Nokia CEO Stephen Elop: We'll spend to break through (Q&A)

On the eve of launching its Nokia Lumia 920 smartphone with AT&T, CNET sat down with Nokia's CEO to talk rivalry, Nokia's challenger mindset, and making it in America.

Nokia CEO Stephen Elop speaks with CNET October 2012
CEO Stephen Elop speaks with CNET about Nokia's strategy for taking the U.S. by storm. Josh Miller/CNET

Nokia CEO Stephen Elop knows that the U.S. is a clutch market for Nokia's revival, and competition is only getting hotter.

With the Nokia Lumia 920 coming to AT&T -- and apparently only AT&T -- Nokia will have to work even harder to battle Android and the iPhone on multiple carriers apiece, while also fending off HTC, whose lookalike HTC Windows Phone 8X will also flood the market on three providers.

Earlier this week, I sat down with Nokia CEO Stephen Elop in San Francisco to dive into Nokia's strategy for breaking through.

Q: What does it mean for Nokia that HTC has devices that are very similar in a lot of ways, plus actually have the Windows Phone name as if they're representative of Windows Phone?

Elop: So, anyone can call their devices "Windows Phone." So, we could call our devices "Windows Phone." But what we did was we established the "Lumia" name for this family of products, because Lumia does signify that we've been able to go a step further than the standard spec with Windows Phone devices.

If you look at competitive devices -- you know, standard hardware platform, standard implementation of the software and everything -- what we've been able to do with the Lumia products is go a big step beyond...whether it is the optical image stabilization, wireless charging, navigation capability, City Lens -- those are all examples of capabilities that we have above and beyond Windows Phone.

Right, so those are extra software features.

Elop: And hardware. For example, the camera capability of having a floating lens that offsets the shaking of my hand when I'm taking a picture, those are unique hardware capabilities that we've introduced with these products that really signify how much [more closely] we are working with Microsoft to actually deliver these products.

Potential consumers, what is supposed to keep them from getting confused about [HTC's] Windows Phone experience versus Nokia's?

Elop: In the store, whether it's taking a picture, or navigating, or talking about the size of the battery, or any of those types of things, our device will stand out as the premium experience. And I think that's what's going to be really important to us going forward, to make sure that in that retail environment, that story is being told.

HTC Windows Phone 8X, Nokia Lumia 920
If it weren't for the branding, could you tell these phones apart? CNET

But it just isn't obvious. You know, when you look at it you don't see the springs surrounding the camera lens. You see the body of the phone.

Elop: I think what you will see in the stores, for example, is an experience to say, "Look how much better the photography is." So you'll see us in retail execution making sure that that message gets across.

By the way, it isn't just to differentiate from other Windows Phone products; remember the real competition is not there. It's with Android and Apple, so we've got to get that message across, which is why already you see us doing a lot of work, to say, "Hey, here are the pictures from the Samsung device, here are the pictures from the Lumia device. Compare and see for yourself."

So will Nokia pursue any legal action against HTC for similarities?

Elop: We don't comment on specific legal things like that. Always we make sure that our trademarks, our intellectual property, and designs are protected, so we do that routinely. But I think also when people see the quality of design, the fit and finish, and so forth, copying is one thing. Doing it correctly is something very different. We're very proud of what we've done with these devices.

Nokia has said in the past that you'll spend whatever's necessary to do whatever's necessary to create success in the U.S. What is Nokia's strategy for becoming profitable in the U.S.?

Elop: Smart devices [are] an area which is our principal investment area. You see that financially this is where we are deliberately spending appropriate amounts of money to break through. Now the U.S. market, to take it a level deeper, is very much focused on the smartphone side of it.

...But we look at the U.S. market not only for specific profit and the economics of doing business in the U.S., but also because it's a signaling market for the rest of the world. Having strength in the U.S., making progress in the U.S., is something that is looked upon elsewhere in the world. So part of our calculus is that it's very important to invest well in the United States, to show signs of success, to show growth, so that over time the rest of the world says, "Ah, we see this as a trend."...It's really important to us worldwide.

Nokia's wireless charging options
Nokia hopes that wireless charging will help differentiate its NFC devices. Josh Miller/CNET

There's been talk of not carrying on with the [stock] dividend. Is there any truth to this?

