Prologue
This is my second post on Nokia history. The previous chapter was “seeds of disaster“. Let us begin:

—CHAPTER TWO—

At the end of the previous chapter of Nokia history we had ended up to early year 2011, where Nokia management was looking at their results for fourth quarter of 2010 and the outlook of first quarter of 2011. In brief sum-up Nokia had lost over a quarter of its market share in last six months. Drop of 11 points of percentage. In six months Nokia lost market share equal to the entire market share of Samsung at the time!

By the numbers publicized later it seems that at the same time up to 75% of Nokia’s smartphone shipments consisted of one single model (Nokia 5230) and its variants. This was the case even though Nokia had launched Nokia N8 and C7 – new Symbian^3 phones. Nokia’s Symbian had largest installed base of devices out there, but still developers were already prioritizing iOS and Android ahead of Symbian.

Speaking of Android, by this time (early February 2011) Android had grown past Symbian and was largest smartphone OS with over 31% market share.

android_bypasses_symbian

Before we get to February 11th, I want to highlight one thing: Nokia quarterly reports list sales volumes as units shipped to retail channel, not as devices bought by end-users. Retail channel refreshes their stock by ordering devices in advance. There is very little stock in Nokia production as Nokia produces phones as per volumes ordered. This generates a delay; usually four weeks or more between ink on paper and shipment leaving the factory.

Let’s assume that Nokia board of directors gathered together on February 9th 2011 and checked if their current strategy was a failure or a success. Due to aforementioned delay any new orders received then could have affected only shipments made after March 23rd – 8 days before end of quarter. Nokia Board would have 90% of the shipments for the quarter in their hands. Today we know that Nokia’s market share decline continued undisturbed from Q4 2010 to Q1 2011 and Nokia lost another 15% of its market share. What we also know is that in first quarter of 2011 the global smartphone shipments grew 0% when “normal” growth was around 12%. Therefore Nokia board would have numbers that show unavoidable 15% drop in unit sales for the first quarter of 2011 but they would not know about the market growth that has also stopped in this quarter. Without that knowledge the unit sales decline converts to even bigger market share decline. Figures at hand must have been more than enough to convince the Nokia board that strategy change is inevitably needed.

Symbian strategy had met its end. We know that ex-Nokia CEO Olli-Pekka Kallasvuo said in an interview 2013 that already during his reign the Nokia board came to conclusion that Symbian is not viable option for the future [1]. Considering position of Kallasvuo, I find it hard to believe he would be lying about this issue, especially to direction that is not in favor of Symbian. So it is clear that Symbian was going to go and Nokia had effectively three options at hand:

  1. Push the already planned strategy based on MeeGo (and Meltemi)
  2. Drop MeeGo and go to Android.
  3. Drop MeeGo and go to Windows Phone.

There also has been rumors that Nokia would have been in negotiations with BlackBerry (RIM) about cooperation but those rumors are of very little significance to this story. If the negotiations were about RIM using MeeGo instead of BlackBerry OS, we can add RIM to list of other manufacturers that were going to use MeeGo. It is not likely that RIM was going to participate in development of the OS, at least not at first. If on the other hand Nokia was to switch to BB10 OS then – well – Blackberry hasn’t really built a success story out of BB10 and it is hard to believe our story would look any different had Nokia joined them.

Let’s take a deeper look at the options:

MEEGO PATH

Continuing on the MeeGo path has justification in Qt and application portability between MeeGo and Symbian. However as we have seen previously, Symbian was not exactly in favor of developers and amount of Qt apps in Ovi store was close to none. As Symbian apps can not run on MeeGo directly, developers are expected to port their apps to MeeGo. For Qt apps it could have been as easy as recompile and ship. But Qt apps were scarce and for legacy Symbian apps the workload is far from “check and recompile”. Most of the Symbian apps were going to need full rewrite. Significant push to get the apps for MeeGo would have been inevitable and Nokia had not been very successful in luring in the developers in the past.

