Wow. Tomi Ahonen really got on special mood this time. He has created huge post on topic named “The Three Pillars of Nokia Strategy – Have All Failed. Why Nokia Must Fire CEO Elop Now” [1
I’ll get to the namesake of his blog post in a moment, but first let’s see few things:

Tomi uses the older graph again. I’ve covered it in my recent post and really don’t want to go into it any further. Feel free to read it there.
But then we have new graph:

(No, we don’t have this. This is the real one, Tomi Ahonen could not use this so he made a fake one that suits his purposes.)
So go ahead and read my previous post about it and you’ll see how ridiculous his graph is. And he uses majority of the post on that graph so I could just say the whole post is pointless. But I said I’ll get to the namesake of his blog post, so let’s see that one too:

What did Elop tell us in February 2011? He would run a strategy on three pillars, one on the dumbphones unit (as before); one on Symbian but one that would be run down (changing from before) and one new leg, that built on Windows Phone, which would fully replace the Symbian leg over time – and more – would even take some of the business from the dumbphones unit. This is the big strategy picture that we saw in February 2011 anywhere that Nokia talked of its new Windows strategy.” [1]

Really?
Did Elop really tell about strategy on three pillars (dumbphones unit, Symbian and Windows Phone)?
Is this what we saw anywhere than Nokia talked of its new Windows strategy?
Let’s check official press release of February 11th strategy change:

Nokia today outlined its new strategic direction, including changes in leadership and operational structure to accelerate the company’s speed of execution in a dynamic competitive environment.

Major elements of the new strategy include:
– Plans for a broad strategic partnership with Microsoft to build a new global mobile ecosystem; Windows Phone would serve as Nokia’s primary smartphone platform.
– A renewed approach to capture volume and value growth to connect “the next billion” to the Internet in developing growth markets
– Focused investments in next-generation disruptive technologies
– A new leadership team and organizational structure with a clear focus on speed, results and accountability
” [2]

Nope, not those. Four pillars and not sounding like those. How about the new organization? Was it made out of three pillars?

New company structure
As of April 1, Nokia will have a new company structure, which features two distinct business units: Smart Devices and Mobile Phones. They will focus on Nokia’s key business areas: high-end smartphones and mass-market mobile phones. Each unit will have profit-and-loss responsibility and end-to-end accountability for the full consumer experience, including product development, product management and product marketing.
” [2]
NAVTEQ, an integral part of Nokia’s location and advertising business, will be headed by Larry Kaplan, and continue as a separate reporting entity.” [2]
Nokia Siemens Networks continues in the Nokia Group as a separate reporting entity.” [2]

Now list had thirteen separate units. I skipped those that are not reporting entities (such as HR, legal, design, marketing, etc.). So we have four pillars again. Smart devices is having Windows Phone and Symbian under same profit-and-loss responsibility. So I see four pillars in all cases and Symbian/Windows Phone is only one, not two.
Or as CN said it in Tomi’s blog:

If you ask Nokia, they say:
Feature Phones
Smart Devices
Navigation and Location
Patents
NSN

Feature phones market share went up in Q2. Volumes up as well.

Smart Devices struggle big time, no question about it. Was it part of Reuters forecast published on Thursday where they said that in 2014, Nokia will ship 56 Million Lumia devices. They seem to believe in this.

Navigation and Location. 9 out of 10 cars (where navigating system included) with Navteq. Nokia Maps definitely one of the top ranks.

Patents. Anti-Nokia guys say it’s nothing. Many others strongly disagree. Example: Just this week Siilasmaa said Nokia/NSN holds 50% of essential LTE patents. (No need to debate on who say what’s essential – I know this story quite well).

NSN. On track to become more independent?” [1]

Well, he added patents that was not in official papers. But otherwise we have – surprise – four pillars (and not the ones Tomi listed).
CN said Q2 results but we have now received Q3 results too. So how were Q3 results?

Smart Sevices unit net sales 976 M EUR
Mobile Phones unit net sales 2366 M EUR
Combined operating profit (non-IFRS) -263 M EUR (loss) [3]
I think we could agree from incoming euros that on its behalf Mobile Phones made profit (compared to its expenses) whereas Smart Devices made loss.
NAVTEQ operating profit (non-IFRS) 37 M EUR [3]
NSN operating profit (non-IFRS) 323 M EUR [3]

I assume someone wants to argue about use of non-IFRS figures. I’ll put it this way:

  • If a company would make terrible sales and produce a loss of 2M EUR on one quarter but happened to sell unused patents from its portfolio for 3M EUR during the same quarter, should it report it made profit of 1M EUR? Because clearly it would have increased the cash available by 1M during the quarter.
    (No, of course not. It won’t sell patents every quarter so it’s loss of 2M, ignore one-time profits.)
  • If a company would make excellent sales and make profit of 2M EUR on one quarter, but happens to buy essential patents for 3M EUR during that quarter, should it report it made loss of 1M EUR? Once again, clearly cash available shrunk by 1M.
    (Again, of course not. It is not buying of essential patents every quarter so it’s profit on 2M, ignore one-time spending.)
  • Now I hope nobody starts to say we should use different metrics on these, because that makes quarterly results incomparable. Non-IFRS = operational profit/loss, okay?

Back to Tomi Ahonen:
In the “pillars of strategy” perspective he uses we can from Q2&Q3 results (and few others before that on that manner) say one out of four pillars is failing (Mobile Phones makes profit, smart devices do not). But since Nokia binds operating profit of Mobile Phones and Smart Devices as one, let’s be generous and say one of three pillars is failing. What should Nokia do? Tomi told us:

If you have two of your three pillars working in your strategy, but one is failing, then you quietly shift away from the one failing part, you emphasize the two that are strong, and focus there. You don’t fire your strategy guy, he got it more right than wrong, and you celebrate your CEO. You then quietly, behind the scenes, do a ‘recalibration’ of your strategy, where you find a new third leg to replace the failing one, but you do this quietly, behind the scenes. Because most of your strategy is succeeding, its full steam ahead. The CEO is doing a good but not stellar job, keep him, but don’t give him any big bonuses for this performance.” [1]

Check that. I wonder if Tomi is going to celebrate the CEO?
At least this does not seem to be “Why Nokia Must Fire CEO Elop Now”, he clearly said about the CEO “keep him”. 😉
I’d say his long blog post was (once again) uncalled for.

(Oh yes, as a small detail Nokia group made non-IFRS profit of 78 M EUR on Q3.)

REFERENCES:

[1] http://communities-dominate.blogs.com/brands/2012/10/the-there-pillars-of-nokia-strategy-have-all-failed-why-nokia-must-fire-ceo-elop-now.html

[2] http://press.nokia.com/2011/02/11/nokia-outlines-new-strategy-introduces-new-leadership-operational-structure/

[3] http://www.results.nokia.com/results/Nokia_results2012Q3e.pdf

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