Nokia tries to plug the hole

The cell phone giant gets a new CEO. Can he change Nokia's fortunes?

By Jim J. Jubak Sep 15, 2010 8:54PM

Jim JubakIt's a first step, but only a first step.

On Sept. 10, Nokia (NOK) named Stephen Elop to replace Olli-Pekka Kallasvuo as president and chief executive.

In Kallasvuo's four years at the top of the company, Nokia lost market share to Apple's (AAPL) iPhone and other smart phones, as the company seemed unable to bring a competitive smart phone to the consumer market.

He pushed the company to develop services, such as music downloads and GPS navigation, but couldn't gain much traction against Apple and Google (GOOG) in the services segment. 

Nokia trades at roughly 15% of its 1999 peak market value. The shares are down 60% since Apple's 2007 introduction of the iPhone.

Elop, a Canadian, will be the first non-Finn to run Nokia. He was most recently at Microsoft (MSFT), where he headed the unit responsible for Office. Before that, he was chief operating officer at Cisco Systems (CSCO) competitor Juniper Networks (JNPR). He was chief executive of graphics software company Macromedia before it was acquired by Adobe Systems (ADBE).

How good a pick is Elop, considering that Nokia's biggest needs are in developing software and apps stores to compete with Apple and Google and coming up with a smart phone that will create some consumer buzz? He's an engineer by training, although his stints at Microsoft and Macromedia did give him software expertise.

The biggest hole in his resume, though, is the lack of consumer experience. Nokia has had difficulty in addressing the shift in the smart phone market pioneered by Apple's iPhone from technology to design.

Elop officially takes over Sept. 21, but he hit the ground running, delivering the closing address at Nokia's annual Nokia World event in London this week. At the event, the company showed off its new line of high-end smart phones, including the touch-screen N8, and attempted to woo developers to write for Nokia's online app store.

At the least, though, Elop's background seems a good fit with Nokia's need to keep up with Research In Motion's (RIMM) BlackBerry in the corporate customer market, where the ability of a phone to integrate with a company's computer and email systems counts for more than a hot design.

Don't underestimate the magnitude of the turnaround job that Elop faces. Nokia's share of the smart phone market fell to 37% in the second quarter, from 45% in the second quarter of 2009, according to market research company Gartner. 

In July, Nokia said its operating margin could fall to as low as 7% in the third quarter -- down from 12% in the third quarter of 2009.

Nokia is a member of my Jubak Picks 50 long-term portfolio.

At the time of this writing, Jim Jubak didn't own shares of any company mentioned in this post in his personal portfolio.

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