That was issue with apps. What comes to actual device development we know from Bloomberg article that on January 3rd Chief Development Officer Kai Oistämö and CEO Stephen Elop decided to quietly interview two dozen influential employees about MeeGo, from executives to rank-and-file engineers. At its current pace, Nokia was on track to introduce only three MeeGo-driven models before 2014 – far too slow to keep the company in the game. [2]

The number sounds ridiculously low. However thanks to The Story of Nokia MeeGo we know that the real issue was not the number of handsets but technology behind them. The “MeeGo” handsets that were getting ready for production early 2011 are in fact Maemo devices rebranded. Real MeeGo devices mentioned in Bloomberg article are the ones that would have used Intel System-on-Chip (SoC). Nokia had hardware ready for first MeeGo device already in 2010 but the OS itself was delayed and still in January 2011 it was far from certain if first device would make the late 2011 schedule either. When first device – the N9 – would get out, other devices based on the same Texas Instruments (TI) OMAP 3630 SoC and Maemo Harmattan OS could have been brought to the market at a tight schedule. In that sense Nokia could have launched as many copy-products of N9 as they wished.

rm-742-6[3]

But that was not what the statement in Bloomberg article was all about. The “true” MeeGo devices (i.e. Intel-Nokia joint effort MeeGo devices) were the ones of importance. And the fate of those comes down to operators:
In order to get operator support (both in Europe and in United States) Nokia needed 4G LTE enabled devices. This was a clear requirement from operators. Traditionally Nokia had used Texas Instruments SoC in their phones but for LTE support Nokia could not use TI SoCs as TI did not have LTE SoCs at all!
The “traditional way” to solve this issue would be to use custom hardware combining TI chipset and LTE modem made in-house. This option Nokia had removed when they sold their own modem business during OPK reign and thus Nokia could not add LTE radio to TI chipset even if they wanted to. To rub salt to wounds, Nokia had abandoned Qualcomm as chipset provider early 2010 and made all-in commitment to use Intel chipsets for LTE enabled MeeGo devices.

Back to Bloomberg article: discussion was on how many LTE-enabled (i.e. Intel-Nokia MeeGo) devices would be out by end of 2013. Today we know that the first LTE chipsets from Intel were announced in June 2013. That makes the three-device schedule for rest of 2013 unfortunately totally valid, if not even overly optimistic.

As an argument one can say that Nokia could have called off the Intel cooperation and pay whatever costs were involved. Yes they could have, but it would have been full strategy rewrite and included closing of the Moblin-Maemo merge effort, going back to Maemo Harmattan and additional delay to rework Maemo Harmattan to support Qualcomm chipsets. And more work was coming as LTE enabled SoCs from Qualcomm were having almost without exception multi-core processors and Maemo Harmattan was designed for single core CPUs. *

Judging from how long the work for Maemo Harmattan had already taken, it could have easily taken to late 2012 before LTE enabled devices would have been available. All that delay would have to be taken without Intel support and Qualcomm had already said they had no interest to support MeeGo. Continuing with MeeGo was financially and just as terrible as any other option and required restructuring inside the company nevertheless.

Delays of MeeGo do not originate from OS or development as much as from mismanagement and the ongoing battle between Maemo and Symbian organizations. Take as an example Jolla that was able to port its MeeGo-originated OS from ST-Ericsson chipset to Qualcomm in less than a year. That’s the advantage of speed small startups have. Ironically ex-MeeGo employees said that only after everyone knew the MeeGo project was doomed did the political fighting stop and they could work together to make N9 happen on time. Had the N9 been still the political and financially lucrative flagship, the political backstabbing would have continued and hindered the project even further.

* (Note: Lumia 900 used one of the few Qualcomm LTE SoCs having single-core processor. That SoC supports only GSM and U.S. LTE bands. Lumia 900 sold in Europe did not have LTE support at all, nor was there any LTE+CDMA device running Windows Phone 7 available for Verizon Wireless U.S.)

ANDROID PATH

Switch to operating system that is not in-house developed had a clear advantage: Nokia’s R&D expenses had grown into billion scale and they were developing three OSes (Symbian, MeeGo and Series 40) in-house. At the same time competition more or less moved to Android and could drop OS development expense. Financial benefit existed but it came with cost of losing the control on the OS of the devices.

