Nokia's dark night of the market
(MoneyWatch) COMMENTARY Nokia (NOK) announced its results for the first quarter of 2012: $9.7 billion in sales, which was down 29 percent year over year and 26 percent from the previous quarter. There was an operating loss of $1.8 billion. Even more pointedly, sales of smart devices like smartphones were down 52 percent in dollars and 51 percent in units year over year; the respective numbers for regular feature phones were 32 percent and 16 percent. That is the disaster in a nutshell.
At a time when smartphone sales grow like weeds in summer and the tablets have redefined the concept of personal computing, Nokia has pulled incessant failure out of the jaws of overwhelming market success. Moody's downgraded the company's credit rating on Monday. Nokia has already said that it will lose money in the first two quarters of this year.
How could this have happened to the one-time global leader of cell phone sales? All it took was some entrenched fundamental mistakes applied over time. To start, Nokia has hardly been the model of efficiency. I've spoken with small businesses and heard comic but scary stories of byzantine processes, organizational complexity, and moments of downright corporate ineptitude. (Can you imagine a large accounting department calling to ask if it had paid an invoice because it had no idea?)
Amusement is one thing, but when inefficiency blooms in the heart of an organization, competitive muscle will turn to flab. Nokia insisted on doing everything its own way. Controlling all aspects of a phone platform is fine. Look at what it did for Apple. But the strategy doesn't work when you ignore the world around you, competitive products, and hope to continue selling products by declaring that is what the market will buy. What did Nokia think it was selling, Yugos?
Dictating to a market only works if you're the only supplier. But that is just one problem. More fundamental is the culture that grew at the company -- a culture that assumed it knew best, could do best, and should do as it wanted. That's why it ignored Apple's (AAPL) iPhone and Google (GOOG) Android for so long. It is another RIM, only with even more to lose.
CEO Stephen Elop will announce new restructuring because the markets expect it. But the action alone won't do any good. Nor will adopting Microsoft (MSFT) Windows Phone. Nokia already has to pay consumers who found faults with wireless connectivity. Who has their back against the wall and then ships something that clearly isn't ready for prime time?
The company needs a culture transfusion to remove the destructive attitudes, and that will take a year or two at best. Elop doesn't have that long. But does anyone at the company?