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Is the Nokia-Microsoft pact a smart move?

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, Nokia will struggle to differentiate its products from those of other Microsoft handset OEMs. Thus the Finnish cell phone giant may see its long-term leadership challenged as a result of its new strategy.

Microsoft gains the world's largest cell phone 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 VP who joined Nokia in September, announced a broad corporate reorganisation 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.

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-emphasise even a leading OEM such as Nokia if its business continues to decline as Samsung and others rise.

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