operations and because of implementation difficulties, makes it difficult to predict how the company will fare even three years from today. The legacy problems inherited by Elop and the reorganization changes he must implement combine into a dangerous mix for the company at a time rivals are forging ahead. That's why the equity market has reacted negatively to these changes and also why I am concerned about its future.

  3. mfbertozzi
    February 14, 2011

    Hi Bolaji, really fair (as usual) from you. You have mentioned also one point probably the most important and on top of technology issues: the organization (tech collaboration with Microsoft, market campaigns, ads, promotional events strategy, sales force, support & maintenance) which Nokia will put in place to achieve succefull results. During the merge with Siemens, organization was the real problem for them.

  4. eemom
    February 14, 2011

    The argument that Nokia was just looking out for the good of the market is flawed and not believable.  Since when did any corporation do something for the good of the masses that they felt would hurt its market standing?

    Also, with Microsoft funneling billions to Nokia, I do agree that current Windows OS users will most likely move away and start adopting Android.  So, what happens if the Nokia/Microsoft product does not work and fails to gain market share?  That leaves Microsoft in a worse position than it is today. I can see why this is a short term gain for Microsoft but why long term?

  5. Himanshugupta
    February 14, 2011

    The market shares of both Nokia handsets and Windows OS are dwindling. In my opinion Nokia made a smart strategic move to go with Microsoft. Going with Google would have had certain advantages and even probably better for developers as they would have developed for either Apple OS or Android OS but Nokia can distinguished themselves more with Windows OS. The road ahead will be much bumpier and riskier but if Win-Nok combination works out then there will be no looking back for both. No risk no gain!

  6. Hardcore
    February 15, 2011

    Hmmm,

    Good of the guy to announce selling his stock Just after this happened,   really he should be slapped for this stunt.

    Possibly the biggest worry for Nokia is going to be the Google Vrs Oracle , because this is going to be a long term wild card, both are highly financed and both are aggressive competitors.

    Personally I could not see any phone company committing its business future to an operating system that has potential issues related to theft of 'IP' (or so Oracle is stating). Far better to go with the 'devil' and his advocate, get a good deal and just hope at some later date you can extract your soul back out of the contract, you can at least change sides later.

    Do it the other way round(Open source, then to MS) and it is unlikely the Devil will give such favorable terms once he knows it's your only option.

    Samsung could be just 'playing around' in the phone market, after all Apple is their major customer and has recently committed over $2 Billion in orders for parts,  again its far better to use the R&D on supplying apples needs rather than developing operating systems, and if it goes badly between Oracle and Google, just drop that side of the business, what exactly will the overall loss be to Samsung?

    I would guess very little since they appear to be one company that is having their pie and eating it, unlike poor Nokia.

    1. Major Apple supplier for mobile phone parts

    2. Significant supplier to other portable phone manufacturers

    3. Playing about with their own mobile phone range.

    4. Not having to develop their own phone OS from scratch.

    I'm just surprised that a guy with so much business experience managed to commit a potential Faux pas with the usage of the word 'Trojan', especially in relation to the current situation with Nokia, who knows maybe they can swap business ideas.

     

    HC

  7. Anand
    February 15, 2011

    Bolaji, I find some of the Justification which Elop made ridiculous :

    1) “Nokia, according to Elop, will be receiving billions from Microsoft over the next few years to fund the development and expansion of the Windows OS.”

           Nokia is mobile Giant and not a startup. It was never short of any investment. They themselves have had billions of dollors which they can use for R&D. This point that Microsoft will fund the development and expansion of windows OS doesnt justify Elops decision in anyway.

    2) “To reassure Nokia investors, Elop said he will be selling all of his Microsoft shares soon”

            He will be selling the Microsoft shares when Microsoft has gone up after the decision. Elop is in no loss anyways, not sure how will this reassure Nokia Investors.

    3) Elop chose the Microsoft offering because he believed it was in the best interests of the industry.

               Surprising to know that this CEO think smore about the industries future rather than companies future.

    Lets hope Nokia survives this impact.

     

  8. DataCrunch
    February 15, 2011

    I can’t believe people are so quick to knock this deal.  We can decide the verdict three years from now.  Microsoft’s new Windows Phone OS is a major leap forward from Microsoft’s previous mobile versions and with this deal with Nokia, I can only see Microsoft continue to make significant strides in this space. 

    Here’s an article from PC World about Nokia slamming the Android OS in Sept 2010 (actually pretty colorful comments made by a Nokia executive… a funny read).   Perhaps there may have been too many negative things said about Android by Nokia personnel that they couldn't choose Android if they wanted to.

    http://www.pcworld.com/article/205897/nokia_exec_slams_android_as_n8_lags.html

    In my opinion, I wouldn’t be surprised to see in a couple of years Nokia coming out with an Android device as well.  Why not?