The decision to choose Android was problematic for Nokia management preceding Elop: Nokia had been dominating cell phones in the past, they were dominating Symbian at the time of strategy change and I can totally see that Nokia management was incapable of going to a platform where they would start as new and smallest player, playing against likes of Samsung and HTC that already were considered as synonyms of Android. Also, Nokia’s public stand in Olli-Pekka Kallasvuo’s tenure was already that “it would be difficult to differentiate using Android as so many manufacturers are already using it“. [4]

We do know that in summer 2012 Nokia started Android phone development under acceptance of CEO Stephen Elop – eventually resulting to Nokia X product line. And we also know that in Mobile World Congress held in February 2014 Elop himself was on stage announcing the product line. It seems that Elop was not against Android as an option. It may be that in year 2010 he couldn’t convince the board to switch to Android strategy. It may be that Elop was being favorable towards his ex employer. Who knows for sure? Key thing is that the Nokia board had made their stand towards Android clear already before Elop came in.

Problem with Android is the profitability: at one point of time Samsung and Apple combined gathered 120% of the profits of mobile phone industry. Yes – 120% – because other makers (mainly using Android) were making so slim profits (and so much loss) that when all the profits of rest of manufacturers are combined, it produces a negative 20% to the total. [5]

Competing with price was out of options: Samsung produced its own components and today they have been reporting lower ASP, declining sales and even declining amount of units shipped YoY. How do we expect Nokia to compete in environment like that? Nokia would have to use same SoCs as others, use same components as others (several components from Samsung even) and THEN they would have to stand out from the crowd so remarkably that they can justify the price difference.

Differentiation by specs (CPU, memory, display size, etc.) was quite an impossibility due to common parts. One option to differentiate in hardware would have been HW design and completely new features (like wireless charging or touch screen that can be used with gloves on) where Lumias have always been good. On the other hand we do know that HTC One that was very cool device but did not keep HTC profitable, neither has Sony XPeria turned Sony’s smartphone business into a profit monster.

Other option for differentiation could have been services. Problem is that exactly in services Google is known to be jealously protecting its maps, email and other services. Nokia management has implied that Android was not seen as viable option because Nokia could not replace Google services with their own services (especially what comes to maps) in their devices. But – frankly – outside maps Nokia’s services were not really beating the competition so the sacrifice could have been made by accepting at the same time that Nokia would not differentiate via services.

As you can tell I’m not saying that Android path would have been total impossibility. HW design of Lumias was very well received and undoubtedly Nokia could have made a slot for them with Android too. But it would have been much smaller slot than Nokia was used to have and the profit margins would have dropped from the best days of Nokia past.

WINDOWS PHONE PATH

And now we get to Windows Phone. Nokia board had primary concern in financial state of the company. Windows Phone was a risky move (as were the others, like just stated) and also as an OS Windows Phone was still in its infancy. However Windows Phone as an option brought many lucrative properties: it would be a differentiator and therefore could make bigger sales margins possible. It was not prioritized high by any other player so Nokia could easily gain superiority on that platform. And as a cherry on the cake Microsoft was willing to pay 1 billion per year as a support payment, which gives better financial state for the company during the transition.

Microsoft wanted a safety clause into contract that prevented Nokia from using Android or other competing operating systems until February 2014. That was probably fine for Nokia Board that exactly wanted to avoid Android ecosystem. At that point I believe Windows Phone sounded as viable as any other option.

THE PATH TAKEN

I know that we are already in year 2011 but there are few backgrounds that are good to know before we go to the strategy selection of Nokia:

First is the interview of previous CEO Olli-Pekka Kallasvuo [1] where he says that the choice of Windows Phone was “well thought”. I am still today wondering how he talks about it as he left almost half a year before the strategy was changed. One explanation – probably most likely too – is that the strategy was already being outlined under OPK rule.

Second is the interview of anonymous Nokia executive who had worked the past decade in middle management positions within Nokia – e.g. in user interface design, conceptualizing, and brand management tasks. That comes from Helsingin Sanomat, October 2010 – after Stephen Elop was already assigned as CEO of Nokia. From his mouth we hear one view on the people who were doing the strategy decisions within Nokia:

The members of the Nokia Board and the Group Executive Board are untrained people insofar as Nokia’s present business is concerned. Neither the Board nor the Executive Board has a single representative who could broadly be described as a visionary type. It would be something if there were even one, but by rights there ought to be eight of them.

