This is the question that Nokia investors should be asking. But since they haven't, I've taken it upon myself to press the issue on their behalf. That Nokia still enjoys unmitigated loyalty from investors has been a great source of aggravation for me, especially when trying to grade the performance of the company's CEO, Stephen Elop.
Elop Was Not the Savior He Believed He Was
The argument in Elop's favor that has been constant among Nokia loyalists is that the company still has "a decent chunk" of the overall phone market. But what exactly does that mean? Speaking of bad CEOs; both Dell and Hewlett-Packard still have "decent chunks" of the overall PC business. But Dell wants to plant its face into the ground, while HP is not expected to show any growth until 2014.
The similarities with Nokia is that Dell and H-P have been hemorrhaging market share for years. The difference is that Elop has made Nokia's situation much worse than when he was handed over the keys. Did Nokia have underlying fundamental struggles? Absolutely. The company's Symbian mobile operating system was uninspiring and posed no threat to (at the time) BlackBerry and Motorola.
So I'm not debating the fact that Elop's predecessor, Olli-Pekka Kallasvuo, didn't deserve to be fired. But it's incorrect to suggest that Nokia (although on the decline) was already dead when Elop took over. But that didn't stop Elop from speaking as if he was the savior. When he first took the podium at his press conference, he said:
"My job is to take the organization through a period of disruption and ensure that we are meeting the needs of customers while delivering superior financial results."
While that statement is pretty much a carbon copy of what every new leader says, I took issue with the fact that Elop wasted no time throwing is predecessor under the bus by criticizing how the company was "painted into a corner." Today, Nokia is not exactly a work of art, either. And speaking of claustrophobia, Elop's biggest gaffe has been his regrettable decision to tie Nokia's fortunes to the fate of Microsoft , which at the time had its own battles with execution.
Are Things Any Better Today?
Although he arrived on the scene with a lot of "bark," Nokia (at the time) was still the world's largest mobile phone maker -- by a significant margin. I don't believe that he's made any improvements. In fact, with the help of Microsoft's failing Windows OS, the current state of Nokia is worse than where the company was three years ago.
Not only was the stock price at $10 when Elop took over, but Nokia still had 37% of the smartphone market share, according to research company Garner. Fast-forward to three years later, the Street is still waiting for Elop's "big bite." Today, Nokia's stock is at $3.61 after bottoming out at $1.63, or falling nearly 85% under Elop's watch. Meanwhile, according to Gartner, the company's global phone market now stands at 14.8% after dropping an addition 5% in the first quarter of 2013.
What this means is that Elop's decision to restore Nokia's global reach by entering the so-called "smart feature phones" have failed miserably. Nokia's Asha line, which the company was banking on as a cheaper alternative to Apple's iPhones and Samsung's Galaxy model, have not sold well. Even gloomier is the fact that Nokia's Lumia line, of which the Lumia 925 was launched recently to uninspiring reviews.
In fact the stock dropped almost 7% following the release. Although shares have rebounded slightly since then, it doesn't seem as if the flagship phone is going to help Nokia turn to profitability as quickly as Elop expected. What's more, according to Gartner, consumers are not replacing their phones at a pace that supports Nokia's growth efforts in emerging markets such as Africa and India.
In fact, not only did phone volumes fall 21% year over year in the recent quarter, worse is the company's device operating margin, which now stands at an abysmal minus-1.5% after a 32% drop in device revenue. When Elop arrived, device margins were in the high single-digits. Elop's response regarding eroding market leverage has been to cut more costs. But when has this strategy ever worked? Companies that are competing for market share have to spend to grow -- they don't save their way into more sales.
Fixing Nokia With or Without Elop
Equally egregious is that Elop seems stubborn in the idea that Windows remains what's best for Nokia. This is while he's ignoring the winning formula laid out by Samsung which has soared to the number one spot in worldwide sales -- thanks (in part) to the global adoption of Android. Elop's resistance to change is unforgiveable. Yet, Nokia investors insist on being patient. That's all well and good. But patience has its limits.
I will excuse the notion that Elop couldn't anticipate that marrying Microsoft was going to paralyze Nokia against Apple iOS and Google's Android, which now holds more than 70% of the global mobile market share. But what's the excuse today? Clearly, Windows Mobile is not the future. Nokia should call Google today and inquire about converting a couple of its phone models to Android.
This will give Elop the latitude Nokia needs to offset weakness in Windows. Until then Nokia won't even be able to compete against BlackBerry, much less Apple and Samsung. As much credit Elop deserves for the bottom-line improvements by virtue of the cost-cutting, the top line is where it matters the most. And it's that Nokia start operating again as a tech company, and not as a company that is preparing to sell itself by fixing its books.
Nokia bulls will likely argue that I'm being too hard on Elop. I will admit that this situation is not entirely his fault. Although he has mismanaged several critical opportunities, Nokia's board, which decided to go the "safe" route with Elop as CEO, deserves as much of the blame. Instead of a "safe pick," the board failed its investors by not making a "courageous pick" as Yahoo! demonstrated with Marissa Mayer.
In the meantime, Nokia investors have to wonder how long the company can survive given the rate at which its global market share is still eroding. Nokia's first quarter earnings report highlighted Elop's best asset -- he's a great CFO, nothing more. That's not what Nokia needs. While the company's cash flow is certainly improving, Nokia is still spiraling out of control.
As much as I've wanted to like Nokia's prospects as a good turnaround candidate, it doesn't appear as if this is a story that's going to end well unless the company finds a risk-taking CEO with a chip on its shoulder. I believe Scott Forstall is available. Don't you think he has an axe to grind with Apple?
At the time of publication, the author held shares of Apple.
This article was written by an independent contributor, separate from TheStreet's regular news coverage.