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Nokia-Microsoft pact casts doubt on Finn's leadership

Posted: 16 Feb 2011 ?? ?Print Version ?Bookmark and Share

Keywords:Windows Phone? smartphone OS? Microsoft handset OEMs?

Microsoft has no doubt scored a big design win with Nokia's decision to adopt Windows Phone as its lead smartphone platform. On the other hand, the Finnish cellphone giant may see its long-term leadership challenged as a result of its new strategy.

Microsoft gains the world's largest cellphone maker as a lead partner for establishing Windows Phone, a promising but late-to-market smartphone OS. However, Nokia will have to be content with being just one of Microsoft's partners for a strategic platform that launched in October with handsets from rising players including Samsung and HTC.

Nokia's chief executive Stephen Elop, a former Microsoft vice president who joined Nokia in September, announced a broad corporate reorganization including plans for a significant but unspecified number of layoffs. He declined to set any financial expectations for the company, calling the next two years a transition period after which the company would grow faster than the market.

By far the largest handset maker by unit volumes, Nokia has seen its market share decline, especially in the U.S. It was slow to respond to the Apple iPhone which defined the smartphone market with its touch screen, open Web browser and advanced application processor.

Under the deal, Nokia will make Windows Phone its primary smartphone OS. It will also adopt Microsoft's smartphone developer tools, roll Nokia's app store into Microsoft's offering and use Microsoft's Bing as its primary Web search service. Nokia also will integrate its Map service as a key part of Microsoft's Bing.

Nokia will struggle to differentiate its products as one of a growing set of Microsoft handset OEMs, several of which released handsets in October. Early to embrace the cameraphone trend, Nokia suggested it will try to innovate in areas such as imaging and language support, but neither sounds like a credible on the surface.

Nokia's Stephen Elop and M'soft's Steven Ballmer

Nokia's Stephen Elop (left) and Microsoft's Steven Ballmer.

The planned layoffs and the lack of any financial guidance fuel concerns about difficulties Nokia will have distinguishing itself as a Microsoft OEM. Indeed, the company ultimately may face the same kinds of pressures Microsoft's PC partners felt a decade ago as they battled over who had the lowest prices.

Microsoft will need to support all its OEMs. Its history in the PC business shows it will not hesitate to de-emphasize even a leading OEM such as Nokia if its business continues to decline as Samsung and others rise.

More open questions
The news leaves open other questions, including what processor platform Nokia will adopt. Most of the first crop of Windows Phones used Qualcomm's Snapdragon processor.

Nokia struck a broad development deal with Intel in June 2009 that included work on the mobile Linux software that ultimately became MeeGo. Intel had hoped to make Nokia a 0lead OEM for a 32nm smartphone SoC based on its Atom processor, a prospect that now appears dim.

The deal also says nothing about Nokia's plans in the emerging tablet market. Nokia has shipped Wintel-based netbooks and dabbled in other mobile form factors, but not taken a position on tablets to date.

By embracing Windows Phone, Nokia effectively rings a death knell both for Nokia's legacy Symbian platform and to its emerging MeeGo platform co-developed with Intel. In a leaked letter from Elop earlier this week, he complained that the company's development efforts were so slow it might only ship one MeeGo phone by the end of 2011. In press announcements, Nokia said it still plans to ship a MeeGo system this year.

As part of the deal, Nokia announced it will make MeeGo open source and it will make Symbian a "franchise platform," but what it means by that term is unclear. Nokia had already made Symbian an open source OS, and other Symbian partners such as Motorola have abandoned Symbian for Google Android.

Nokia said it has an installed base of 200 million Symbian handsets. Nokia expects to sell approximately 150 million more Symbian devices in the years to come, it said.

The Finnish cellphone giant will be especially vulnerable until it gets a family of Windows Phone handsets out the door. Meanwhile most developers likely will abandon any efforts on Symbian and MeeGo.

Some analysts including Will Strauss, principal of Forward Concepts, praised the deal as a win-win.

"Nokia badly needed a non-Symbian OS," Strauss said. "Adopting Android would make them simply another me-too house, and MeeGo has not been proven," he said.

"Although Windows Phone is late and badly trailing iOS and Android, the reviews have been generally very good, but Windows Phone is on very few handsets, and Nokia fills that need for Microsoft," he added.

Analyst Mark McKechnie of Gleacher & Company agreed. "We believe the combined Microsoft/Nokia ecosystem puts both companies in a stronger position in the battle for third, with RIM's Blackberry and Hewlett-Packard [and its WebOS] still in the race," he said.

In a London press conference, Elop said the deal makes the smartphone business a three-horse race, presumably referring to Apple's iOS and Android as the other players. But his comment conveniently overlooked Research in Motion which is broadly expected to remain a strong player.

"Nokia and Microsoft will combine our strengths to deliver an ecosystem with unrivalled global reach and scale," said Elop at the news conference.

"The partnership provides incredible scale, vast expertise and software innovation and a proven ability to execute," said Microsoft CEO Steven Ballmer on hand for the event.

- Rick Merritt
??EE Times

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