Third pre-strategy-change note is maybe the best forecast on new Nokia strategy I have seen so far. It does not originate from 2010 as the previous but it was written February 9th 2011 – two days before Nokia revealed their strategy – and it calls:

Do not underestimate the lack of interest that Mr. Elop has for Nokia, its culture, its products and its future: since 2005, Nokia is its _fifth_ job.

Contrarily to Steve Jobs, Bill Gates, or Larry Page, he is no entrepreneur, so very obviously, he will play by the management book (chapter “window dressing”). That means:

a) Discontinuing large areas of R&D (I guess Meamo and tablets are on the chopping block, as well as some branches of Symbian).
b) Quickly launching models based on WP7 or Android (to “catalyze or join a successful ecosystem”).
c) Selling parts of the company (manufacturing plants, smaller divisions).
d) Severing the last links with Nokia-Siemens (to “focus on the core terminal business”).
e) Firing lots of employees.

So what do we have after that? Discontinuation of MeeGo and Symbian, adoption of WP7, selling off non-critical business like Radio and TV advertisement unit and closing down unprofitable experiments
…and of course firing lots of employees. Nokia Siemens Networks probably would have been sold if it had been making loss, but since it was profitable all this time, it got saved.

That much for past forecasts. Let’s try to recap the strategy selection in more detail:

In February 2011 Nokia announced that they will switch Windows Phone as their primary OS. However several unfortunate events took place.

Stephen Elop the CEO of Nokia wanted to wake up his employees so he posted a memo that later became known as “burning platform memo”. Elop sent the memo to employees without thinking what would happen if it leaked outside Nokia. The memo did leak to public and news around the world headlined “Nokia CEO says they’re behind competition“. That is the kind of text you can use to shake your employees awake but not something you want your customers to read. I personally credit it to Elop’s tendency to expect the best of people’s intentions that he ever posted it. (That trust is something he later learned not to do in a company like Nokia.)

Next unfortunate incident was the way the shift from Symbian was communicated. Nokia communications had guided CEO Elop to tell the news in a soft manner in order to avoid shock reaction but Elop said he wanted to make everything clear once and for all. [6]

Later Elop admitted that the way new strategy was communicated hurt Symbian sales. However at the time Nokia stated they expect to sell approximately 150 million more Symbian devices before the transition to Windows Phone is complete. Horace Dediu of Asymco made his forecast on how Nokia will do after strategy change. It was describingly named “Who will buy the next 150 million Symbian smartphones?

His forecast was not just that Nokia will lose market share through year 2011 but also that the market share decline will NOT turn to market share rise in year 2012 either. That prediction was most accurate I can find – he missed Q4 2011 market share by 0.4% and he was probably the only analyst at that time who proposed that Nokia would not gain market share in the foreseeable future. He forecasted year 2012 to end at 6% whereas the reality was just half of that – 3%.

PATH TO PROFITS

We can argue that market share gain was not Nokia’s goal anyway. Apple was taking over half of the profits of the industry with their market share of 15%. Had Nokia taken 6% of the market share stealing it all from Apple (i.e. 2/5 of the profits of Apple), Nokia would have increased their profits, sailed to the future smiling and lived happily ever after. (Of course things did not turn out that way.)

First Windows phones (branded Lumia) seemed as if Nokia was taking this high-margin high-profit plan. Lumias (especially Lumia 800) were seen as overpriced. High price is good if product is desirable and sells like hotcakes (i.e. iPhone) however it was said that Lumia 800 did not have anything extraordinary to offer: it was not the thinnest or fastest of phone, nor had it the best camera or extra features.
CEO Stephen Elop later said he was very disappointed with original Lumia line sales. No wonder as Lumia 800 only became a bestseller late 2012 when Nokia seriously cut its margins and turned it from high-end device to lower mid-range device. It was then said to be top device for that price.

Nokia failed to conquer the high margin segment with its new Lumia line. Another failure comes in form of:

U.S. MARKET

CEO Stephen Elop had said that “The U.S. is very important. This is where the innovation and app development is happening, and it’s being echoed around the world. So it’s very important for us to participate and be right in the middle of the innovation. We need to compete here so that when the innovations developed here land elsewhere we aren’t a step behind.

