Update Nokia (NOK)

09/15/2010 3:49 pm EST


Jim Jubak

Founder and Editor, JubakPicks.com

It’s a first step, but only a first step.

On September 10, Nokia (NOK) named Stephen Elop to replace Olli-Pekka Kallasvuo as president and CEO.

In Kallasvuo’s four years at the top of the company, Nokia lost market share to Apple’s (AAPL) iPhone and other smart phones as the company seemed unable to bring a competitive phone to the consumer market. He pushed the company to develop services such as music downloads and GPS navigation but couldn’t gain much traction against Apple and Google (GOOG) in the services segment.  Nokia trades at roughly 15% of its 1999 peak market value.  The shares are down 60% since Apple’s 2007 introduction of the iPhone.

Elop, a Canadian, will be the first non-Finn to run Nokia. He was most recently at Microsoft where he headed the unit responsible for Office. Before that he was chief operating officer at Cisco-competitor Juniper Networks (JNPR). He was CEO of graphics software company Macromedia before it was acquired by Adobe Systems (ADBE).

How good a pick is Elop considering that Nokia’s biggest needs are in developing software and apps stores to compete with Apple and Google, and coming up with as smart phone that will create some consumer buzz? He’s an engineer by training although his stints at Microsoft and Macromedia do give him software expertise. The biggest hole on his resume, though, is the lack of consumer experience. Nokia has had difficulty in addressing the shift in the smart phone market pioneered by Apple’s iPhone from technology to design.

Elop officially takes over on September 21 but he hit the ground running, delivering the closing address at Nokia ‘s annual Nokia World event this week in London. The company showed off its new line of high-end smart phones including the touch screen N8 and tried to woo developers to its phones.

At the least, though, Elop’s background seems a good fit with Nokia’s need to keep up with Research In Motion’s (RIMM) Blackberry in the corporate customer market where the ability of a phone to integrate with a company’s computer and email systems counts for more than a hot design.

Don’t underestimate the magnitude of the turnaround job that Elop faces. Nokia’s share of the smartphone market fell to 37% in the second quarter from 45% in the second quarter of 2009, according to market research company Gartner. In July Nokia said its operating margin could fall to as low as 7% in the third quarter. In the third quarter of 2009 the company showed an operating margin of 12%.

Nokia is a member of my Jubak Picks 50 long-term portfolio (http://jubakpicks.com// ).

Full disclosure: I don’t own shares of any company mentioned in this post in my personal portfolio.
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