Nokia acknowledges new risk: What if Microsoft builds its own Windows Phones?

Nokia acknowledges new risk: What if Microsoft builds its own Windows Phones?

Summary: In a filing out this week, Nokia lists the possibility that Microsoft could lose interest in Windows Phone or ditch it entirely - but there's one more threat to the company from Microsoft - and it's a doozy.

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Nokia made a huge gamble on Windows Phone when it adopted the platform as its main smartphone OS in 2011.  While the company doubtless placed its bet on Microsoft knowing there were risks, there's one potential hazard the handset-maker revealed is on its mind this week: the possibility that Microsoft may lose interest in Windows Phone, or abandon the operating system altogether.

As required by law, Nokia regularly has to set out the risks its sees to its business in filings to the SEC, including those associated with switching from Symbian to Windows Phone. When it posted its 2011 20F filing, it said it saw the chief threat being that it may not be able to turn a profit by moving from royalty-free Symbian to the royalty-laden Windows Phone.

However, in its 2012 20F released on Thursday, Nokia acknowledged a new risk from the move: that Microsoft cuts its investment in the OS, or completely pulls the plug on the operating system.

"Microsoft may act independently of us with respect to decisions and communications on that operating system which may have a negative effect on us. Moreover, if Microsoft reduces investment in that operating system or discontinues it, our smartphone strategy would be directly negatively affected by such acts."

While there's no suggestion that such a move is on the cards — it's still early days for the OS, only launched in late 2010 — it's the first time Nokia has cited such a risk.

What about hardware?

Another interesting tweak to the risks laid out in Nokia's filing — and one with more legs than the possibility of Microsoft killing Windows Phone — reflects current murmurings around Microsoft's mobile strategy. What if Microsoft launches its own smartphone?

"Microsoft may make strategic decisions or changes that may be detrimental to us. For example, in addition to the Surface tablet, Microsoft may broaden its strategy to sell other mobile devices under its own brand, including smartphones. This could lead Microsoft to focus more on their own devices and less on mobile devices of other manufacturers that operate on the Windows Phone platform, including Nokia," the filing said.

For the moment, Nokia remains a big fish in the very small pond of Windows Phone, currently shifting the majority of devices running the OS. Should Microsoft enter that market by making and selling own brand devices, it could signal the start of an uncomfortable period of 'co-opetition' for the two companies.

But is it likely? Microsoft has said previously that it plans to extend its Surface range, the line-up of touch products that started with a huge touchscreen table and is now better known for the two tablets, RT and Pro, that bear the brand. It's not beyond the realms of possibility that Microsoft would want to extend that brand out to cover smartphones as well - after all, Microsoft has history in making mobile devices, if not an altogether glorious one.

Topics: Nokia, Microsoft, Mobility, Windows Phone

Liam Tung

About Liam Tung

Liam Tung is an Australian business technology journalist living a few too many Swedish miles north of Stockholm for his liking. He gained a bachelors degree in economics and arts (cultural studies) at Sydney's Macquarie University, but hacked (without Norse or malicious code for that matter) his way into a career as an enterprise tech, security and telecommunications journalist with ZDNet Australia. These days Liam is a full time freelance technology journalist who writes for several publications.

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39 comments
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  • And what was....

    ... Samsung's filing said about its dependency on Google's Android OS? Can Google do the same thing that Microsoft can do to Nokia?
    Wonder.man
    • Yes and no...

      Yes, Google could release their own phones. We kinda see it, in the Nexus models and more to the point, the Motorola acquisition made Google a hardware builder in it's own right. Neither of which seem to have had a major negative impact on Samsung just yet.
      Yes, Google could pull the plug on Android, but Android is strictly speaking open source and the torch could be picked up by Samsung to push the OS forward. Given that Samsung already do so much to the Android OS on their own handsets, that's not unthinkable. Also, with the Tizen OS in development, Samsung have already started to hedge their bets against such a turn in events.
      mountjl
      • Samsung

        Given that Samsung made three of the six "Nexus" products (Nexus S, Galaxy Nexus, Nexus 10), I strongly doubt that they are too concerned in any case, regardless of their egg/basket ratio.
        Third of Five
    • The way Nokia produces so few devices

      ... while the demand of WP8 has been good sure gives MSFT every reason to launch own phones. Every time the Lumia hits the shelf it's gone fast and yet Nokia simply has not been able to ramp it up to take advantage of it. MSFT is not impressed by Nokia's production capacity, trust me.
      LBiege
      • "trust me."

        We sure all do ;-)
        eulampius
      • disingenuous

        Effectively saying, "Nokia can;t make enough Lumia's to meet demand" is pretty disingenuous. Their projections are about on the money, for a 4th place range after Samsung, Apple and Blackberry

        http://www.theverge.com/2013/1/24/3910638/nokia-lumia-sales-q4-2012

        esp. as the Galaxy S3 as a **single model** breezed past 40 million sales in 6 monthjs, and is still going strong in the lead up to the Galaxy S4.

        http://crave.cnet.co.uk/mobiles/samsung-galaxy-s3-breezes-past-40-million-sales-mark-50010165/

        I still don't know anyone with a Nokia Lumia, other than Kenzie off NCIS:LA and Danno off Hawaii 5-0, and they are acquaintances, not friends - LOL. With Microsoft, as a show sponsor.

