Opinion: Is this the end of Nokia?

Nokia is struggling to stay afloat in the smartphone market, and an announcement this week could be enough to push the Finnish mobile phone over the edge and see it disappear for ever.

On 9 February last year, Stephen Elop, CEO of Nokia, sent a memo to all Nokia staff, outlining what he saw as the company's position.

In the memo, Elop recounts an allegory about a man standing on a burning oil platform who is faced with two choices. Stay on the platform and be consumed by flames, or jump 30 metres into the icy-cold, turbulent and foreboding sea below.

In Elop's version of the story the man survives. The former Microsoft executive goes on to say: "We [Nokia] too, are standing on a "burning platform," and we must decide how we are going to change our behaviour."

Two days later, it became very evident how Nokia was going to change its behaviour, when Elop joined Steve Ballmer on stage to announce that Nokia was dumping Symbian and jumping into bed with Microsoft and would be using Windows Phone as its smartphone operating system of choice from now on.

While the solitary man in Elop's tale of the burning oil platform may have survived, there are serious doubts whether or not the Finnish phone manufacturer will be able to do likewise.

Job Losses

Since taking over as CEO, Stephen Elop has faced the monumental task of dragging Nokia out of the feature phone age, where it was all powerful, and into the smartphone era where it is floundering, struggling to keep pace with the likes of Apple, Samsung, HTC and any number of other Android smartphone manufacturers.

Elop joined Nokia on 13 September, 2010 replacing Olli-Pekka Kallasvuo, and Nokia has since admitted it paid the former Microsoft man a $6 million signing-on fee - on top of his $1.4m-a-year salary - as "compensation for lost income from his prior employer."

This will only add salt to the wounds of the 40,000 Nokia employees who have lost their job since Elop took charge, though to blame one man for the downfall of the company would be inaccurate.

Nokia has been making mobile phones since the late 1980s and by the turn of the century it had grown to become the most recognisable and biggest brand in the burgeoning mobile phone market.

That success continued well into the middle of the next decade, and Nokia may have thought itself untouchable.

Indeed the company spent vast amounts of money on dividends for its shareholders, paying out €27bn in dividends and repurchase schemes between 2003 and 2007 alone - so sure was it that its position as the world's biggest mobile phone vendor was untouchable.

iPhone

Then in 2007, Apple launched the iPhone. The Cupertino-based company, along with Google, had been spending the time between 2003 and 2007 looking to the future, while Nokia had spent its time issuing huge dividends and clapping itself on the back.

This hubris meant that Nokia was left in Apple and Google's dust when the smartphone revolution exploded. Nokia remained tied to its dated and limited Symbian operating system while Android and iOS were revolutionary and adaptable.

Nokia's share price reached a peak of €27.74 at the end of 2007, but by then the writing was on the wall and by 23 February, 2009 the share price had fallen precipitously to just €7.50.

While the next 12 months saw a brief surge, Nokia's share price continued to tumble and is today (22 June, 2012) at its lowest ever point, valued at just €1.90 per share.

Looking at the chart above should be enough for anyone to see that a slide on such a monumental scale means the company is in trouble - and it is.

Reduced earnings

For the second time this year (and remember we're only half way through 2012 yet), Nokia has reduced its earnings guidance citing "competitive industry dynamics." What this means of course is that Nokia smartphones are not able to compete in this competitive market, and so it won't have any profits to return.

Along with the reduced profit (increased loss) warning, Nokia also announced the latest tranche of layoffs (10,00 this time) and the fact it was selling Vertu, its luxury mobile phone brand.

Indeed Vertu encapsulates all that was wrong with Nokia - in that it's all about looks with no substance.

Nokia is known for producing superb hardware, with some of the best mobile phone cameras in the business, as well as great build quality and excellent Qwerty keyboards.

While this sufficed in the days of the feature phone, when hardware was more important that software, with the advent of the smartphone and the app, this is no longer the case.

Nokia is planning on spending a total of €1bn on reducing expenses in a bid to save the company, and Elop still wants to "re-shape our operating model" and talks about Nokia's "long-term competitive strength" - but he is one of only a few voices left who believe Nokia has a future.

Ratings agencies Moody's, S&P and Fitch have all downgraded Nokia's credit rating to junk status and the company is set to have just €2.7bn in net cash by the end of 2012 - according to Morgan Stanley analyst Francois Meurnier.

Overboard

So, Nokia has taken the plunge and jumped from the burning platform that was Symbian, and into the icy waters of Microsoft's Window Phone. However, unlike the man in Elop's parable, Nokia is slowly sinking to the bottom of the sea rather than floating to the surface.

Windows Phone is a very nice looking smartphone operating system. Its use of live tiles and slick navigation make it a doddle to use, even for those not used to using a smartphone.

The idea of combining this with a beautifully built Nokia handset seemed like a match made in heaven - except that is to customers, and ultimately they are the real judge of what is good and what isn't.

For 14 years Nokia reigned as the world's largest smartphone seller. It lost that position to Samsung earlier this year and looks unlikely to ever get it back again.

People simply don't want to buy Windows Phone handsets, even if they are well made, work well and look really nice.

Nokia shipped 2 million of its Lumia smartphones in the last quarter which doesn't sound too bad taken in isolation, but when you realise that Apple sold 35m iPhones in its last quarter then you get an idea of the mountain Nokia has to climb.

Final nail in the coffin

In order to succeed, Nokia will need all the help it can get, especially from Microsoft. While the Redmond-based company may publically be seen to support its Finnish partners, an announcement this week, could be the final nail in Nokia's coffin.

Windows Phone 8 was unveiled in San Francisco on Wednesday and while it is certainly a major step forward for the software, the fact that current generation Windows Phone 7.5 smartphones won't get the upgrade could spell disaster for Nokia.

While most people who already own a WP7 phone won't really care that they won't get the update, as they don't have the hardware to support it anyway, anyone looking to buy a new phone might think differently.

Consider your options. Buy an iPhone 4S and you're guaranteed to get at least two more iterations of the iOS software.

Buy a top-end Android phone like the Galaxy S3 or HTC One X and you're more than likely to get upgrades to the next version of Android, codenamed Jelly Bean.

Buy a Lumia 900, Lumia 800 or Lumia 710 however, and you know you will never get upgraded.

This could mean that sales of Nokia's Windows Phone 7 handsets take a dive, like that man on the burning platform, and considering the already fragile financial state of the company , it could be the final hit needed to push Nokia over the edge.