Dubai: Faced with huge losses and a tumbling share price, Nokia is banking on its partnership with Microsoft Windows to turn around the company's fortunes.
Stephen Elop, Nokia's CEO, is confident there is room for yet another ecosystem as the Finnish manufacturer seeks to draw customers away from dominant market leaders Apple and Google.
Nokia, the world's largest manufacturer of mobile phones in 2011, is looking to make its presence felt in the lucrative smartphone market where it has struggled to make an impact after its Symbian platform was found to be ill-equipped to address changing demands.
Fourth quarter sales of Nokia's Windows Phones failed to make much of impact while the company also posted huge full-year losses, which Elop has attributed to a number of "one-time" restructuring activities.
Nokia has high hopes for the Lumia 900, which is based on Microsoft's new Windows Phone 7.5 operating system, but further challenges remain with the company set to cut a further 4,000 jobs at its smartphone manufacturing facilities in Finland, Hungary and Mexico by the end of 2012.
Gulf News met with Elop in Dubai to talk about Nokia's financial performance and its plans for expansion in the Middle East and North Africa region.
Gulf News: Nokia suffered huge losses last year. What do you attribute that to?
Stephen Elop: On a fully reported basis, there are losses. What drives those losses principally is that over the last year, we have had a number of one time financial restructuring activities such as the closing of a factory, the restructuring of the workforce or the revaluation of assets. It is presented as a total loss, but in the fourth quarter our device and services business was profitable on an operating basis. As it relates to the Middle East and North Africa, we have very strong market share in those regions. We are facing competitive challenges as we go through this transition and that is why we announced a strategy change last February to recognise there is pressure on market share. We need to introduce new products and implement changes that are important in order to take us forward.
Could you give us a picture of the planned roll-out of Nokia's Windows phone in this region? What are your expectations for its popularity in the Middle East?
We have not announced specific country-by-country plans throughout the Middle East. But one of the things that we know is very important is when we launch into a country or region we have to get all the conditions correct. Those conditions include making sure we have all the developers on board, making sure we have the correct language variants — Arabic being an important example of that — and making sure the marketplace for applications is in place so people can download apps in languages that are important to the region. When those pieces come together you will see the launch of the corresponding devices in the region; I am not giving precise dates. The dynamic of three different eco-systems is something really important to think about because it not just about device versus device now, it is the fact that our eco-system around Lumia Windows phone and all the services that make up that eco-system needs to compete with the other two [Google Android and Apple iPhone] that are in the marketplace.
Do you think any country in the region offers particularly strong opportunities for growth?
When you look at the different markets throughout the region, clearly there are some where the higher price smartphones are more popular based on income levels. There is also a significant country-by-country rate of replacement. For example, here in the UAE the replacement rates are relatively high and that is to our advantage because with a faster churn rate we have an opportunity to have more conversations with the consumer about what their next device should be. That being said, one of the interesting phenomenon relates to first time smartphone consumers. It is one thing to say ‘what does it take to switch someone from one of the other platforms' but it is also very much an opportunity to pick people who perhaps are using one of our lower priced devices - such as a mobile phone - and are interested in their first smartphone.
Shareholders will be taking a keen interest in your financial performance and your stock has plummeted in the last couple of years. What steps has Nokia taken to step the haemorrhaging of its share price?
Everything that we do from a strategy perspective is designed to drive long-term value for the company. So what we do about the share price is make sure we have inspired employees who are building award-winning products that delight consumers, and hopefully are well-sold and executed in the field. Everything we do is in support of the financial results that drive shareholder value. It is a difficult set of steps to go through when you have to change the strategy of the company but we are going through that change in recognition of the challenges we face in order to build a healthier company in the long-run.
Is there any truth to the speculation that Nokia could be subject to a takeover bid?
On the one hand, we are a publicly traded company so people can buy our shares including other companies. I know sometimes there are rumours about Microsoft and so forth, but we have been very clear that those have absolutely no foundation whatsoever; we call them baseless. That is an unequivocal no.
Do you have plans to expand your product range?
Although we get a lot of questions about things such as tablets, our focus today is on the smartphone line-up. Over the last couple of months, Microsoft has shared the future for Windows — not the Windows phone — but for the personal computer. They are introducing an entirely new experience and the next version of Windows is designed for tablets as well as for traditional computers. As it relates to the Windows phone, Nokia and Microsoft work very closely together on the strategy for the phone's software and hardware.
Nokia only forms one part of the Windows Group. Are you concerned about that?
We are actively supporting other vendors into the Windows Phone eco-system. Our competition is Apple's Android and Apple's iOS whereas Samsung and HTC are also utilising Windows Phones; they are our friends so it is an interesting dynamic. For example, we compete with Samsung on the one hand because they use Android, but on the other hand they also use other capabilities provided by Nokia and the Windows Phone eco-system. They are also one of our largest suppliers; we have a very complicated business relationship. We want to work with other providers of Windows Phones in order to get the eco-system going; we need to build up that eco-system to compete with Android in particular.
Are you confident the Lumia can help Nokia make an impact in the competitive smartphone market?
Our confidence levels are high and that is based on the early results we are seeing including traction in the United States, which is a very difficult market. We are very encouraged by the results we are seeing in our first product launch there with T Mobile. It is also the case in countries where the operators play a very strong role, they are saying quite openly there is a need for a third eco-system. They believe it would be helpful for their business to have three players, if not more, competing and participating as that allows them to provide greater choice to consumers. On February 11 last year when we announced our strategy, there were only 6,000 Windows Phone applications in the marketplace. In October, there were 30,000 and that number is now approaching 60,000 so it is growing at an accelerating rate, which means the developers are saying ‘something is happening here'.
The Middle East plays a really important role because it is an area where we have — relative to other regions — a stronger market share position. It is also a region where we hope to take advantage of the goodwill we have with the consumer and the familiarity with the Nokia brand. It is also the case that within the broader Arab world, there is a nexus of developers, which is one of the reasons why we set our India, Middle East and Africa headquarters here in Dubai because we believe it will be central to a lot of the activity that drives the Arab world.
