Nokia, Microsoft join forces on smartphones

By Dow Jones Newswires
Posted Feb. 11 at 2:55 p.m.

In a major shift, Nokia Corp. Friday said it will adopt Windows Phone as its main smartphone platform, part of a broad strategic partnership with Microsoft Corp. that will see the next two years become a period of transition for the ailing handset maker.

“Nokia and Microsoft will combine our strengths to deliver an ecosystem with unrivalled global reach and scale,” said Nokia Chief Executive Stephen Elop, a former Microsoft employee. “Nokia is at a critical juncture, where signficant change is necessary and inevitable in our journey forward,” he said.

Under the strategic cooperation, Nokia will also use Microsoft’s Bing service for search functionality across its devices, while Nokia Maps would be a core part of Microsoft’s mapping services. Nokia’s content and application store, Ovi, will be integrated with Microsoft’s Marketplace, and the MeeGo platform, which Nokia co-developed with Intel Corp. will become open source.

Meanwhile, MeeGo and Mobile Solutions head Alberto Torres has stepped down from the company’s management team, effective Feb. 10, part of a reorganization of the company into two main divisions: Smart Devices and Mobile Phones.

Due to the changes, 2011 and 2012 are likely to be transition years for Nokia, the company said.

While industry experts recognized the broad need for change, in early reaction they said the cooperation may benefit Microsoft, whose Windows Phone 7 hasn’t so far been a major hit with the application development community, more than it does Nokia.

Other concerns centered around lack of guidance for next year, no product announcements and disappointment that Nokia didn’t cut its guidance for R&D costs as a result of the alliance with Microsoft, which was also expected.

As a result, Nokia’s share price plunged in early trading and ahead of a Elop’s presentation to analysts, planned for later in London.

“A big tie-up with Microsoft should allow Nokia to huge cuts in its R&D budget and thereby guide margins up, but they don’t, so we see expectations having to be reduced,” said analyst Richard Windsor at Nomura.

Meanwhile, Espirito Santo Investment Bank said the new strategy provokes doubts and that Android would have been a better choice for Nokia compared with Windows Phone, which so far hasn’t gained much traction.

Under the new structure, which comes into effect April 1, the Smart Devices unit under Jo Harlow’s leadership will develop a portfolio of Windows phones and also be responsible for Symbian and MeeGo devices.

The Mobile Phones unit, headed by Mary McDowell, will be responsible for affordable handsets for the broader mass market.

Nokia said it expects to launch a MeeGo device in 2011 in line with earlier plans, but added that the platform’s emphasis will be on “longer-term market exploration of next-generation devices”.

As Windows Phone becomes Nokia’s primary smartphone platform, Nokia’s old Symbian system will become a franchise platform, the company said, but added that it expects to sell around 150 million additional Symbian devices in the coming years.

Nokia will use its previous investments in Symbian to “harvest additional value” from the platform, it said, aiming to retain and transition the installed base of 200 million current Symbian device owners.

Canadian national Elop, recruited from Microsoft last autumn, in an internal memo earlier this week compared Nokia to a man standing on a burning oil platform who jumps into icy waters to escape the flames, calling for dramatic action to turn the company around.

Nokia, although still the world’s largest handset maker, has long struggled in the high-end market, where its line-up of smartphones based on its Symbian software have lost significant ground to rivals including iPhone-maker Apple and Android-based smartphones, particularly in the profitable North American market.

Nokia’s share of the overall handset market fell to 27.1 percent in the fourth quarter 2010 from 36.6 percent a year earlier according to research firm Gartner.

Nokia Siemens Networks, the telecom equipment joint venture with Siemens AG targets net sales to outgrow the market, and an operating margin above break-even in 2011, Nokia said.

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