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Nokia's 'CEO Stephen Elop' Experiment Fails

Are Things Any Better Today?

Although he arrived on the scene with a lot of "bark," Nokia (at the time) was still the world's largest mobile phone maker -- by a significant margin. I don't believe that he's made any improvements. In fact, with the help of Microsoft's failing Windows OS, the current state of Nokia is worse than where the company was three years ago.

Not only was the stock price at $10 when Elop took over, but Nokia still had 37% of the smartphone market share, according to research company Garner. Fast-forward to three years later, the Street is still waiting for Elop's "big bite." Today, Nokia's stock is at $3.61 after bottoming out at $1.63, or falling nearly 85% under Elop's watch. Meanwhile, according to Gartner, the company's global phone market now stands at 14.8% after dropping an addition 5% in the first quarter of 2013.

What this means is that Elop's decision to restore Nokia's global reach by entering the so-called "smart feature phones" have failed miserably. Nokia's Asha line, which the company was banking on as a cheaper alternative to Apple's (AAPL) iPhones and Samsung's Galaxy model, have not sold well. Even gloomier is the fact that Nokia's Lumia line, of which the Lumia 925 was launched recently to uninspiring reviews.

In fact the stock dropped almost 7% following the release. Although shares have rebounded slightly since then, it doesn't seem as if the flagship phone is going to help Nokia turn to profitability as quickly as Elop expected. What's more, according to Gartner, consumers are not replacing their phones at a pace that supports Nokia's growth efforts in emerging markets such as Africa and India.

In fact, not only did phone volumes fall 21% year over year in the recent quarter, worse is the company's device operating margin, which now stands at an abysmal minus-1.5% after a 32% drop in device revenue. When Elop arrived, device margins were in the high single-digits. Elop's response regarding eroding market leverage has been to cut more costs. But when has this strategy ever worked? Companies that are competing for market share have to spend to grow -- they don't save their way into more sales.
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