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Friday, September 10, 2010, 06:35 am PT (09:35 am ET)

Nokia CEO to step down as company still struggles to combat iPhone

Nokia announced Friday that its chief executive will step down and will be replaced by a veteran from Microsoft, as the Finnish handset maker continues to look to create a smartphone that can compete with Apple's iPhone.

Nokia announced in a press release Friday that Stephen Elop, who is currently head of Microsoft's Business Division, will become its new CEO on Sept. 21. Elop will replace Olli-Pekka Kallasvuo, the current president and CEO, who has served as the company's head sine 2006.

In that time, Kallasvuo and Nokia failed to develop a smartphone that could challenge Apple's iPhone, and have seen their market share slip, even though they remain the largest handset maker in the world. But while Nokia retains the lion's share of overall worldwide handset sales, it is dwarfed by Apple in terms of profit.

In May, Kallasuvuo even publicly admitted that his company has failed to make a splash in the U.S. smartphone market, while Apple has taken the industry by storm with the iPhone and its digital storefront for third-party applications, the App Store. The company's best smartphones have struggled to compete in the high-end market with the likes of the iPhone and handsets based on Google's Android mobile operating system.

"The time is right to accelerate the company's renewal; to bring in new executive leadership with different skills and strengths in order to drive company success," said Jorma Ollila, Chairman of the Nokia Board of Directors. "The Nokia board believes that Stephen has the right industry experience and leadership skills to realize the full potential of Nokia. His strong software background and proven record in change management will be valuable assets as we press harder to complete the transformation of the company."

Though Kallasvuo will officially resign as president and CEO on Sept. 20, he will continue to chair the Board of Nokia Siemens Networks in a non-executive capacity. His severance package will net him 18 months of gross base salary and target incentive, totaling about 4.6 million euros. He will also be compensated for the 100,000 restricted shares of Nokia stock he was granted in 2007, which fully vest on Oct. 1, 2010.

"The whole board of directors joins me in thanking Olli-Pekka for his thirty years at Nokia, during which he has been deeply involved in developing the company and its operations," Ollila said. "His dedication and contribution throughout the years has been exceptional. The board wishes him every success in his future pursuits."

In addition to competing in the smartphone market, both Apple and Nokia are entrenched in a number of lawsuits related to patents. The first shot in the legal battle was fired by Nokia last October, when it accused Apple's iPhone of violating patents related to GSM and wireless LAN technology. It is believed that Nokia's losses in the market prompted the company to sue over the alleged use of 10 patented wireless standards in the iPhone.

Apple responded to Nokia with its own lawsuit, accusing the Finnish company of infringing on 13 iPhone-related patents. The battle of the two smartphone giants is expected to drag out for years, with both companies looking for a court hearing to be held in 2012. The U.S. International Trade Commission — the group with which the complaints were filed — has agreed to look into both Nokia's and Apple's complaints against the other.