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

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.
Written by Liam Tung, Contributing Writer

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.

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