Announcement of strategic partnership with Microsoft leads to sharp falls in Nokia stock in Helsinki

Share sheds more than 14% in heavy trading

Stephen Elop

print this

Shares in the world's largest mobile phone manufacturer Nokia plunged on Friday morning following the announcement that the company, which has recently seen falling profits as it struggles against Google and Apple in the high-end smartphone market, intends to enter into a major strategic partnership with software giant Microsoft.
      By around 10:40, the stock had fallen in Helsinki by as much as 9.3% from its Thursday close.
      The share then recovered briefly before coming under further sustained pressure, and was down nearly 10% at 12:30.
     
The steepling decline continued through the afternoon, even accelerating, and by 18:00 in Helsinki, Nokia's stock had shed more than 15% of its value.
      It closed on Thursday at just over EUR 8.15, and was sharply down at EUR 7.50 at the start of trading on Friday, and even from these low beginnings it had fallen to below seven euros by late afternoon in heavy trading, with a turnover in excess of 200 million shares and 1.5 billion euros.
      A brief rally before the close took it back up to exactly EUR 7.00, a fall of 14.22% on the day.
     
The Microsoft moves had been widely trailed by analysts before the announcement, but investors were unhappy with the initial lack of forecasts for next year, the absence of new product announcements, and there was also general disappointment that Nokia had not made any cuts to its forecasts of research and development costs as a result of the tie-up with Microsoft. According to Carolina Milanesi, an analyst with information technology research and advisory company Gartner, the alliance forged with Microsoft was a more natural alternative for Nokia than a jump into the camp of the search engine company Google, whose Android platform in smartphones has recently overtaken Nokia's own Symbian as the market leader.
      With the new direction announced today, Nokia will use Microsoft's Windows Phone 7 operating system as its primary platform in smartphones.
      Nokia nevertheless intends to sell a further 150 million Symbian handsets, in so doing "leveraging previous investments to harvest additional value".
      In Milanesi's view, it is likely that Nokia's remaining Symbian phones will be sold during the next two years.
     
In the course of the transfer to a Microsoft platform, Nokia is also not directly abandoning its Linux-based open source MeeGo operating system, developed in collaboration with the chip manufacturer Intel.
      According to Nokia, "under the new strategy, MeeGo becomes an open-source, mobile operating system project. MeeGo will place increased emphasis on longer-term market exploration of next-generation devices, platforms and user experiences. Nokia still plans to ship a MeeGo-related product later this year." Milanesi takes the view that this can be interpreted as implying that Nokia will use MeeGo possibly only in touchscreen tablet computers.
      "If Nokia had wanted rid of MeeGo altogether, I feel they would have said so", she commented.
     
What Milanesi feels is worrying from Nokia's perspective is the future of the company's Ovi internet services.
      Thus far Nokia has invested heavily in the future of its services and applications stores.
     
In advance of the announcements by Nokia on Friday, there had been wild rumours of what the Nokia CEO Stephen Elop would have in store for investors at a London gathering, fuelled in part by Elop's comments in the now-famous "burning platform" memo to staff leaked earlier this week.
      One suggestion was that Nokia would be pulling out of Finland and moving its headquarters elsewhere, for instance to Silicon Valley in California.
      Speaking to Helsingin Sanomat on Friday, Elop dismissed this as absurd and a "ridiculous idea", and said that there was no way they would be leaving Keilaniemi in Espoo.
     
He declared that the partnership with Microsoft, making use of the Windows Phone 7 OS in Nokia smartphone handsets, would lead the company into a new era.
      The two companies will work jointly on marketing, and will develop a common roadmap for the future.
      Bing, Microsoft's search engine service, will be integrated into forthcoming Nokia devices.
     
The company's official statement spoke in similar terms of "using complementary strengths and expertise to create a new global mobile ecosystem", and Elop pointed out that the mobile phone software platform contest was now to be waged among three main rivals rather than four.
      Elop also stressed that the company has a great deal of expertise here at home in the development and implementation of software platforms.
     
There had also been advance suggestions that Nokia's management would be shaken up, and these were confirmed with a number of high-level departures.
      Elop reported to HS that Mark Louison, the President of Nokia's North American unit, is to be replaced, and a new executive is being sought to fill the vacancy.
      Nokia's Senior Vice President, Devices Soren Petersen will also be changed, and Alberto Torres, appointed in 2009 to head the new Mobile Solutions unit, has left the Group Executive Board to pursue other interests outside the company.
      Torres was earlier responsible for the development of MeeGo.
     
It is quite apparent that in steadying the ship, Nokia intends to make some thoroughgoing reductions to its workforce worldwide.
      These will also affect staff based in Finland, Elop noted at today's Nokia Strategy and Financial Briefing gathering for investors in London.
      Precise details of the numbers involved have yet to be ironed out, but doubtless there will be worried faces in locations such as Salo, where Nokia provides work for roughly 4,000 and is the town's largest employer by far.
      The staff here and elsewhere around Finland were called in to hear the latest news at briefings arranged earlier this morning.
     

More on this subject:
 Elop’s big day is also a big issue for Finland
 More than 1,000 Nokia employees walk out in Tampere in protest at Symbian phase-out

Previously in HS International Edition:
  Nokia navigating in troubled waters (9.2.2011)

Links:
  Nasdaq OMX: Nokia
  Nokia Press Releases

Helsingin Sanomat