Elop-sided argument – How might Nokia be faring if Stephen Elop had never been its CEO?


Jamie Lowry

Jamie Lowry

Fund Manager, Equity Value

‘Elop in Espoo’ is not a cryptic crossword clue but our suggestion for a commemorative statue and its location. Much as we enjoy taking contrarian positions here on The Value Perspective, however, is the argument that Nokia should honour its controversial former chief executive Stephen Elop by erecting a statue of him outside its headquarters in Finland’s second largest city pushing it, even for us? 

We do not think so – and we will explain why in a moment. First though, let’s recap the last five years or so of Elop’s career to illustrate just why, now he has more time on his hands having recently retired after a second stint at Microsoft, he may not be rushing to spend very much of it back in Espoo or indeed anywhere else in Finland. 

In September 2010, Elop left his position as head of Microsoft’s Business Division to become CEO of Nokia, in the process becoming the first non-Finnish director in the company’s history. At that point Nokia’s share price stood at around €8 (£5.66) but it was about to embark on a period of volatility that would see it fall as low as €1.40 in July 2012. 

The first sign all was not rosy in Espoo came a few months after Elop took over, when an internal note he had written to employees was leaked to the press. Now known as the ‘Burning platform’ memo, it suggested Nokia’s position in the smartphone market was akin to standing on a burning oil platform and, while he may well have had a point, this view did not win Elop many friends in the company. 

Nor did a number of his subsequent decisions, including the introduction of a range of lower-priced phones and the controversial ditching of Nokia’s in-house mobile operating system ‘Symbian’ for Microsoft’s ‘Windows’ offering. At the time, plenty of commentators argued the dominant ‘Android’ system should have been chosen, with some going so far as to portray the move as ‘the death of Nokia’.                                                                             

Then, on 3 September 2013, with the company’s share price now trading at a little under €3, it was announced that Nokia had agreed to sell its entire mobile phone handset operation to Microsoft for $7.2bn (£4.6bn) and that Elop would stand down as chief executive to return to his former employer as executive vice-president of the Microsoft Devices Group. 

So, given all that and with Nokia’s share price having hovered between €6 and €7 over the last 12 months, why would we be suggesting Nokia start pulling together a shortlist of Finland’s finest sculptors? Well, using the ‘alternative histories’ approach Nassim Taleb introduced in Fooled by randomness, let’s imagine for a moment that Nokia had not sold its handset arm to Microsoft. 

Much of the rest of this piece is, by definition, speculation but we do know a couple of facts for certain. One is that, as we just mentioned, Microsoft stumped up $7.2bn to buy Nokia’s handset operation in September 2013 while another is that, only last month, Microsoft announced it was writing down the acquisition value of that deal by $7.6bn. 

In other words, in the less than 18 months since the deal was completed, Microsoft has managed to write off the entire purchase price – plus a bit more into the bargain. That is quite some achievement and, to our eyes, suggests the acquisition may not have worked out quite as successfully as Microsoft might initially have envisaged. 

Back in 2012, there were some intense discussions within The Value Perspective as to whether a price of between €1 and €2 a share represented good value for Nokia – the argument against generally taking the line that the company’s handset operation was a cash-burner and had the potential to bring the rest of the business down with it. 

At the very least, we can see the handset arm has not delivered the kind of performance Microsoft was hoping for, which might be seen as indicative of some kind of cash strain. Add into the mix the €1.5bn ‘financing line’ Microsoft made available to Nokia as part of the deal – irrespective of whether or not it actually completed – and the implication is that Nokia was in more financial distress than it appeared. 

That was certainly our view at the time, when we noted in Digging into the detail: “With most pundits reckoning Nokia got a good price from the Microsoft deal, clearly it has not only been an eventful summer but also a profitable one for the company. It is not unreasonable to infer from the €1.5bn funding line that Nokia may have needed it to be.” 

Not that this has prevented Elop from being the target of some ferocious criticism in the years since the deal – not to mention the subject of some fairly elaborate conspiracy theories, the central theme of which is that he was acting as some kind of ‘Trojan  horse’ for Microsoft. Even if this were true, of course, Microsoft would presumably have mixed feelings on how things panned out. 

Elop has actually addressed this point on a Nokia forum, saying: “As for the Trojan horse thing, I have only ever worked on behalf of and for the benefit of Nokia shareholders whilst at Nokia.” Here on The Value Perspective, we would not disagree with that assessment, which arguably holds true even in the context of Elop’s controversial Symbian v Windows v Android decision. 

After all, in the subsequent four years or so, Apple and Samsung – the two leading manufacturers of phones that use the Android operating system – have between them accounted for more than 100% of the sector’s profits. In other words, everybody else has lost money so it is a very long way from being certain that Nokia would have been better served by choosing Android over Windows. 

All things considered, it looks as though an Elop-less alternative history could have been very bleak indeed for Nokia and its shareholders. ‘Pace with chicken then pole-vault to reason Nokia still exists? (7, 4)’ – now that is a cryptic crossword clue. 


Jamie Lowry

Jamie Lowry

Fund Manager, Equity Value

I joined Schroders in 2004 as an equity analyst in the European Equity Team initially specializing in the Industrial sectors before moving on to Consumer-based companies and finally Insurance. In 2007, I became a co-manager on a fund investing in undervalued European companies and took on sole responsibility for the fund in May 2010. Prior to joining Schroders, I worked at Hedley & Co Stockbrokers and Deutsche Asset Management as a trainee analyst.

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