        Despite the 'sales figures', no-one has one.

        --
        Nokia need a resurrection plan B of re-friending MeeGo partner Intel, and taking their cash pile - as apart from a limited number of phones like the Razr-i, or some with Huaweii - Intel are still nowhere in sight in mobile, and have only just entered tablet with Surface Pro.
        neil.postlethwaite
        • I still have not seen anyone with Android

          Just couple of Windows Phones, many iPhones and a few dumb phones. That is environment that I am in. So, I can safely assume that there are no people buying android phones and that Samsung does not sell anything and that whole Android hype is just an elaborate fraud. Trust me :D
          paul2011
          • Androids

            Mostly Samsung Galaxy's, a couple of Galaxy Note 2's, a coply of Motorola's, a lone LG and a lone Sony Xperia and a few odd's and sods.

            Loads of iPhones, Lots of Android's (Mostly Samsung), a number or Blackberrys (either corporate or with the kiddies), no Windows Phones, in the smartphone market. Noting that the Blackberry kiddies are moving to iPhone.
            neil.postlethwaite
        • Are you blind?

          Did you even read the market report on LUMIA from China to US? Noka's own report is confirming their production capacity constraint. Go check the fact instead of madeup projection.
          LBiege
          • After 2 years this is pathetic

            After a 2 year build up to Windows Phone 8, if they have production constraints, they are dead in the water and fundamentally architects of their own doom.

            Perhaps Elop should not have shut down so many factories, and tossed so many people out of the business.
            neil.postlethwaite
    • did Samsung put all of its eggs in

      the Google's basket? The only platform it is not interested in is iOS. How blind or forgetful one should be ?
      eulampius
  • idk, MS makes surface pro but, I'd rather buy Asus still

    phone prolly be the same
    everss02
    • A Surface Phone wouldn't kill Nokia...

      So long as Nokia is making high-quality devices, I think there's little danger of a Surface Phone hurting Nokia much. Just like the Surface won't hurt Microsoft's OEMs if they release competitive devices.

      Furthermore, since some partners (like HTC & Samsung) are only releasing a couple models of Windows Phones (for now), and since the Nokia devices all use the same "design language," there's space for a Surface phone that looks different than the Nokias. I mean, Microsoft desperately wants Windows Phone to break into the enterprise & take on BlackBerry, but many business users may want more conservative-looking phones--and not the lemon-yellow ones that Nokia's selling. So there's room for more competition.
      newyorkcitymale
  • I don't see either of these things happening anytime soon.

    I've begun to see windows phone out in the wild much more than I ever have in the past, so maybe they're finally starting to have some success. Either way Ms won't and can't just abandon wp8. As far as making their own hardware. They had to with the surface, especially the pro, because MS felt most if the OEMS were really dropping the tablet ball. On the phone side I don't really think that's the case. There's two pretty solid feature phones, the 920 and 8x, and I'm sure even better ones will come out in the near future.
    Sam Wagner
    • I was thinking the same thing

      With phones being subsidized by the carriers, people can afford a good quality phone, so companies continue to make them, so no need to jump in there with yet another model that would be competing with the likes of Nokia and Samsung in terms of quality.
      William Farrel
    • Spot on.....

      With the type of phones out there that are best in class I don't see a need for Microsoft to jump into the phone hardware business. I think the phone business is much more aligned with Microsoft's wants and needs in the platform hardware that there is no need to go push out a product at this point. Now if Nokia and HTC ditch Windows Phone then I would see them make a device. The tablet and laptop business has not been innovating much the past few years other than making me too tablets and such. Also I wouldn't be surprised at some point Microsoft purchases Nokia instead of making their own device to compete, especially if they don't get strong backing from other partners like HTC or Samsung.
      OhTheHumanity
    • Remember the kin? or zune?

      dead end.
      jessepollard
  • Note from SB to SE

    Hi Steve,

    thanks for all the beta testing

    Regards Steve
    Alan Smithie
  • MS built Surface because they were unhappy with OEMs

    http://www.theverge.com/2013/3/7/4073132/microsoft-hardware-oems-surface-challenge-craig-mundie

    "Microsoft says Surface is the Apple competitor its partners failed to build"

    MS did it with the Zune when it was clear that its OEMs were building lousy MP3 players. While the Zune didn't take off, it was widely recognized as the very best music system available, far better than the ipod at the time. While the Surface certainly doesn't see the same kind of love, it is universally recognized as being the very best hardware you can purchase, far better than the ipad.

    So does Nokia have anything to fear about MS coming out with a Windows Phone? Not if they keep releasing fantastic device like the Nokia Lumia. Also (and this is the uglier side of the WP8 ecosystem) not if they continue releasing a ton of Nokia exclusives.

    Nokia's bigger concern is that WP8 fails to take off.
    toddbottom3
    • Fully agree.....

      The Zune HD was an awesome device and I still use it today as one of my Xbox music pass devices. Its a solid piece of kit and its interface was way ahead of its time. Got my non-techie brother one and he loves the thing and the Xbox music pass. He praises it many times over and even tracked down another on the internet for his wife after it was discontinued.
      OhTheHumanity