Nokia’s Stephen Elop: Next Microsoft CEO? Having Left the Software Giant After Running the Company’s Profitable Business Division, Elop Returns a Bit of a Hero

Updated September 3, 2013, 10:37 a.m. ET

Nokia’s Stephen Elop: Next Microsoft CEO?

Having Left the Software Giant After Running the Company’s Profitable Business Division, Elop Returns a Bit of a Hero

JOHN D. STOLL

After three years of trying to repair businesses that proved to be unfixable, Nokia Corp.NOK1V.HE +33.94% Chief Executive Stephen Elop is back at Microsoft Corp.MSFT -5.60% to help shape the legacy of the software giant’s longtime boss, and potentially take his job. Nokia on Tuesday announced the $7 billion sale of an ailing handset business to Microsoft, ending several months of discussions between Mr. Elop and Microsoft Chief Executive Steve Ballmer. The negotiations were the subject of dozens of boardroom deliberations on both sides of the Atlantic.Nokia shareholders and many in Finland applauded the move. Shares traded up as much as 48% amid sentiment that it is the best solution for a mobile-device operation that already relied heavily on Microsoft Windows technology.

It is a stark reversal to the chilly reception Mr. Elop has recently weathered in Helsinki, where some had taken to calling him “Stephen Eflop.”

Having left Microsoft after running the company’s profitable business division, Mr. Elop returns a bit of a hero. He was the only executive in the global handset business to exclusively use the Microsoft mobile platform and Nokia now sells nearly every Windows phone that is sold world-wide.

The table is set for the 49-year-old executive to help Mr. Ballmer pull off an ambitious plan and, in the process, win respect in Microsoft’s board room as its directors search for a new CEO.

In an interview Tuesday, Mr. Ballmer said the public shouldn’t read too much into what the deal means for Mr. Elop’s future, but acknowledged his longtime associate has gone from being an external candidate to an internal candidate.

The immediate goal is to work hand-in-hand with engineers and marketing staff at Microsoft to put the pieces in place to truly compete with rivals. The executives are eager to develop a legitimate third ecosystem capable of taking on players like Samsung Electronics Co.,005930.SE -1.04% Apple Inc., andGoogle Inc., GOOG +1.14% which are miles ahead thanks to iOS and Android.

If he fails, Mr. Ballmer’s legacy will be dented. Mr. Ballmer has been criticized for not keeping up in a fast-moving industry. People involved in the Nokia deal say the play for a struggling handset business is one last effort to prove his mettle.

In choosing Mr. Elop to lead the integration of the new business, Mr. Ballmer selects a respected ally. During the interview, Mr. Ballmer said he values Mr. Elop as a partner. The Canadian-born executive was one of the few people he called before announcing his coming retirement.

Mr. Ballmer also picked an executive who hasn’t strayed far from home.

Since joining Nokia in 2010, Mr. Elop has taken commercial flights between Helsinki and Seattle. He essentially lived out of a suitcase to balance the demands of turning around a crumbling business and raising teenage daughters whom he didn’t want to uproot.

Mr. Elop isn’t a stranger to tough decisions.

He made waves almost immediately after starting at Nokia. He set to work on a plan that would lead to tens of thousands of job cuts and a downsizing of Nokia’s treasured R&D department. He sold key assets, including the seaside headquarters near Helsinki and closed the last remaining handset factory in Finland.

He also changed the focus. Earlier this year, after an extensive rebuild of Nokia Siemens Networks wireless division, Mr. Elop paid about $2.2 billion to buy out Siemens AG. Nokia now looks a lot like Sweden’s Ericsson, which exited handset manufacturing a couple of years ago and is now making big profits selling infrastructure.

The results of the handset strategy have been less than stellar.

Nokia’s cash burn and losses have narrowed, but it only controls about 3% of the global smartphone market and 14% of a total handset market. While many analysts have blamed Nokia’s demise on a weak Microsoft operating system, criticism can be aimed at Nokia executives who underestimated rivals.

In recent months, it became increasingly clear the Windows phone strategy was running into a roadblock. No matter how good Nokia’s new Lumia smartphones were, other players in the industry—particularly Samsung Electronics Co.—had deeper pockets that allowed them to pour far more money into marketing and discounting smartphones than Mr. Elop has initially calculated.

Samsung’s market share, fueled by the popularity of both the Galaxy handset and the Google Inc. Android operating system it runs, has skyrocketed as Nokia’s plummeted, with the Korean company overtaking Nokia at No. 1 in 2012.

Mr. Elop has done his best to paint a positive picture of Nokia’s phone business, pointing out that Lumia volumes—while small—have been growing, with sales increasing 32% to 7.4 million in the second quarter. Samsung however, sold nearly 10 times as many smartphones in the first three months of 2013.

The clock is now ticking on Mr. Elop’s attempt to catch up.