     

  9. elctrnx_lyf
    February 16, 2011

    How Elop defends himself sounds quite funny. Giving a chance to Windows since he doen't want the mobile OS race to become a two horse race is completely meaning less. He should had have strong arguments to support his decision to with Micorsoft. But alltogether this might turn out a good one for Nokia also but they can't have their trademark like before. Now people will call it nokia phone with windows os rather than just a nokia phone.

  10. bolaji ojo
    February 16, 2011

    Dave, My money is on Nokia coming out within the next three to five years with a phone equipped with Android. Why are these OEMs boxing themselves in anyway into a platform? If consumers want Android, give them Android and if they want Windows, give them Windows. I don't see how it hurts the OEM aside from the development costs but Google and Microsoft chose to offer operating systems so they should also bear the development costs.

  11. DataCrunch
    February 16, 2011

    Bolaji, I wouldn’t be surprised if we see a company like VMware in a couple of years offer mobile virtualization platform that can run multiple mobile operating systems simultaneously or at least switch between two or more mobile operating systems.  Then users can choose their top two or more preferred mobile operating systems to load on their mobile devices/tablets.  The app stores would definitely benefit from this, one device, multiple apps for multiple platforms.  

  12. seel225
    February 18, 2011

    In my opinion every one wants to go with who has technology and proper plan for future,but some people wants go with present and past trends, Elop doesn't belongs to either one.Elop has got three years time to prove him self as a good CEO for Nokia, but adapting microsoft windows OS for Nokia smartphone has no future plan and it pulled Nokia Investors into a big trouble. Elop is not a Trojan Horse, may be worse than that. The way he defends his plan has no sense.

  13. Susan Fourtané
    February 20, 2011

    Very good observations. 

    1) “Nokia, according to Elop, will be receiving billions from Microsoft over the next few years to fund the development and expansion of the Windows OS.”

    This sounds like Microsoft could be in the position of claiming reign over Nokia in some years' time. It sounds like a trap. 


    2) “To reassure Nokia investors, Elop said he will be selling all of his Microsoft shares soon” 

    Yeah, he will be selling his Microsoft shares? What a good dude! He doesn't look like the kind of good samaritan. There is something fishy behind the whole story. He may keep his Microsoft shares somehow. 

    Investors simply don't look at Nokia as a good investment target anymore after the partnership and are holding back. 

    If Nokia can't predict now earnings for 2011, who will? 

    -Susan 

  14. Susan Fourtané
    February 20, 2011

    Bolaji, 

    Very good article. I share your views and opinions. 

    In one of the Finnish papers it was published this week that Nokia's share price fell about 20 percent. Investors have also started to say they are not interested in Nokia after the announced partnership. This, obviously, is not a bright beginning and I don't see how it will change. 

    -Susan

  15. mfbertozzi
    March 23, 2011

    Bolaji and all, there was an intensive discussion at the time of first Nokia-Microsoft announcement; several posts were related to market, strategy, technology, competion in front to major players as Apple, Samsung, Motorola; maybe issues and concerns on organizations and processes weren't discussed in depth. Today is reported Nokia is starting a plan to cut jobs by the end of coming April. Could it be a consequence of the alliance or is it simplest way to save costs and promise to investors in short/mid term good financial results?

  16. Wale Bakare
    March 23, 2011

    It has now become apparent that battle to control markets of smartphone in the world will be strongly determine by capability, scalability and richness of software – OS of phones not only that, even tablet gadgets.

    No doubt about it Google's Andorid opened up more fierce battle in smartphone markets. Nonetheless, Nokia to regain its top spot as the leading phone maker has lead to compromise its Symbian OS with Microsoft. 

     

     

  17. Wale Bakare
    March 23, 2011

    Mobile device users determine market trend and which way wind blows for phone makers. More importantly, software application (OS) crucial role in emerging technology and innovation cant be under -estimated. It is the mover and shaker of mobile devices. Who are the leading software technology firms? they are (1) Microsoft (2) perhaps Google.

    Due to the innovative spot-on of Google today; this has made pendulum swung in favour of Android platform based smartphones and tablet devices. I salute Google and its bright ideas anyway. Nonetheless, we cant completely rule out future market of Nokia phones. I bet,  distinctional design may soon emerge from the partnership of Nokia/Microsoft. And besides, Elop quite understand the huge task ahead of him, and how he could swiftly turn things around for Nokia in the world of smartphones.

    Am opininon that Nokia will bounce back by pitching its tent with Microsoft.

  18. Kunmi
    March 27, 2011

    From's Dave's comment: “In my opinion, I wouldn’t be surprised to see in a couple of years Nokia coming out with an Android device as well.  Why not? “

    Agreed. That is exactly what is going to happen. Who knows whether it is already in the coffin.

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