Nokia Oyj, the world’s biggest maker of mobile phones, said it’s forming a software partnership with Microsoft Corp, betting that together the two companies can challenge Google Inc and Apple Inc
Nokia shares fell as much as 12 per cent in Helsinki, the biggest drop in a almost 10 months, after its plan to make Microsoft’s Windows its primary software was seen as a sign of the extent of its troubles taking on Apple’s iOS and Google’s Android platforms.
“It’s a clear admission that Nokia’s own platform strategy has faltered,” said Ben Wood, a London-based analyst with CCS Insight. “Microsoft is the big winner in this deal, but there are no silver bullets for either company given strength of iPhone and Android.”
The move may be the biggest strategy shift by Nokia since the one-time wood pulp company began making mobile phones in the 1980s. Stephen Elop, the new chief executive officer of the Espoo, Finland-based company, is struggling to revive Nokia after its piece of the fast-growing smartphone market plunged to 27.1 per cent in the last quarter from 50.8 per cent when Apple shipped its iPhone in June 2007, according to Gartner Inc. Nokia has lost more than 60 per cent of its market value in that time.
“My first thought is to sell Nokia stock because Nokia has just given themselves away for free and Google and Apple are laughing all the way to a duopoly,” said Neil Campling, an analyst at Aviate Global LLP in London.
Microsoft, whose Windows Mobile software licences were doubling annually before the iPhone hit the market, has likewise struggled to win acceptance for its revamped Windows Phone 7 software. The Redmond, Washington-based software maker said it shipped more than 2 million licences for the new smartphone system in its first quarter on the market.
The deal gives Microsoft access to one of the world’s largest mobile-phone distribution networks. Microsoft CEO Steve Ballmer said at a joint press conference in London today that companies are already working on making the first Nokia Windows phone. The partnership will “drive innovation,” he said.
Under the plan unveiled today, Nokia and Microsoft will combine assets and jointly develop and market mobile products. Nokia’s Maps product will become a core part of Microsoft’s services, while Microsoft’s development tools will create applications for Nokia Windows phones.
“Nokia and Microsoft will combine our strengths to deliver an ecosystem with unrivalled global reach and scale,” Elop said at the press conference. “It’s now a three-horse race.” Nokia has no plans to merge with Microsoft, Elop said in an interview.
The Finnish company said that after the “transition years” of 2011 and 2012, it targets devices & services non- IFRS operating margin of 10 per cent or more. Elop declined to provide a timeline for the first products from the alliance.
“The biggest question mark here is the timetable,” said Michael Schroeder, an analyst at FIM Bank in Helsinki. “Nokia says 2011 and 2012 are transition years, and no one knows how far along Nokia’s competitors are by then. Nokia can’t do anything to slow its competitors from innovating.”
Nokia plans to “substantially reduce” it research and development budget, Elop said. At 5.9 billion euros ($8.1 billion), Nokia’s R&D spending is more than four times that of Apple’s. Elop said there will be “significant reductions” in Nokia jobs. He didn’t elaborate.
Elop, 47, was hired away from Microsoft in September to put Nokia on a comeback plan, especially for software, the biggest point of difference in smartphones. He made only small adjustments in his first months as he reviewed the business.
Since Elop became the first non-Finn to head Nokia on September 21, Google’s Android software has become the biggest smartphone operating system, passing Nokia’s Symbian, according to Canalys and IDC analysis of shipments. The company’s N8 smartphone with the revamped Symbian 3 operating system was greeted by analysts as an improvement, although not enough to reverse the slide.
A memo written by Elop to employees recently said Nokia was “standing on a burning platform” and needed to make significant changes. With the plan unveiled today, Elop is effectively sidelining the company’s main platform, Symbian, a move that make bring a slide in sales of existing devices, analysts said.