Elop: The way that works at Nokia is that in the early part of each calendar year the board of directors reviews it, makes a series of recommendations, and then in the April-to-May time frame when the shareholders meet, they decide when dividend is paid. So any speculation or commentary on dividend is just that at this point, because that sequence doesn't begin until the early part of next year.

Would Nokia consider pulling the dividend to keep cash close at hand?

Elop: The board will look at the financial conditions of the company at the time, expected cash requirements in the time ahead, expectations of shareholders. They'll put all of those things together. Any possibility is an option for them. People making or generating stories now, however, are doing that based on no information, 'cause that only happens at the beginning of the year.

I've heard numbers of $300 million dollars per month for 'spend.' Is that accurate?

Elop: If you look at spend, what we are doing from an OpEx [operations expenditure] perspective...is that we have provided guidance that we're reducing that spend over time to an annual run rate of $3 million euros. So that's the trajectory that we're on and we're bringing expenses down steadily. I can't give you specific comments, because we're in Quiet Period. Our earnings are coming up and so forth, but if you look at our previous results, you'll see that we're bringing our OpEx spend levels down.

Here in Silicon Valley we've noticed a reduction in workforce for Nokia. Are there more layoffs to come?

Elop: We've announced a whole series of restructurings. [There have] been layoffs, [there have] been some adjustments to factory capacity and things like that, specifically designed to get the spending levels to the right level. At the same time, here in the U.S., actually in a number of areas, for example, in our Sunnyvale [Calif.] facility, we've been hiring people because [there are] new projects and new efforts under way. In areas like San Diego, for example, we have done some significant investments there because that's one of the principal areas where, for example, the Lumia 920 work is done.

Wireless charging dongle connects other phones to the charging pad.
The wireless charging dongle, connected to a Lumia 900, powers the phone from Nokia's charging pad. Josh Miller/CNET

What can we expect in terms of marketing campaigns for holiday?

Elop: When you launch new products in markets like the U.S., you have to spend behind it. So I won't provide details on spending and so forth, but you will see campaigns of marketing done by us, done by Microsoft around Windows Phone, and done by operators to support the whole effort...you'll see a full-on press as we go into the holiday season, with these devices.

Microsoft has been criticized for not taking a more proactive role in-store. What is Nokia's role in-store in promoting your devices?

Elop: We have the primary role in retail execution with our devices. While Microsoft will help with this and work on this as well, it will be Nokia people, or people under Nokia contract, who are the principal people doing training, doing in-store support, to make sure that our devices are well-represented...There are teams of people in the United States right now who are ready to go into operator stores -- and other retail outlets -- to help people best expose the Windows Phone products, to help them understand how best to present them, which features are important, and so forth...This is a really important time for us, so we're encouraging all employees to actually engage in this and help us communicate these messages.

What happens if in the U.S. sales are lukewarm? What if it's not the hit that's expected?

Elop: Well, always what we do is study: What are the issues? What's slowing it down? What are the barriers? What changes do we need to make? You just iterate and iterate and advance the cause. From the 900 in the U.S., from the 800 and 900 elsewhere in the world, we've learned lots of things that we could be doing better, and we just keep learning and pushing forward. In all of these cases, having that tenacity, that desire to win, to keep pushing, that's what you have to do. Have a clear strategy, execute against it, do the fine-tuning that's necessary as you go, but just keep charging forward.

So what is Nokia's clear strategy?

Elop: Our clear strategy, if you go all the way to the highest level of our strategy, you talk about three pillars. The first is the smartphone strategy: winning with Microsoft around Windows Phone. The second is our mobile phone strategy: connecting the next billion people to the Internet.

And then a third pillar of our strategy is something we call future disruptions, the things we're doing in the labs which define the next steps in terms of devices and experiences that will differentiate. Supporting all of this, the location-based services...The final piece of the strategy, which is really important, and this is something we're doing a lot of work on, is changing the way we operate as a company.

This is about changing culture, changing urgency, increasing the attention to detail, like I'm really focused with the entire leadership team on changing the dynamics within Nokia. And you can feel that as you travel around the world. It's shifting from the largest phone manufacturer for a number of years to a challenger mindset, and having to operate with that challenger mindset.

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