July 20, 2010 / 10:08 AM / in 7 years

Nokia jumps on hopes of CEO change

HELSINKI (Reuters) - Shares in Nokia jumped on Tuesday on news that the world’s top cellphone maker has sent out headhunters to find a replacement for Chief Executive Olli-Pekka Kallasvuo.

Kallasvuo, who turned 57 a week ago, has spent more than half his life at Nokia but analysts say Nokia has been slow to innovate amid an explosion of feature-rich multimedia gadgets like the Apple iPhone and devices based on Google’s Android operating system.

Two industry sources told Reuters on Tuesday that Nokia is now actively looking to recruit a replacement for Kallasvuo.

Earlier the Wall Street Journal had said Kallasvuo, called just “OPK” in the company, may be ousted as soon as the end of July. The firm has already been rocked by two profit warnings and a management shake-up this year.

“There is a spark of hope that changes are coming, not only personnel changes, but also strategic changes,” said Sami Sarkamies, an analyst at Nordea in Helsinki.

“If true this is a good move. My feeling is that OPK has lost the confidence of investors and a change would be the best thing for Nokia,” Gartner analyst Nick Jones said in a note.

The shares closed 2.2 percent higher at 6.92 euros ($8.94) in Helsinki on a falling market, with the Stoxx 600 European technology sector index down 0.9 percent. The shares were trading at $8.91 in the United States at 1739 GMT.

Nokia declined to comment.

Kallasvuo, a former company lawyer and chief financial officer who married a veteran Nokia attorney, has come under attack from shareholders this year as the stock price tanked. Shares in Nokia have wallowed at levels last seen in 1998.

“Kallasvuo is a bad communicator in a world where his competitors are Steve Jobs, Eric Schmidt and Steve Ballmer,” said John Strand, founder and chief executive of telecoms consultancy Strand Consult.

“He is good at selling phones, but bad at selling the Nokia story,” Strand said.

Analysts said investors would likely welcome a high-profile hire from a U.S. company like Google, Apple or IBM.

“It’s got to be external to make shareholders happy,” said Matthew Thornton from Avian Securities. “I think you need somebody with three things: a strong software background coupled with consumer experience and large organization experience.”

Nokia has rarely picked outsiders to run the group. The highest position a non-Finn has ever reached in the company is CFO -- the post held for years by Rick Simonson, who was highly respected on Wall Street.

LOOKING FOR U.S. LEADER

The Wall Street Journal said Nokia had approached two U.S. technology executives who had turned down the offer.

“Finding a U.S. CEO willing to move to Finland is going to be tough. Nokia hasn’t traditionally paid massive compensation packages required for taking such punishment,” said Tero Kuittinen, analyst at MKM Partners.

“It’s not obvious why Nokia would implement the elaborate reorganization move of May just ahead of changing the CEO -- the timing here looks a bit odd,” Kuittinen added.

The May reshuffle of Nokia’s top management team took effect only from the start of July.

Nokia Chairman and former CEO Jorma Ollila said at the company’s annual general meeting in May the board backed management strategy to push into Internet services at a time when some investors said Kallasvuo should go.

One of Kallasvuo’s top initiatives, Nokia’s more than $10 billion push into the higher-margin Internet business to make up for falling hardware margins has either stalled or, in some cases, failed completely.

“What they really need to do is get a leader that is not steeped in old telecom,” said Umesh Ramakrishnan, an executive for recruitment firm CTPartners.

TOUGH 2010 AFTER TOUGH 2009

Nokia will be one of the few to miss profit growth in 2010, the year of economic recovery, and software problems continue to haunt its smartphone lineup.

Kallasvuo’s total pay leapt 32 percent in 2009, a tough year for shareholders when the company’s share price slid 20 percent.

Nokia’s revenues fell 19 percent last year, while operating profit dropped 76 percent. The value of company’s brand -- one of its key assets -- dropped 58 percent in just one year, according to a global study by Millward Brown.

Analysts say Nokia’s market share position could weaken further in coming months.

Nokia warned last month its second-quarter sales and profits at its key phones unit would come in weaker than expected -- its second profit warning in less than two months.

Nokia is expected to post a 27 percent fall in second-quarter underlying earnings per share when its reports on Thursday, July 22.

Texas Instruments said overnight that weaker-than-expected orders from one mobile phone customer, identified as Nokia by some analysts, caused second-quarter revenue to miss Wall Street forecasts.

($1=.7739 euros)

Reporting by Tarmo Virki and Terhi Kinnunen in Helsinki, Phil Wahba in Los Angeles, and Sinead Carew in New York; Editing by Samia Nakhoul, Greg Mahlich

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