Wednesday, 5 September 2012

A terrible confession (which involves Nokia)

Time to come clean

I've got a confession to make.

For the last two months I've been doing something very, very shameful.

Something which you may find just that little bit weird.

Something actually a little perverted.

I've been using a Nokia phone.

And not just any phone. Not a Windows Mobile-powered Lumia. Not even a trusty old 6300.

It's a Nokia N9.

Eight mobile phones... So why this one??

Now let's get a few things clear first - this isn't entirely voluntary. My Motorola Atrix is currently in drydock (literally) while I repair it from water damage (note to self - stop reading Wikipedia on your phone in the loo). My Xperia Mini Pro is still working but the battery life leaves something to be desired (the keyboard is lovely), plus I'm waiting for the Ice-Cream Sandwich update (hurry up O2!). The previous year's Xperia X10 Mini was bricked by a failed attempt to upgrade the radio firmware. And my ZTE Blade (the best £99 phone EVER), iPhone 3G and Nexus One are currently out on loan to various people. Oh and I think there's also a Nokia E71 in the drawer somewhere I always mean to give to charity (a phone which amusingly won a clutch of smartphone-of-the-year awards ahead of the iPhone 3G).

But I have to say that the Nokia N9 - which I picked up on a whim in Australia (one of the few countries where they actually released it) is actually a stunning little device. The OS (Nokia's stillborn Meego platform) is wonderfully minimalist. It syncs to GMail, Hotmail and Google Calenders passably well. Now lets be clear the OS gets bouts of sluggishness most days, syncs randomly, and has an APp Store which makes Blackberry App World like Wal-Mart. But overall its a perfectly decent device, even getting into late 2012.

Which just goes to show that Nokia haven't quite lost it yet. They are still masters of hardware design (I rate this phone as by far the best physical smartphone device released in 2011). Their software, when its not being horrible, displays a fresh Nordic minimalism. And despite having had his share-price hammered on his watch, I have been highly impressed by Stephen Elop whenever I've seen him present. He gives thoughtful answers to tough questions. Like Obama I think there's a genuine debate to be had about how much his organisation's lamentable performance is his fault or his predecessors.

Which leads me onto today's subject, Nokia and today's Lumia launch.

Funky phones and falling knives

Mention Nokia to any European investor and you are met with a grimace, a shake of the head and (if they shorted it on the way down) a chirpy little grin. I've written before about their numerous crimes against common business sense. Let's just say the stock has been the archetypal "falling knife" over the last few years - just when you thought it had bottomed out and reached a valuation floor the damn thing falls by another third.

So the damn thing's only gone and doubled in the last month (low volumes and option-hedging to blame), but don't get too carried away. That was only after it had fallen 95% first.

But anyhow Nokia are likely to be back in the news today with the launch of their new Windows Phones, the Lumia 820 and the 920. And actually hardware-wise these look like very very nice devices. As with my N9, they show that despite having the corporate reflexes of a brotosaurus, they actually have some great design chops. If you can live with the canary yellow, these are some coolly luscious hardware designs:

So its worth sitting back a moment, thinking about what might have been and wondering over Nokia's hidden value.

Word's you don't associate with Nokia very often...

Now "hidden value" (or in fact "value") aren't words you associate with Nokia very often, but with the stock trading down so much its worth thinking about a few of the things they have hidden in the attic.

  • Patents: The Apple Samsung trial showed the value of patents for all the world to see. And the good news is that having been at the cutting edge of mobile R&D for decades; remember their 2011 R&D was over 3x that of Apple (which only goes to show... :-p ). To be fair many of these will be dry technical patents which aren't going to play well in an Apple-esque jury trial. But patent arsenals are patent arsenals (that's why Google bought Motorola). A counter-factual - if Samsung had Nokia's patent arsenal to fight back with would they have lost out to a $1bn fine? Hidden value indeed.
  • The only company both Microsoft and Apple want to succeed: The other irony of the Apple-Samsung trial was that it was clear that Nokia was the one company Apple would love to succeed in smartphones, as any success would likely be at the expense of Android in the lower-end of the market. It was interesting to discover that Microsoft and Apple have happily cross-licensed the patents used to trip up Samsung. And charming to have Apple holding up Nokia as a paradigm of non-infringing industrial design. Hey, that's got to be worth something.
  • Navteq: Years ago I heard Alain de Taye (who founded the digitial mapping company Tele Atlas) giving a talk where he expounded about the value of the digital map. And though time has passed he had a point - to offer any mobile location-based services at the end of the day you need the map. Now that's not to say the $8bn price tag Nokia paid was financially nuts (if you want a chuckle check out the valuation discussion from page 38 of this filing - particularly the terminal growth rate assumptions on the DCF. Full disclosure - I was working at Merrill Lynch at the time, but thankfully on a different continent and different side of the Chinese wall from this lot). But rather than when people are wary of using Google's maps, alternative map vendors such as Navteq have value - witness how Microsoft are now using Navteq maps and Amazon may follow.
  • Great design: What I said before. Shame the software takes so long for Microsoft to sort out (WinMo has been too slow running with a 12 month update cycle - note how Android ran a 6 month update cycle in the early fast-follower days).
What else does Nokia have in its ammo rack? Manufacturing scale (at least in the plants they haven't closed down), a net cash balance (albeit with cash burn hanging over it), direct distribution in emerging markets like China and India (although also the ones where consumers have a lower disposable income than the West), the goodwill of telco operators (more competition amongst handset vendors strengthens their hand in negotiations). Okay nothing you'd get out of bed for.

To sum up I think Nokia have been doing their damnest to torch their business for about five years now. But ironically in a world of empires and eco-systems they are the one company that no-one really wants to fail. For Microsoft they are an essential partner. For Apple they are a stalking horse versus Android. For Google and the other handset guys they are such an irrelevance that they don't care. For the telco operators they are a nice hedge. Even Amazon may want their maps. While Apple and Samsung are tearing each other's throats out, Nokia are the tech equivalent of Switzerland.

Now that's got to be worth something...


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