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Nokia after the purge: It's so unfair

What, we fire thousands and the shares go down?

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Analysis Last week Nokia did exactly what analysts have been begging it to do for years - it took an axe to the company's bureaucracy and purged the leadership. The latest 10,000 redundancies leave the company with its smallest workforce since 1998. Nokia's reward was a further 18 per cent fall in its share price. Thanks, markets.

The announcements included plant closures, redundancies, a big executive purge, and cash from the sale of Vertu. It also included the acquisition of assets - presumably IP - of imaging company Scalado. This should have been better received, you might think.

The reason is that Nokia began to step back away from one of the three burning platforms identified by Elop last February. It no longer looks like Nokia has the appetite for a fight in all segments of the mobile phone business, from low-margin high-volume Asian markets, to mid-range touchscreen phones, to high-end smartphones.

The axe swung through Meltemi, an unannounced Linux-based successor to S40, and Qt, with Smartphone staff redeployed to beef up S40. What's left of Qt, acquired with the company Trolltech, could still be spun out, but it won't amount to significant money – perhaps at most a tenth of the €200m received for blingphone manufacturer Vertu.

But did Nokia have any choice - and is this a bad thing?

None of the old Tier 1 manufacturers play in the feature phone market anymore: Motorola and Sony (as Sony Ericsson) have already stopped. If Nokia insists on competing here it needs to do so from a low-cost base – the value will come from bundling Maps and other assets into the phones. Smarterphone was an excellent acquisition, but presumably porting applications like Maps (which are already on S40) to the new platform was considered too slow and expensive. As we wrote here on Thursday, Nokia now doesn't have any indigenous platform software capacity beyond S40 – it is now utterly dependent on Microsoft and Microsoft's execution.

It's worth remembering that Apple was in a similar crisis for three years in the mid-1990s, posting huge losses. In that period Apple marketed an Apple camera, called QuickTake, an Apple set-top box, and lots of Apple laser printers. People forget all these now – and tend to remember only the hugely expensive, technically advanced tablet that few people wanted, the Apple Newton. To save the business, Jobs cut the non-core product lines. Elop is doing something very similar.

But as I wrote here two years ago, shortly before Elop's appointment, Nokia doesn't have such a luxury. At the time, Apple served important print markets in which specific skills, and many suppliers and service companies were Apple-based. In the consumer market, migrating away from Apple was a pain. And the purchase cycle in these markets was several years. Nokia, on the other hand, is entirely a consumer business in which switching away from the platform can be done painlessly every 24 months: or even in an instant.

This is not to deny the enormous cost on people and communities of the job losses. The newspaper Helsingin Sanomat carries a report on the impact on Salo – a Nokia town. It isn't pretty.

Elop has by several estimates until the end of 2013 before Nokia runs out of cash. If he fails, it will be because Nokia's board didn't institute radical change in 2007, change that would have nipped the later, explosive growth of Android. It certainly had the raw materials to do so, Qt was part of that, as well as the scale and reach. Many commentators who insist that Nokia needs to compete in the midrange simply underestimate how competitive the Asian handset market is. Elop spelled it out in the Platforms memo, the parts no one likes to quote.

Nokia is by some distance the most important and accomplished European technology company – and it still remains so today. But the margin of error for execution is now almost zero, and much of that is out of Nokia's hands. ®

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