Ina Fried

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Nokia’s Stephen Elop Talks About Microsoft Relationship, Catching Up in Smartphones

Although he had to fly several thousand miles to get to D9, jet lag is probably the least of the ailments plaguing Nokia CEO Stephen Elop.

For the past two days, the company’s stock price has been taking a beating following a dire earnings warning. On Monday, Nokia warned of problems at the high end and low end of its businesses, said quarterly sales will fall short of estimates and withdrew its forecast for the coming year.

Although the transition is proving to be a lot harder than expected, Elop did say that the company is making good progress toward its goal of having a Windows Phone on the market before the end of the year.

5:01 pm: Walt: What do you think of new Windows?

Stephen Elop: I like it a lot. Of course, Walt points out Microsoft is paying Nokia a lot.

Walt, re Elop’s hiring at Nokia: Were you a plant from Microsoft?

Elop: No, The Trojan horse theory has been well overplayed. I refer you to the grassy knoll for that one.

Walt: Not a good news week?

Stephen: No, but underscores need for a new strategy.

5:03 pm: Walt: It’s a painful transition.

Elop: It certainly feels painful right now.

Walt: And the pain is going to continue for a while. Are we talking two years of pain?

Elop: There are hundreds of millions of Symbian devices out there. Tens of millions of Symbian phones sold each quarter.

Here in the United States it doesn’t quite feel like that.

5:04 pm: Why couldn’t Symbian be the basis for the future? You get to Nokia, it’s the biggest cellphone maker.

Elop: It’s competitiveness. My assessment and assessment of the team was pace of change by Apple and others. Symbian was at a deficit in some markets. Our assessment of the speed with which we could catch up would not be enough.

“With Symbian it’s going to take too long,” Elop says, saying it was a bit “crufty.”

5:06 pm: Didn’t he know that going in?

Elop: Well, the plan was to move to MeeGo (a mobile variant of Linux).

Ended up evaluating options including MeeGo, Windows Phone and Android. Even the head of Symbian thought Windows Phone would cut time by a third.

In fairness, Android would have been similar, but Nokia might not have had as much influence.

5:09 pm: Walt: There are a lot of people selling a lot of Android phones.

Elop: Yes, but the question they had to ask was “Is there sustainable long-term differentiation with what Android is doing?” Conclusion was more opportunity for that with Windows Phone.

5:09 pm: Walt: What kind of flexibility did you get from them?

Elop: Can do a lot. That said, the key point where Nokia needs to differentiate right now is from Apple and Android.

5:11 pm: I’d like to see Samsung successful on Windows Phone.

Walt: How successful?

Elop: I’d like it to be more successful.

Walt suggests he sounds more like a Microsoft guy than a Nokia one. Elop says he doesn’t speak Finnish, but is trying to.

Elop. We need Windows Phone to be a big ecosystem. Scale is important. “We need to help drive scale.”

5:13 pm: Elop says Nokia was concerned about how much differentiation it could really bring to Android.

“I understand their issue,” he says.

But for Nokia, “We were concerned there was risk there.”

5:14 pm: Walt: How much of this is really that you are a person out of Microsoft and they desperately needed someone that would be committed to their platform first? “They needed a deal with somebody.”

Elop: “It does and it doesn’t” have to do with his understanding and relationship with Microsoft. It is true, he says, that Redmond was in the position where “someone needs to do their best work for Windows Phone.”

But, he says, Nokia was also in need of its best partner and many Nokia assets will gain exposure.

5:17 pm: Walt: Who is paying who more?

Elop: It is absolutely the case for us that it is a very positive thing for Nokia.

5:17 pm: What about rumors that Microsoft wanted to buy part or all of Nokia?

Elop. “There’s absolutely no discussion. The rumors are baseless. It is as clear as that.”

5:18 pm: As to why it doesn’t make sense, smartphones are only half of Nokia’s phone business. They sell a lot of feature phones.

“That business does not align with Microsoft’s business,” Elop says.

5:19 pm: Walt: Aren’t you losing share at the low end as well?

Elop: It is the case there is intense competition.

5:20 pm: Walt: When will Nokia ship its first Windows Phone?

Elop: On track for fourth quarter. In time for holidays would be a key goal.

Elop briefly shows a phone, but won’t let Walt look at Nokia’s Windows Phone prototype.

Walt says it could just be a piece of inert plastic.

Elop says he’s already been on record that he is carrying a Windows Phone device running on Nokia hardware.

5:22 pm: Walt: So why does Nokia have essentially zero presence in the U.S., which is a relatively rich and important market?

Elop: When you look at the challenges a lot of them are tied up directly to that. In 2004, Nokia had 30 or 40 percent of the North American market, Elop says, but then North Americans moved to flip phones and Nokia said flip phones were less important.

“A great deal of market share quickly evaporated,” Elop says.

5:25 pm: When iPhone came in 2007, Nokia was not that engaged because it had lost ground. Pendulum of innovation swung to North America.

“All of a sudden this thing takes hold,” Elop says, and the company wasn’t in a position to hear what was going on.

“I’ve changed that,” Elop says, noting a group in San Diego focused on Windows Phone with a focus on developing a product that appeals to U.S. market.

5:27 pm: On RIM, Elop says he has great respect for them and their email system.

But, he says, reiterating his past comments, “It’s no longer a battle of devices, it is a war of ecosystems.”

Google and Apple have such ecosystems. Nokia is looking to build one with Microsoft.

Walt: And RIM?

“I’ll let them answer that.”

5:33 pm: Moving on now to the Q&A.

5:33 pm: How do you balance the needs of the carriers with the needs of the consumers?

The ecosystem that we will deliver will be the most operator-friendly, says Elop, adding that Nokia has the background and history to do this without negatively impacting the consumer.

5:38 pm: Missed a few questions there due to technical difficulties. Stopping short here to hit the deadline for the livestream of the next session with Alibaba’s Jack Ma.

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