How to Stop Nokia Channel Boycott And Save The Company

Editors' Note: With this analysis by a former Nokia VP and one of creators of 3G strategy that made the company a global success, we recommend to listen to Frey: How To Save a Life and One Republic: Apologize.
Ok. Let's try to save Nokia. What should Nokia do?

Introduction
There are two gigantic problems. If Nokia was a person, it would be in the hospital in the emergency room, where a little while ago it had stopped breathing, and now also the heart had stopped. Nokia's doctors would need instant emergency assistance to get the heartbeat back, and to get the patient breathing. Then after that, for the patient to stabilize at least that much, that it need not be in the emergency room anymore.

Two Disasters Simultaneously
I explained the two problems. The problem over the past two months or so, has been that the reseller chain (mostly the mobile operator/carrier customers of Nokia) had stopped selling Nokia smartphones. In effect the retail channel has started a Nokia smartphone boycott. What few Nokia smartphones are now selling, are sold with enormous discounts so Nokia's corporate profit engine has stopped performing. As Nokia warned us a few weeks ago, where it was supposed to have something like about 600 million dollars that Nokia projected for profits in second quarter 2011 only two months ago, to about zero dollars Nokia now says in its profit warning two weeks ago.

And there is a severe knock-off effect, that Nokia's non-smartphones (i.e. 'dumbphones') are also selling far less than expected this quarter, partly due to the reseller boycott, and partly due to overall Nokia brand collapse.

The second problem (ie the heart suddenly stopping) is the news in the past few days, that Nokia's share price has fallen well below the critical level, where now Nokia shares are so cheap, that Nokia would be worth more if it was split up and sold in pieces, than if kept together as one entity.

What Caused It?
Nokia resellers are boycotting Nokia. Why? It all started on February 11, when CEO Stephen Elop stupidly announced that Nokia would replace its current Symbian operating system with the Microsoft Phone 7 (now called Windows Mobile 7 ie WP7) operating system, while Nokia had no such phones to sell or even to demo to prospective buyers. This announcement also included the end of Nokia's evolution path from Symbian to Nokia's brand-new operating system, MeeGo, an open-source, Linux based, touch-screen optimized 'next generation' smartphone OS, that Nokia had been developing with Intel. Nokia's related Qt development tools and the Ovi store lost their value as assets in the Symbian and MeeGo strategic vision. This vision had gained strong Nokia Symbian developer support, and Nokia shareholders had rewarded Elop over the first about half year of his CEO tenure, during which Nokia share price had grown by about 10% up to February 10.

Stephen Elop witnessed the smartphone sales collapse and the severe dive in Nokia share price (which has today lost over half of its value from February 11), and Elop responded with several typical CEO errors that have further angered his distributor channel, the carriers/mobile operators. Elop has launched dual SIM card phone, said he will not use the traditional Nokia smartphone development teams who have made smartphones that the operators/carriers on all other five inhabited continents have loved to sell (except in North America where only about 1% of Nokia's smartphones were sold). Instead he said the first Microsoft WP7 based smartphones from Nokia would be designed 'in California' and would be designed to appeal to US consumers - which obviously is not the preferred way for the 99% of Nokia branded smartphones that used to be sold in the other markets outside of North America. And now, the latest CEO blunder was to talk about Skype for Nokia WP7 phones. The carriers/operators hate Skype. We now hear that since Microsoft announced the Skype deal, apparently several of the carrier stores are now also actively steering buyers of (non Nokia branded) WP7 phone buyers to select rival phones using Google's Android OS.

Meanwhile today we learned that Nokia's CTO has been sent on indefinite leave because he had disagreed with Stephen Elop's WP7 strategy. And already 3 ratings agencies downgraded Nokia stock. The major analysts are mostly projecting far more decline in Nokia share price value. Some major analysts are now targeting Nokia's share price to fall to less than half where it is now.

Nokia Objective
Nokia needs to achieve two difficult objectives under these very hard times. First, Nokia share price value decline has to stop. Nokia share price has to recover at least about 10%-20% from the current levels (still 30% below the recent peak of early February), for the danger to dimish that Nokia might be sold for its parts and split up.

Secondly, Nokia has to get its reseller channel to stop the Nokia smartphones boycott and recover at least partially the sales of Nokia smartphones and at least partially the lost dumbphones sales, so that Nokia's handset unit can deliver modest profits in the 2% - 5% range for third quarter of this year.

We have to somehow convince the carriers/operators to stop their Nokia boycott, and also to get the share price to recover at least somewhat for now. That would bring Nokia back from the brink of extinction. This is how I would do it.

The Unlikely Scenario: Fire Elop, Cancel Microsoft
So, obviously, the carriers are boycotting Nokia primarily due to Stephen Elop's idiotic statements from February 11 and since. And what little affection they may have had of the Microsoft WP7 smartphones, clearly vanished when Microsoft bought Skype. Nokia cannot recover smartphones sales (and thus cannot recover profits) until the resellers stop the boycott. And there it is not enough for Elop to apologize or to try to backpedal any of his statements. Now the situation is truly that bad, that Elop has to be fired and Nokia has to cancel the Microsoft phones.

But also, remember, its not enough to get smartphone sales back, Nokia also needs to get the share price to stabilize and turn to a modest recovery. So how to handle Elop firing?

I would have Nokia Chairman Jorma Ollila call an emergency press conference. In it he would make the following announcements: CEO Stephen Elop has been fired (or perhaps it might be worded that Elop has "left the company") due to disagreements about the smartphone operating system strategy. And that Elop is no longer in Nokia's employ. The job of interim CEO would be taken over by Jorma Ollila in the interim period while Nokia seeks a new CEO on a fast schedule.

Jorma Ollila is the nearest thing to the gold standard, in the eyes of Nokia investors. If he made a 'return' (a little bit like Steve Jobs returning to Apple) - even if only for the interim period - this announcement, to me, combined with the firing of Elop, would help stop the decline in the Nokia share price. But that is not enough obviously. We need the smartphone sales to recover.

Then clearly, Ollila would announce Nokia has cancelled all plans to launch any Microsoft WP7 based smartphones. And that the current smartphone development projects around WP7 would have been terminated effective immediately. These are absolutely vital steps and unless Elop is fired and Microsoft WP7 smartphones cancelled, Nokia cannot recover.

Android Not An Option
I know that many of my readers would say this is the time for Nokia to go with Google Android OS. Many investors would also welcome Android. But Android now would mean Nokia would have to delay Nokia's next generation smartphones by another year to 18 months from now! Nokia knows Symbian was on borrowed time back before February 11, and is far more wounded now, after the Stephen Elop debacle. No, Android is not it. The only viable migration for Nokia, from Symbian, is obviously to MeeGo. For that Nokia still owns the Qt developer tools which support both Symbian and MeeGo. And Qt will also enable developers to make apps for Android, so in a way, Nokia's MeeGo (and Symbian) would be 'compatible' with Android. Not completely compatible, but MeeGo and Android would be now pitched to Nokia sales channel, developers, investors and employees, as kind of cousins.

Ollila would also reverse the other silly decisions Elop had made, such as the ending of Ovi brand, which Ollila would restore. He would announce Nokia's maps, carrier billing etc would not be made available to Microsoft, nor any WP7 partners/rivals like Samsung, SonyEricsson and HTC.