However, this did not seem to come reality. Nokia sold similar amount of smartphones in U.S. in 4th quarter of 2010 as they did with Windows Phone in any quarter of 2013. Except that during these years the market had grown so they just lost market share. Enterprise sector was in dire need of a new vendor as BlackBerry struggled with their aging device offering and all this while Nokia offered a variety of devices running an OS from biggest vendor of corporate solutions. By all expectations Nokia could have targeted enterprise and sell literal millions of devices in U.S. but they didn’t.
For a reason that may forever remain a mystery Nokia chose not to have partnership program, not to offer required enterprise services and eventually just abandon a market that was open for grasp and which nobody was taking.

Nokia chose to focus on consumer market and that – in my opinion – is the biggest mistake Elopian management made. This in addition to the carrier mess:

During OPK reign Nokia had refused to do carrier required changes and services to their phones. Reason for that remains a mystery too. In late 2010 Nokia planned to make CDMA variant of N9 in hopes that it will be sold by Verizon Wireless. There was no sign of interest from Verizon and that plan was cancelled upon the switch to Windows Phone. What took place then is exactly the same tactic with a device called Lumia 800C – a CDMA version of Lumia 800.

  • T-Mobile was offered (and took) exclusivity to Lumia 710.
  • AT&T got Lumia 900.
  • Verizon was not selling any Lumias at all.

Why Verizon had nothing?
Reason is that they had taken the stand that new phones coming to their subsidized offering need to support LTE. Nokia had sold their in-house modem business and relied on Intel. Nokia gave up on MeeGo partially because the LTE supporting chipsets from Intel were delayed to unknown future. Now they were offering Windows Phone 7 and needed a Qualcomm SoC that would support CDMA and LTE. There were such already in use but they were all built on top of dual-core CPUs whereas Windows Phone 7 could only run on single-core CPU.

Nokia did not really engage into discussion with Verizon but offered a device in “here it is” manner and eventually Verizon turned down the Lumia 800C. Verizon was offered exclusivity. Therefore none of the other U.S. carriers were offering any variant of Lumia 800 and U.S. market was left outside the Lumia 800 distribution. The only bright spot for orphan product called Lumia 800C is the deal Nokia managed to make with China Telecom. China Telecom can not be fully dismissed – it is the largest CDMA operator on this planet – but carriers in China were not selling high-end phones in same quantities as Verizon would have.

hichong_3_Nokia-Lumia-800c [a.1]

When we finally enter the era of Windows Phone 8, Nokia finally was able to offer CDMA-LTE phone, as were other manufacturers. HTC 8X was launched on both Verizon and AT&T (one HW variant for CDMA and another for GSM networks). Nokia launched Lumia 920 and 820 (GSM) on AT&T and Lumia 928 and 822 (CDMA) on Verizon. From a consumer perspective this was confusing at best: should it be taken that Verizon did not approve 920? If I want 928 (which has Xenon flash), why doesn’t AT&T stock it?

Elop said the carrier exclusivity was a means to get better subsidies and marketing, which in a sense is true. While AT&T marketing for iPhone has always been (and remains to be) superior compared to any other phone, there was a time when Lumia 920 indeed had higher subsidy than that of iPhone. Judging from the metrics it didn’t really help as Nokia was again missing trends: Lumia 920 was rated to be uncomfortably heavy and when aluminum cased Lumia 925 was launched, it was said to be the phone 920 should have been. But then already too late (and not on AT&T but on T-Mobile).

CHINA

Another market that was – and needs to be – mentioned is China. Currently smartphone shipments to China account for close to one third of global shipments. Late 2010 the rise of competitive Android Open Source Project (AOSP) products from Chinese manufacturers dropped Nokia’s market share in China from 77% to 56% in mere six months. That phenomenal rise of Android stranded pretty much everyone and everything so well that today 5 out of 10 largest smartphone makers GLOBALLY are Chinese…
…while most of them make their sales almost completely in China. Even Lenovo reported that 80% of their Q2 2014 shipments were to China alone.

