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A year and a half ago, I interviewed Nokia Corp.'s Canadian CEO and would-be saviour, Stephen Elop, at a restaurant in central Helsinki, not far from the headquarters of the company that had dominated the cellphone market until 2008 or so, when Apple and Android smartphones started to come on strong. He whipped out a new Nokia smartphone equipped with a 41-megapixel camera and asked me to stand back. He snapped a picture of me. I was amazed by its high-definition clarity.
Then he said "getta load of this" and zoomed onto the watch on my wrist. The detail was so fine that I could read the time. It would have been a blur on a lesser smartphone camera, where eight megapixels or thereabouts is the norm.
That phone was the Nokia 808 PureView, one of the last Nokias to use the company's in-house Symbian operating system. Since then, Symbian has been sent to the knacker's yard; all Nokia phones now use Microsoft's Windows mobile platform, including the 808's successor, the Lumia 1020. The 1020 was just launched and is getting decent reviews – it's a machine that blurs the line between smartphone and high-end camera and will no doubt appeal to serious photo geeks. The question is whether it and the rest of the Lumia line will be enough to reverse the Finnish company's fortunes.
So far, Mr. Elop's Microsoft bear hug has failed to restore Nokia's fortunes, even if it seemed to have stopped the company's free-fall. With Microsoft's operating system at its side, Nokia has overtaken BlackBerry (formerly Research in Motion) as the No. 3 smartphone player. That's the good news. The bad news is that it's hardly a tight race among the top three. Windows-based phones (mostly Nokias) have a mere 3.3 per cent of global market share, according to the Gartner research group. Phones powered by Google's Android system, such as the apparently unstoppable Samsung line, and Apple's iOS share more than 93 per cent of the market.
Nokia, in other words, is still on the sick list and while it is not in imminent danger of dying – it had net cash of €4.1-billion ($5.8-billion) at the end of June – it might remain in intensive care for some time. Its share price peaked at €40 in late 2007. On Monday, it was just above €3.
According to the Financial Times, Nokia sold 468 million handsets in 2008, the year after the iPhone landed on the market. In the first half of this year, the number was 123 million, giving it an annualized sales rate of about half the old figure. Since 2011, the year Mr. Elop, a southern Ontario boy, was plucked from Microsoft to run Nokia, pretax losses have exceeded €4-billion.
Nokia and BlackBerry have a lot in common. Both companies underestimated their iPhone and Android rivals. By the time they woke up, it was too late.
Nokia placed its bets on Mr. Elop and Windows, even though Microsoft has never made a splash in the mobile space. BlackBerry bet on the new BB10 line of handsets, launched early this year. After disappointing sales, the Canadian company is now evaluating its strategic options, meaning it is likely to be sold, privatized or merged with another company.
Mr. Elop has insisted that the worst is over for Nokia because the Lumia line is gaining customers. Indeed, it is. Lumia sales were up by a third in the second quarter, to 7.4 million units. Sounds fine until you consider that Samsung sold almost 10 times as many in the same period while Apple sold more than four times as many. Nokia is still strong in the developing world, where "Nokia" is synonymous with cellphone. But even that market is under threat as prices for so-called "feature phones" – basic handsets – and smartphones plummet.
Nokia still has options. While analysts assign little value to Nokia's handset business (ditto BlackBerry's), it owns one of the world's top makers of data networking and telecom equipment of the wireless variety. It's called Nokia Solutions and Networks (NSN) and was, until recently, jointly owned with Germany's Siemens. Mr. Elop bought out Siemens for €1.7-billion to gain access to NSN's ample cash flow – a smart move. Analysts had put NSN's value at anywhere between €5-billion and €8-billion.
NSN may be the key to Nokia's future and could emerge as the company's core business. In a recent interview with the Financial Times, Mr. Elop said "We could IPO [NSN], we could distribute it to our shareholders, we could do different things. It could become more strategic as well."
Nokia, like BlackBerry, is far from a writeoff. But the two companies are unlikely to regain their once formidable market shares. That's not to say Nokia's share price won't rise as it, like BlackBerry, tries to reinvent itself in smaller form. That form may be more about wireless equipment than handsets. A Nokia phone with a superb camera is a nice gadget. It is not enough to save the company.