February 11, 2011

Nokia, Microsoft Strike Deal To Stay Afloat In Phone Market

Nokia and Microsoft are joining forces to challenge rivals like Apple and Google in the smartphone market.

Nokia Corp. said Friday that it plans to use Microsoft Corp.'s Windows Phone software as the main platform for its smartphones in an effort to pull market share away from Apple's iPhone and Android, Google's operating system for smartphones and tablets.

"This is a partnership born out of both parties' fear of marginalization at the hands of Apple and Google but there is no silver bullet," analyst Geoff Blaber from CCS Insight told Reuters.

Nokia, the world's largest maker of mobile phones, said it will help drive the future of Windows Phone "innovating on top of the platform in areas such as imaging, where Nokia is a market leader."

Nokia's CEO Stephen Elop said in a statement that moving increasingly to provide services for phone users, Nokia and Microsoft "will combine our strengths to deliver an ecosystem with unrivaled global reach and scale."

"Today, developers, operators and consumers want compelling mobile products, which include not only the device, but the software, services, applications and customer support that make a great experience," he said.

The announcement came just hours before Elop was to address an analyst conference in London where the new Canadian CEO was expected to announce major changes for Nokia.

The Finnish company is no longer the innovative trailblazer in the mobile phone market as the iPhone has set the standard for today's smartphones.

The deal between Nokia and Microsoft marks a potential breakthrough for the software giant, which should get its software into upwards of 30 million smartphones sold by Nokia every quarter.

"This is all going to be about execution," Michael Gartenberg at research firm Gartner told Reuters. "Can they get U.S. carriers excited about a Windows device that's built by Nokia? They made the leap, but that just buys you a few seconds. Now you have to decide what happens when you hit the water".

Nokia plans to bring Microsoft's Bing search engine to its cellphones, which would be a huge boost for Microsoft as it struggles to gain ground on Google's dominating search engine.

Nokia said its operating margin in the phone business would be "10 percent or more" after the transition period.  Analysts had expected margins to rise to 11.4 percent in 2012.

"They have woken up...changes have to be made. I hope it's not too late," Alan Lancz, president of Alan B. Lancz & Associates Inc, which holds Nokia stock, told Reuters.

The Finnish company's share of the smartphone market fell to 31 percent in the fourth quarter of 2010, which was down from 38 percent the previous quarter.

"This is a very frank admission that Nokia's platform strategy has failed and underlines the seriousness of Nokia's position. Such a move would have been unthinkable just 12 months ago," said Blaber.


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