In addition to this comes more carrier problems. Let’s remember that roughly 9 out of 10 phones sold in China are sold outside carrier retail. Screwing up the carrier relations means mere 10% loss but the network technology matters as much as it did in U.S. You see: China Mobile – the largest carrier on the planet when measured by subscriber count – uses its own TD-SCDMA standard for its 3G network. Any GSM phone (say… Lumia 800) is limited to 2G data only and is therefore more of a feature phone than smartphone.

The same issue of Qualcomm SoCs happened for Nokia as they encountered with CDMA; the only chipsets supporting China Mobile 3G network were dual-core and therefore could not be used with Windows Phone 7. During the dramatic market share erosion of 2011 and 2012 Nokia could only offer Symbian phones (using Texas Instruments SoC) and those they had announced to be discontinued already. This mess did not see a solution until Lumia 920T running Windows Phone 8 was announced, almost two years after Nokia did their strategy change to Windows Phone and over two years after Nokia’s market share started to drop in China.

EUROPE

If we look for some bright spot for Nokia, it probably is Europe. According to Kantar Worldpanel, Nokia used to have 33% market share in UK, but by the time of February 2011 strategy change it had already dropped to 12%. Germany went from 40% to 25%. France from 25% to 18%. In 2011 this massacre continued and Nokia hit the bottom somewhere below 5% market share before they got Lumias to sell. After WP8 launch Windows Phone (mostly Nokia) has been lingering around 10% mark for EU5 (Germany, France, Italy, UK and Spain). In the light of July 2014 numbers the Microsoft acquisition has not affected this at all.

So in Europe Nokia/Windows Phone was exceptionally able to restore some of the customers it had once already lost. They couldn’t achieve this in China or U.S., mostly because those markets have their own peculiar characteristics that Nokia was not willing or capable of adapting to.

PATH TO CHEAP PHONES

Initially it seemed that Nokia planned to move their Windows Phone smartphone focus to high end / high margin area and keep lower end running Symbian (which would be replaced by Meltemi) when feature phone users slowly move to smartphones.

What Nokia management failed to see was the speed on which cheap Androids took the feature phone market away. In the area where Nokia wa supposed to keep making profit during the transition time (feature phones) they suddenly had less and less customers to sell their phones to. At the same time the Meltemi platform never materialised. There have been a lot of rumors on the Internet about Meltemi being almost finished in summer 2012 but it seems that it was far from being finished.

Lumia 610 was the first “low-end Lumia”. Nokia said that a device running on 256MB memory was a result of cooperation between Nokia and Microsoft.
It was also later said by a Nokia representative that Microsoft had not expected that Windows Phone could reach so low price points.

As I said earlier, it seemed as if Nokia was taking the high-margin high-profit plan. The timing of Lumia 610 announcement (Mobile World Congress, February 2012) shows that cheaper Lumia was in the works already when Lumia 800 was announced and therefore it is clear that Nokia wanted to keep making cheap phones too. The rationale behind focus on volumes remains unclear. Perhaps idea was that larger sales imply better acceptance of new platform. Perhaps it aimed at luring in developers. However it became quite clear that the main benefit Nokia had over iPhone was the price, not user experience, ecosystem or services that the Microsoft cooperation was originally about. And price war was what Nokia should have avoided.

TOWARDS THE END

In summer 2012 Nokia share price hit all time low of $1.66, down 96% from its high of $42.22 in 2007. In comparison, when Nokia announced their strategy change year 2011, Nokia share was still traded at $10.58.

Earlier in 2012 Nokia Board had already been weighing their options. Meltemi program had been kept alive for over a year and it was not delivering the products. On the other hand low-cost Windows Phone that later became known as Lumia 520 was proven feasible. Also the Smarterphone acquisition was getting towards a shippable product so there was a refresh coming to feature phone segment.

Thus in June 2012 Meltemi program was killed and all people from it were laid off. Nokia Board also started to prepare for the future. When deal with Microsoft was signed, Nokia agreed not to use any competing operating systems in their smartphones until February 2014. In second half of 2012 Nokia started the development of their own Android phones, later known as Nokia X. Pieces were being set for future where Nokia Devices & Services would bring out Android phones.

