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Nokia Puts Microsoft Strategy Into Action

Nokia Corp. (NYSE: NOK) and Microsoft Corp. (Nasdaq: MSFT) have made their partnership official, signing a definitive agreement on Thursday.

The agreement puts into action the plan the companies have been refining for the past 10 weeks and comes as Nokia's market share continued to slide in the first quarter. (See Microsoft & Nokia Ink Definitive Agreement and Nokia Unveils Major Revamp.)

Nokia CEO Stephen Elop said on today's earnings call that hundreds of employees are already engaged in joint engineering efforts, collaborating on a portfolio of new Nokia devices, porting key applications and services to Windows Phone and reaching out to third-party developers.

Even so, Nokia is sticking to its plan to ship devices in volume in 2012 even as Android device launches increase and competition continues to stiffen. (See Nokia: How Microsoft Deal Could Fail .)

"The pace of activity there is quite good, and we're happy with that," Elop said, while admitting that the pressure is on for a device launch in 2011.

He described Nokia's deal with Microsoft as "balanced." Nokia is bringing its mapping, navigation and location-based services to the partnership, while Microsoft contributes in terms of search, apps, productivity services, gaming, social media and advertising, which Nokia will use to monetize its mapping business.

Interestingly, Nokia will also open its own branded apps store on Microsoft's Windows Marketplace infrastructure, serving as a single portal to reach Windows Phone, Symbian Ltd. and Series 40 devices, and leverage Nokia's operating billing relationships.

As part of the terms of the deal, Microsoft will receive a running royalty from Nokia for use of its platform, and Nokia "will receive payments measured in the billions of dollars," including payments for the exchange of intellectual property rights.

Nokia and Microsoft execs discuss how they'll go about building a "global mobile ecosystem" in the video below.



First-quarter woes
Nokia inked its official deal with Microsoft ahead of schedule, but things may not be moving fast enough for the handset maker. In the first quarter, its smartphone market share slipped to 26 percent, down from 41 percent last year and 31 percent in the previous quarter. This is the first time the Finnish giant's market share has fallen below 30 percent in ten years. (See Nokia Posts Q1.)

The company is trying to maintain its share in the months leading up to mass WP7 shipments by relying on its Symbian platform. Elop said consumers' perceptions of the OS weren't swayed by the Microsoft announcement, but the low-end handsets have had a hard time competing with their higher-end rivals. (See Nokia Asks Anna to Save Symbian and Nokia Takes Back Symbian.)

While Nokia did ship 1 percent more phones in the first quarter of this year compared to last, at 108.5 million units, it was an 18 percent tumble from the previous quarter. For smartphones, Nokia shipped 24.2 million in the quarter, up 13 percent year-on-year, but down 14 percent sequentially.

What's most troubling for Nokia was Elop's admission that the second quarter will be more challenging due to the effects of Japan's natural disaster.

— Sarah Reedy, Senior Reporter, Light Reading Mobile

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