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Sendo Dumps MS for Nokia

British handset manufacturer Sendo Ltd. has terminated the development of products based on Microsoft Corp.'s (Nasdaq: MSFT) Smartphone 2002 operating system and has canned a finished product, the Z100, that was only days from being distributed to European carriers and retailers (see Sendo Cans Z100, Microsoft).

And before the Z100 (first announced back in February 2001 and originally due to launch in early 2002) had finished rattling in the bottom of Sendo's trash can, the device manufacturer announced it's going to develop its smart devices on Nokia Corp.'s (NYSE: NOK) Series 60 platform instead.

Series 60 is a software platform designed to run on the Symbian Ltd. operating system.

Now Sendo has to start again and develop new product. Why? Sendo says it all boils down to access to sourcecode. But that explanation doesn't wash with at least one analyst, who believes the root cause of Sendo's decision is either legal or financial (more on this later).

To complicate matters, Microsoft is an investor in Sendo, holding a minority stake of just less than 10 percent for which it paid more than $10 million in July 2001.

Sendo, an emerging player in the handset space with annual sales of just a few million at present, admits it has cut it very fine with the timing of its move. Only weeks ago the company told Unstrung it was to ship the tri-band GSM Z100 (which it was touting as "the world's smartest phone") this month to Telefónica Móviles SA and two major Italian operators.

Such a last-minute decision hands Nokia an easy public relations coup and adds another name to the list of Series 60 licensees, which currently comprises Nokia (naturally), Matsushita Communication Industrial Co. Ltd. (Panasonic), Samsung Corp., and Siemens AG (NYSE: SI; Frankfurt: SIE). It also leaves Microsoft Corp. (Nasdaq: MSFT) with some negative press following the recent launch of the first device carrying the Smartphone 2002 operating system, the SPV (see Orange Uncovers Its SPV).

So let's look at who is saying what about this switch. First, Sendo's view: An official Sendo statement reveals little other than some bare details. It says the company has "terminated its Smartphone development program utilising the Microsoft Windows Powered Smartphone 2002 software. As a result, Sendo regrets to announce that it will not be shipping the Z100 Smartphone." The statement goes on to say that it has been a "very difficult" decision to make, and that the move is "a setback."

The manufacturer's CEO, Hugh Brogan, is quoted as saying that, having reviewed its smartphone strategy (in other words, having decided to ditch Microsoft), Sendo approached Nokia. It had recognized that the Series 60 could meet the needs of "the new strategy" and the company's continued mission to provide "customers with feature-rich and ubiquitous devices." Series 60, notes Sendo, "utilizes open standards and technologies, such as MMS and Java, jointly developed by the industry."

Ron Schaeffer, Sendo's head of product strategy and planning, tells Unstrung that "one reason we decided to go with Series 60 is that we could get a sourcecode license. This will leave us well positioned to offer our carrier customers the customization they want. It also gives us greater freedom to differentiate our products from the other manufacturers using Series 60."

But why ditch the Z100 so close to commercial launch? And how long will it be before Sendo can deliver any products based on Series 60? "We hadn't produced the Z100 in any significant volume," says Schaeffer. "We had produced the pilot run, about 1,000 devices, for the approval process from our carrier customers, so we don't have a large stock. We were just about to start mass volume production. There won't be any Series 60 products before the second half of 2003."

What about all the time, money, and resources already put into the Z100, and the operators that were expecting deliveries? "The time and money invested in the Z100 is not wasted," claims Schaeffer. "We have learned a huge amount about what it takes to make a smartphone. But this doesn't mean we will be announcing a product that's just like the Z100 in the future." As for the operators, a Sendo spokeswoman says they are "obviously disappointed. They are already Sendo customers, and we hope they will want other products in the future."

When asked if there was any prospect of legal action as a result of Sendo's decision, or as a cause for that decision, Schaeffer says he cannot comment on legal issues.

So it's down to sourcecode and the ability to customize, then. That's not a convincing story, says IDC analyst Tim Mui, who specializes in smart handheld devices. "I don't think that's true," he says. "The SPV is a very customized product. I don't think this is a very significant issue, or that Sendo has the capabilities to customize to the level that having sourcecode would allow. Although it's true that developing with Series 60 allows licensees to shape the development of the platform, and you can't do that with Microsoft, my guess is that either legal or financial reasons are behind this decision. Why cancel a handset that is ready to go? It's a finished product."

Why indeed. Mui believes that Sendo may hold some grievances against Microsoft that stem from the support of MMS and Java and the development of such support during the past 18 months to two years -- but he admits this is "pure speculation. My understanding is that Sendo and Microsoft had a big falling out and then Sendo got on the phone to Nokia. And it's interesting that Sendo went straight to Nokia, and not to Symbian. Symbian did not know anything about this."

Certainly Nokia is the one company involved that is completely happy about the situation. Niklas Savander, VP of strategy, sales and marketing at Nokia's mobile software division, gushes, "We were approached by Sendo recently, and it was a positive surprise for us. We obviously jumped at the opportunity. Sendo is a very innovative company that can bring a lot to the Series 60 community."

So that's the view from Sendo and its new bride. What about the new divorcee, Microsoft? Anne-Marie Duffy, mobility marketing manager at Microsoft's mobile devices division, EMEA, tells us the decision "speaks volumes about the growing importance of software in mobile devices." You have got to admire the spin, haven't you? So why would Sendo choose to switch to Series 60, we ask? "Although we're a bit disappointed," but only a bit, "Microsoft is very encouraged by the support we have from the likes of Orange SA [London/Paris: OGE] and Samsung and the 50 companies that have developed applications to run on the Smartphone 2002 operating system." A lovely sentiment, but what caused the switch? "You would have to ask Sendo that," says Duffy. So we tell her we did and got the customization argument. "Well, I am surprised about that reason. The suggestion that we offer a lack of customization is untrue and unfounded. Look at the level of customization that Orange has achieved with the SPV." What about access to sourcecode? Does Microsoft offer that? "Not, er, really, er, we offer a deep level of customization without access to sourcecode. This hasn't been an issue for other companies." So if it isn't that issue, what could it be? Is IDC's Mui right? "It's up to Sendo," says Duffy. "They have made this decision."

Well, that's the one thing we are sure about. So how'bout a few other opinions to spice things up? "My hunch is that it's all about standards support," says Seamus McAteer, principal analyst at the Zelos Group LLC. "The handset business is all about distribution, which in turn is all about carriers. Right now, Microsoft's technology is viewed as non-standard and tied to proprietary infrastructure... While that is OK for a subset of the market, the mainstream in Europe is all about Java and MMS, and ultimately Nokia. Carriers are investing substantial amounts in infrastructure to support MMS and J2ME, and will want to support SyncML and other standards-based services."

Meanwhile, analysts at Lehman Brothers say that the decision to "terminate a product on which it has invested most of its time and money over the past several years when it is just days from shipping it to customers, whatever issues there were between Microsoft and Sendo, must have been significant." They add that such a switch, even from a relatively minor player such as Sendo, "may raise some concerns in the marketplace over Microsoft's long-term positioning in the handset industry and may bolster sentiment towards Nokia's long-term strategy." The decision may also "lead the operators who have expressed interest in a Microsoft platform to scrutinize their decisions." Those carriers include Vodafone Group plc (NYSE: VOD), Telefónica Moviles, AT&T Wireless Services Inc. (NYSE: AWE), Cingular Wireless, and Verizon Wireless.

— Ray Le Maistre, European Editor, Unstrung
www.unstrung.com
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