In the background another plan was rolling. In February 2013, on the eve of the Mobile World Congress show in Barcelona, Steve Ballmer reached out to Nokia Chairman Risto Siilasmaa and started the talks that eventually lead to Microsoft’s acquisition of Nokia Devices&Services function. Nokia had a way to completely exit the handsets market where Apple and Samsung were making almost all of the profits in the industry. Under the scope of that plan Nokia bought Siemens stake of joint venture Nokia Siemens Networks in June 2013. The network infrastructure maker was rebranded as Nokia Solutions and Networks and kept as independent business entity.

In August 2013 Ballmer announced his departure. Two outsiders who got a heads-up were Siilasmaa and Elop of Nokia, said people familiar with the events. Ballmer called each of them about 15 minutes before the announcement to reassure them Microsoft remained committed to the deal.

At beginning of September 2013 Microsoft and Nokia announced that Microsoft will purchase substantially all of Nokia’s Devices & Services business, license Nokia’s patents, and license and use Nokia’s mapping services. Due to all the acceptances needed, the deal was not completed until April 2014. By then Nokia had to continue under the expectation that the deal could fail so the Android phones that formed the Nokia X series were launched as planned.

AFTERMATH

Microsoft bought itself loss-making business unit that included the manufacturing of basic and feature phones that were on an undeniable downward trajectory. It should be credited to Nokia board that they managed to include the doomed feature phone unit into the deal but on the other hand Nokia board had position of advantage: they were selling the company that produced over 85% of the phones using Microsoft’s OS globally.

The fate of Nokia X series was unclear: will Microsoft live to its new mission of “mobile and cloud first”, abandoning the chase of own mobile OS or will they kill the gateway product as a sidetrack not worth following? After Microsoft had taken full control of Nokia, they launched the Nokia X2 phone. Like original Nokia X it was running Android where Google services had been replaced with Microsoft services. That action implied that the path of “Android with Microsoft services” was still in Microsoft plans.

When deal was announced, it was forecasted that Microsoft would lay off 50% to 70% of the Nokia employees in the future. [7] Eventually in summer 2014 Microsoft announced that they will drop the Nokia X line and also lay off quite exact the forecasted 50% of the employees they got in Nokia acquisition. The reason could have been that Nokia X was not selling well enough. Reason could also have been that it was selling in quantities that was making Lumia line obsolete. We may never know as Microsoft has not given us any actual numbers.

toilet-paper [8]

Nokia exited handsets business it once ruled. That’s not entirely new; Nokia has a history of dropping business that us no longer seen profitable, such as televisions, PCs, toilet paper (honest, they did that too), rubber boots,…
…and mobile phones. At the point where Nokia exited the stage Samsung was reporting decreasing sales due to falling margins and cheap Chinese phones were taking larger and larger share of new sales. Smartphone market was turning into the state the PC market is where HW vendors battle of the tight margins to keep them at the edge of profitability.

Welcome to present day. That was one heckuva ride. It could have been different ending for Nokia had they made different choices in the past. Yet we should remember them as a company that managed to reach their product into hands of billions and billions of people around the world – achievement we should never forget.

—END OF CHAPTER TWO—

Epilogue
As said, this is my second post on Nokia history. The last chapter still under work is “who should we blame for this?” but that one is not coming tomorrow; I’m writing these posts on my spare time and – frankly – I have less and less time to spare nowadays. 😉

REFERENCES:

[1] http://yle.fi/uutiset/kallasvuo_avautui_nokia_joutui_toimitusjohtajakaudellani_todella_nopeaan_murrokseen/6819392

[2] http://www.businessweek.com/magazine/content/11_24/b4232056703101.htm#p5

[3] http://mynokiablog.com/2012/09/04/leaked-prototype-nokia-lauta-rm-742-cancelled-immediate-n9-successor/

[4] http://www.digitoday.fi/mobiili/2010/08/09/nokia-etsii-kasvua-operaattorikannykoista/201010923/66

[5] http://www.fool.com/investing/general/2014/02/13/apples-share-of-mobile-phone-industry-profits-gets.aspx

[6] http://www.tekniikkatalous.fi/ict/quotnokia+olisi+havinnyt+vaikka+olisi+valinnut+androidinquot/a877095

[7] http://www.telecomasia.net/blog/content/wheres-microsoft-mobile-heading

[8] http://www.theblazingcenter.com/2009/10/a-year-without-toilet-paper.html

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