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Nokia Unveils New Smartphone

Late last year, the Apple iPhone became the best-selling deviceat Finland’s leading mobile operator, a highly embarrassing situation for Nokia, the struggling mobile phone maker that has long been Finland’s corporate standard-bearer.

So Stephen Elop, who left a top post at Microsoft last September to lead the turnaround effort at Nokia, knows that his first priority is to steal a beat on the competition and quickly get Nokia back in the game.

Nine months into the job, after a reorganization that will eliminate 7,000 jobs and the introduction of a new operating system from Microsoft, Mr. Elop has taken the first visible step in that direction.

In Singapore on Tuesday, Nokia introduced a sleek touch-screen smartphone, the N9, with a useful innovation not found on any competing device, including the iPhone and Google’s Android phones.

“It’s optimized for one-hand use,” said Marko Ahtisaari, Nokia’s head of design, whose team devised the N9, which allows users to switch between applications with a thumb, avoiding the need to return to a main menu screen or press a button, something required on both the iPhone and Android phones.

The N9, which will sell unsubsidized for the equivalent of about $670 to $760 for 16 and 64 gigabyte models, is no panacea for Nokia, which is well behind in the fast-growing market for smartphones and was leapfrogged in revenue by Apple in the first quarter. Late last month, Nokia issued a second-quarter profit warning and abandoned its 2011 outlook, a move that sent its stock tumbling more than 17 percent.

“The market is changing,” said Pal Zarandy, a partner at Rewheel, a Helsinki firm that advises operators on their mobile data strategies. “The whole smartphone data transformation is a window that will last one or two more years. Then that market will be saturated. The question is: Can Nokia and Microsoft come up with relevant phones fast enough?”

Mr. Elop, a 47-year-old Canadian who ran Microsoft’s Office products division before joining Nokia, said the alliance between the companies would deliver. The release of the N9 — which Mr. Elop said he pushed for relentlessly after he arrived — was a harbinger, he said, of a more competitive Nokia.

“It is an opportunity for us to test and to learn with the N9, but also to put a very clear statement in the market: Nokia continues to innovate, does beautiful work,” Mr. Elop said in an interview last week at Nokia’s glass-and-steel headquarters in Espoo, a suburb west of Helsinki.

“Innovation is alive and well at Nokia.”

During a 40-minute interview, Mr. Elop said Nokia was on the cusp of a productive new phase that would re-establish the company’s credibility and increase its global smartphone share, which the market research firm Gartner put at 27.4 percent in March, behind Android, with 36 percent, and ahead of Apple’s 16.8 percent. During the interview, he used the words “innovate” or “innovation” 24 times.

Aesthetically, the N9 is a quantum leap for Nokia in smartphone design, incorporating a sculptured four-inch glass screen and a polycarbonate plastic body made of solid color — cyan blue, magenta and black — so that scratches are barely visible. But beyond the features, it is the timing and strategy of its introduction that signal a deeper change at Nokia.

The N9 runs a variant of Nokia’s MeeGo operating system, a product of Nokia’s short-lived venture with Intel, the chip maker. The device was already in the pipeline when he arrived last fall, but Mr. Elop said he saw its potential and accelerated its release, working closely with his design chief, Mr. Ahtisaari, who now reports directly to him. Mr. Ahtisaari said design had a new priority at Nokia, a company traditionally run by radio engineers.

“Stephen gets design,” Mr. Ahtisaari said.

In a wood-paneled conference room flanking a row of idle Finnish saunas, Mr. Elop spoke pointedly about his efforts to retool the world’s largest maker of mobile phones to meet the challenges poised by Apple, Google and a host of Asian rivals led by Samsung, LG, ZTE and Huawei.

The saunas, one assistant said, were now used only twice a year. The company’s glass lobby, which a decade ago buzzed with visiting clients, suppliers and media people when Nokia was riding high, had only a handful of visitors on a weekday afternoon.

Nokia has gone through a bracing transition since Mr. Elop arrived last fall. The company is cutting 4,000 jobs, including 1,500 in Finland, and transferring 3,000 others to a consultant, Accenture. The moves were a consequence of Mr. Elop’s decision to phase out Nokia’s internal operating system, Symbian, in favor of Microsoft’s Windows software for phones.

Investors reacted skeptically to news of the Microsoft alliance, sending Nokia’s shares down 20 percent a day after the announcement. Then came the profit warning on May 31. Since Mr. Elop’s arrival, Nokia’s share price has fallen 40 percent. Shares closed at $5.83 in New York on Monday; they traded as high as $11.75 in February.

Mr. Elop acknowledged that the job cuts and transition to Microsoft, considered necessary to restore competitiveness, have been challenging. But he rejected criticism from some analysts who had questioned whether he could have better finessed the timing of the move to Microsoft’s software to limit any damage to Symbian.

“We are shifting a whole company,” Mr. Elop said. “There are tens of thousands of people here. What they do every day is being changed right now. And that’s not something you can do under the cloak of darkness or privacy.”

He said the phase-out of Symbian would be gradual. In fact, Nokia plans to introduce 10 new Symbian handsets over the next year, he said. Mobile operators, which are the main buyers of most handsets, continue to buy Symbian devices because they do not want to become dependent on its rivals, he said, without mentioning Apple or Google by name.

“There’s tremendous support from the operators for what we need to do,” Mr. Elop said. “They are not dropping Symbian en masse. That is absolutely not the case. It is the case that by going through a transition, it is hard. Our competitors want to attack us. That’s business. That’s O.K.”

In the midst of the battle, Mr. Elop spoke rapidly but appeared upbeat, even buoyant. He said the reason for his optimism was that the collaboration with Microsoft on smartphones was going better than he had expected. Just before the interview, Mr. Elop said, he spent two hours reviewing plans for the introduction of Nokia’s first Microsoft phones.

“This is still some number of weeks and months before that happens,” he said, adding that Nokia might unveil one or more of the first Microsoft handsets in time for the holiday season.

The first Microsoft handsets are being conceived at Nokia’s research facility in San Diego. Mr. Elop recently returned from a visit there with several working prototypes. The models have excited people within Nokia and Microsoft, he said. The two companies have combined some staff from Redmond, Wash., where Microsoft is based, and Espoo, to expedite their collaboration.

By using Microsoft’s operating system, Nokia has trimmed its time-to-market for new handsets by two-thirds, Mr. Elop said.

In view of the pending Microsoft introduction, Mr. Elop described the N9 as “one step in the journey to demonstrate that we are executing.”

Carolina Milanesi, an analyst for Gartner in London, said the N9 was a “night and day” improvement over its predecessor, the N900. “They have created something that consumers will want,” Ms. Milanesi said.

Mr. Elop suggested that many N9 innovations might be incorporated into the new Microsoft line.

Nokia’s work force is committed, he said, to taking on the competition. He invoked the Finnish word “sisu,” which he said translates into a combination of perseverance, energy and drive.



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