Nokia has a new CEO, Pekka Lundmark. Current CEO, Rajeev Suri, is leaving his position but will stay in the company during the transition period. Nokia has had serious issues for a long time, and some changes were expected. It is quite unbelievable when you consider they only have two major competitors left and one of them, Huawei, is in a political boycott. What can we expect to come from Nokia?
Nokia appears to have problems, especially with its 5G offering. It was reported that Deutsche Telekom had ranked it as the worst 5G supplier. Its financial reports have been disappointing, and it won’t be paying dividends this year. Something many of its shareholders have not come to expect.
Sari Baldauf, a former Nokia executive from Jorma Ollila’s management team, returns to the chairman position. She has also been the chairman at Fortum, a state-owned Finnish energy company. There she hired Pekka Lundmark into the CEO position, and now Nokia is hiring him from Fortum. Lundmark used to work for Nokia in the 1990’s and he is at the centre of traditional business establishment in Finland and is also the chairman of the Confederation of Finnish Industries.
The question is, whether these people are able to build a new Nokia?
Let’s go back a little to the past. Jorma Ollila, who led Nokia to be the #1 mobile company, left the CEO position in 2006. In 2007 Apple launched iPhone. Nokia and Siemens merged their network business into a joint venture, NSN. Olli-Pekka Kallasvuo left the CEO position in 2010, Stephen Elop followed him and Risto Siilasmaa became the chairman. Nokia sold the phone business to Microsoft that then wrote it off. Nokia then bought the NSN JV for itself. Elop left, Siilasmaa became the acting CEO until Suri, who had led NSN and the Networks division became the CEO. Now both, Siilasmaa and Suri are leaving.
Chairman Siilasmaa wrote a book, Paranoid Optimist, in 2018. He described his time at Nokia in the book. He was quite critical of Ollila, how Ollila hadn’t realized market changes early enough, e.g. iPhone, and also criticized Ollila’s legacy leadership culture that was based on fear. He then tells, how he with Elop and Suri helped to save the company.
It is true the company survived those difficult times, even after Windows phones failed totally, but if you put aside stories and memories, and mainly look at the numbers, Ollila raised a relatively small local company to global success, made it the #1 phone company and a leading network company. During the period Siilasmaa was chairman and Elop and Suri were CEOs, the company hadn’t really been a growth company, more focusing on survival. Some people claim this is part of Finnish culture – you are afraid to win, and focus to survive).
The new Nokia, after the phones, focused on the network business and acquired Alcatel-Lucent, and the technology licensing business that really wasn’t a success. One could argue the company didn’t have any growth strategy, it just wanted to execute in the quite stable but cyclic network business. However, it is still a surprise it hasn’t performed well even in that space, especially when Huawei has had so many political problems.
There are many stories about the reasons. Some claim the difficult merger of Alcatel-Lucent hadn’t worked properly. Some claim that other countries and cultures, like French politicians protecting French workers from Alcatel and wrong talents in the company. Some claim that the older, talented developers were fired and the company tried to use cheaper subcontractors. Some highlight how much Huawei has invested in R&D. Some say they haven’t seen any real passion or excitement in the company since Ollila’s days.
Can we now expect something better? It looks like the company is again in very Finnish hands. Baldauf was a very respected leader during her time in the executive team. But has she the vision 20 years later to lead the company to the next era?
Lundmark is a very senior executive. In his previous position at Fortum, the company received criticism for its aquisition of German energy company Uniper that still uses coal and the subsequent CO2 emissions. Can we expect he has the vision to lead Nokia to the next era?
Steve Jobs came to Apple and led it to even bigger success, but should we expect Baldauf and Lundmark’s return to emulate that.
Nokia has now at least two questions: 1) how to improve its performance and execution, especially with 5G, and 2) what really is the company’s longer-term strategy. It has recently missed both of them. The execution must start to work, otherwise it has no future. The current #3 position in the low margin cyclical network equipment business is not enough.
A part of the story is that Americans also see strategic interest in 5G. Attorney General William Barr recently proposed that the USA, either directly or in a consortium with American businesses or allied companies, should take a controlling stake in Nokia or Ericsson. There have been suggestions that Cisco or a similar American company acquire Nokia.
Huawei has purportedly received state funding in China that has helped it to invest in R&D. This has been a problem for Ericsson and Nokia. Both have been quite bad performing companies. It is not an impossible idea that “American capital” in some form could be a solution for Nokia. It doesn’t need to be a total acquisition but enough to set up significant operations in the USA.
But will the Finns want to keep it as a Finnish company when they have a lot of nostalgic feelings for it? It is clear Nokia needs changes. The company almost collapsed in 1991 before Ollila became the CEO. But then it had many different businesses and had invested in R&D in new areas. Now it is very much a company with one line of business, and one that is not so strong anymore. It is possible that for political and business reasons someone acquires the company. If Baldauf and Lundmark are not willing to go for that solution, they must start the hard fight immediately for a new growth strategy.