Key problems facing new Nokia CEO Elop

HELSINKI, FINLAND: Nokia, the world's top cellphone maker, brought in Microsoft's Stephen Elop to replace embattled chief executive Olli-Pekka Kallasvuo and lead a renewed effort to compete in the smartphone market. The following are key challenges facing Elop:

Ailing high-end phone portfolio

Nokia's long reliance on the Symbian operating system for its smartphones, while profitable given the volume of phones it produces, left it badly exposed when Apple launched its iPhone in 2007.

While Nokia remains the clear leader in terms of cellphone volumes thanks to a strong presence in countries like China, India and Indonesia, its weakness in smartphones has led to Apple becoming the most profitable handset maker.

Nokia was slow to match Apple's touch-screen technology, and has yet to cultivate the wide developer base enjoyed by both Apple and Android developer Google, giving consumers little reason to use its phones.

Kallasvuo disappointed investors in April when he said the roll-out of the latest Symbian software, a key weapon in the fight against Apple, would be delayed until later in 2010, with further upgrades pushed back to 2011.

Nokia has lacked an iconic high-end phone since launching the N95 in 2006, ceding creative ground at exactly the moment when one of the world's leaders in technology design and marketing was set to enter the market.

Implosion in US market

In the late 1990s, when Nokia made its run and passed Motorola to become the top mobile phone maker, a crucial factor was the Finnish firm's success in the U.S. market, both in terms of generating cash as well as consumer buzz.

The buzz has long gone. Now Nokia has well under 10 percent of the U.S. market, lagging rivals including Apple, Samsung and LG. Nokia lacks a presence in the world's leading media market at the moment it needs it most.

When taking the helm of Nokia in 2006 Kallasvuo made one big promise -- he would focus fully on fixing Nokia's problems in the United States, spending a week each month on the problem -- but there has been no improvement since then.

A key stumbling block for Nokia in the U.S. has been the dominance of large operators like AT&T and Verizon, and Nokia's insistence -- some say arrogance -- on designing and selling its phones without operator input.

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"Old Nokia" Leadership

The appointment of Elop removes at a stroke one of the longstanding beefs about Nokia — that the firm was long overdue bringing in fresh blood to replace the old, mainly Finnish, guard that drove the former rubber boots-to-toilet paper conglomerate to cellphone market leadership in 1998.

Board chairman Jorma Ollila and Kallasvuo had worked together since the 1980s, when Nokia started to invest more in the fledgling cellphone business and spin off non-core units like monitors, televisions, car tyres and cables.

Elop's appointment boosts the foreign content among top management. Nokia's board vice chair is Marjorie Scardino from Pearson, while on the firm's executive board there is Venezuelan Alberto Torres and American Mary McDowell.

Failed services push

One of Kallasvuo's top initiatives, Nokia's push into the higher-margin Internet business to make up for falling hardware margins has either stalled or, in some cases, failed completely.

The firm's services cornerstone, its Ovi Web site, has yet to attract the same volume of users as Apple's App store.

Its "share on Ovi" media sharing site, opened to the public in February 2008, was iced in May 2009. Gaming service N-Gage, itself the reincarnation of poor-selling gaming phones first launched in 2003, will be run down this year.

Nokia said this month that its remote file access service Ovi Files would be closed effective Oct 1.

Nokia has not disclosed data on its bundled music service "Comes with Music", which lets users download unlimited music that can be kept after a yearly contract has expired, but has said takeup in Europe has not matched its expectations.

And the firm has yet to reap the benefits from its glitziest push into services, its $8.1 billion purchase of digital map maker Navteq in 2007. In January Nokia said it would offer free navigation on its phones to try to boost sales and prices.

Exposure to the cut-throat telecom gear market

Nokia has long said its exposure to the telecom infrastructure market, first through Nokia Networks and then via its Nokia Siemens Networks (NSN) joint venture, gives it better insight into designing phones that work better on networks around the globe.

While this may be true -- Nokia phones usually rank high in terms of voice quality and the firm has a bumper crop of cellular patents -- it has come with a cost.

The market has struggled for years with reduced operator investments and tough competition from China's Huawei and ZTE.

NSN said in July it would buy Motorola's telecom network equipment business for $1.2 billion in an effort to add new customers in markets such as Japan and North America and bolster its position behind market leader Ericsson.