Technology

Nokia's Stephen Elop, Microsoft CEO Front-Runner


Nokia's Stephen Elop, Microsoft CEO Front-Runner

Photograph by Casper Hedberg/Bloomberg

Nokia (NOK) Chief Executive Officer Stephen Elop has said he typically logs about 60,000 miles of air travel a month on business trips. He presses phone companies to carry his products and attempts to buck up employees demoralized by losses and layoffs in recent years. In Finland, the 49-year-old former Microsoft (MSFT) executive has been portrayed by critics and former employees as an outsider sent to undermine a once-proud Nordic tech innovator.

Over time he’s developed a thick hide and gained experience running a sprawling organization that’s lost its way. Those are among the reasons analysts peg Elop as a top candidate to run Microsoft, which on Sept. 2 announced a $7.2 billion buyout of Nokia’s devices business, 10 days after CEO Steve Ballmer said that he will step down within the next 12 months. “Elop’s been viewed as a front-runner” even before the acquisition, says Michael Turits, an analyst with Raymond James (RJF). “Obviously, this moves him up a notch or two in the pecking order.”

As part of the buyout, Elop will rejoin Microsoft and run a new unit overseeing products including Lumia smartphones, Surface tablets, and the Xbox game console. About 32,000 Nokia employees will also join Microsoft. “He’d be a very good choice [as CEO],” says former Microsoft executive Bob Muglia, who now works at Juniper Networks (JNPR). “There’s not many people on the planet that could run a company like Microsoft, but Stephen’s probably one of them.”

Microsoft is one of the world’s most profitable companies. Yet it faces an array of challenges not all that dissimilar to those facing Nokia, which credit analysts viewed as a possible bankruptcy candidate before the cash windfall it will soon get from unloading its unprofitable phone business. The deal consummates a 2011 partnership in which Nokia took the bold step, engineered by Elop, of ditching its own Symbian mobile operating software to use Microsoft’s Windows Phone.

The aim was always to take on Apple’s (AAPL) iOS and Google’s (GOOG) Android offerings. Windows Phone still has only 3.9 percent of the smartphone market. Microsoft’s foray into the tablet market has proved disastrous. In late July the software maker took a $900 million writedown to reflect the unsold inventory of its Surface tablet.

Elop brings an unusual set of skills to Microsoft. While tech executives tend to get pigeonholed by their specialties, he’s been chief information officer of Boston Chicken and ran operations at Internet software developer Adobe Systems (ADBE) and at router maker Juniper. Elop was about to be named CEO of Juniper when Ballmer persuaded him to run Microsoft’s fabulously profitable Office division in 2007. Elop pushed the company to develop cloud-based versions of its programs—a lower-margin approach that has helped the company maintain its dominance. He was only there for a few years, “but he got a lot done,” says Muglia.

Then came the risky jump to Nokia in 2010, which had been blindsided by the iPhone and was already hemorrhaging global market share that had peaked at 40 percent in 2008. Soon after arriving in Finland (his family stayed in Redmond, Wash.), Elop decided to kill the aging Symbian operating system that ran on hundreds of millions of first-generation smartphones in favor of the tieup with Microsoft. That meant a sales plunge costing hundreds of millions of dollars in lost business since it would take the company more than six months to bring Windows Phone models to market. But Elop wanted Nokia to make a clean break from the past. He delivered the news in a now-famous speech comparing Nokia to a burning oil platform and arguing it was better to dive into the frigid ocean than go down in flames.

Nokia’s profits evaporated during Elop’s tenure, and his decision to focus only on Windows Phone remains controversial inside the company. Microsoft devoted marketing dollars to support Windows Phone devices from rivals, even though Nokia built the vast majority of compatible phones. That rankled some insiders who wondered if Elop should have also adopted Android, now the world’s leading mobile operating system, for Nokia phones, according to former employees who asked not to be identified. Nokia, Microsoft, and Elop declined to comment.

Elop’s popularity in Finland didn’t improve as he laid off 20,000 workers to slash operating costs. However, the company has managed to bring out improved products, such as the Lumia 520 smartphone, at a faster, more predictable clip, says Benedict Evans, an analyst with Enders Analysis in London. “Before Elop, Nokia made phones that nobody liked, for a platform that everyone hated. Now they make phones that most people like, but for a platform they won’t buy into.”

Now that Microsoft has acquired Nokia’s phone business, other device makers such as Samsung Electronics have far less incentive to support Windows Phone. To build out a third alternative to iPhones and Android, Microsoft will need to find a way to make its software products, such as Office and Skype, easier to use on a broad swath of devices—from no-frills $50 Nokia phones to its new high-end Lumia to tablets. “Just owning the hardware isn’t a prescription for success,” says Forrester Research (FORR) analyst Charles Golvin.

A more radical option: Give up the dream of building a powerful third platform around Windows Phone and instead do whatever it takes to get Microsoft’s other software products running on any device in the marketplace—even if it means selling Android gadgets as Amazon.com (AMZN) does, says Evans.

So far, Elop has shown no sign that he’s willing to jump from another burning platform if it means embracing Android. In July, after paying $2.2 billion to buy out Siemens’s (SI) stake in a telecommunications joint venture called Nokia Siemens Networks, Nokia told some large investors that it was thinking of shutting down the phone business altogether, says an investment banker who requested anonymity because the information is not public. That threat, along with the possibility of embracing Android, may have forced Microsoft to the negotiating table, says Evans.

While Elop may now be the leading candidate for the Microsoft CEO job, he’s not a sure thing. None of Microsoft’s directors have ever participated in a major CEO search, so they might worry about naming an executive with such a controversial record, said two headhunters who declined to comment on the record for fear of angering a large potential client. Whatever happens, Elop’s not likely to slow down. In an interview last year, his longtime executive coach, Stephen Miles, said: “The great thing about Elop is he doesn’t get down or feel sorry for himself, ever. He’s a machine.”

The bottom line: Elop is in the running for the top job at Microsoft because of his bold moves at Nokia, though the results were mixed.

Burrows is a senior writer for Bloomberg Businessweek, based in San Francisco.

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Companies Mentioned

  • NOK
    (Nokia OYJ)
    • $8.37 USD
    • 0.24
    • 2.87%
  • MSFT
    (Microsoft Corp)
    • $45.43 USD
    • 0.55
    • 1.21%
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