Nokia's big bet: Microsoft's Windows Phone 7 on 'other side' can save it

Nokia's decision to bet its business on Microsoft's Windows Phone 7 is quickly becoming an either-or scenario. Either Windows Phone 7 brings Nokia back to dominance or the company's decline will accelerate.
Written by Larry Dignan, Contributor

Nokia's decision to bet its business on Microsoft's Windows Phone 7 is quickly becoming an either-or scenario. Either Windows Phone 7 brings Nokia back to dominance or the company's decline will accelerate.

Following Nokia's warning that the second quarter and 2011 look bleak, one ZDNet reader summed it up well:

I think this is going to end up one of two ways. This is going to be one of those huge able to turn the Titanic at the last moment and avoid the iceberg and instant runaway success...


it is full steam ahead into the iceberg and sinks very quickly.

I don't think there is any middle ground with Nokia's decision to only use Windows Phone 7.

Indeed, there is no middle ground. If we learned anything from Nokia's warning and ensuing conference call it's that the company is under siege by Android devices. On that conference call, Nokia CEO Stephen Elop sounded like a man walking through a dark tunnel to daylight a good 3 miles away. Apparently, Microsoft CEO Steve Ballmer was holding the door open to daylight.

Related: Nokia's Elop: Android is killing us in China, Europe

Elop said the "other side" of Nokia's current Android bloodbath was a "great place." This Windows Phone 7 great place would feature differentiated handsets with retail partners tripping over themselves to sell Nokia devices. This place would also include enthusiastic developers and a unique combination of hardware and software. This great place would also mean that Nokia-Microsoft would be a juggernaut that would make the mobile platform market a three horse race.

We'll see.

Elop said:

We're in a situation where Symbian has increasing competitiveness problems across the market. We're under pressure as it relates to what's the right price point for those devices given the reality of the marketplace. So it's very much at the core about the competitiveness of the products. Now of course, that's the point about our strategy change, because with the Windows Phone initiative, we're quite confident in our ability to have very differentiated products in those market environments. And the early feedback from operators who have seen the first Windows Phone devices, who are making plans for their introduction and so forth, support that point of view as well. So it's managed through a tough transition, but get to the great place that exists on the other side.

Nokia is playing a game of where it has to price Symbian phones cheap so it can preserve the channel relationships to push Windows Phone 7 devices later. Nokia needs its market share as a weapon. Elop added:

We need to worry a great deal about market share. We have to adapt our channel to the changing conditions.

If Nokia can hold the fort, Windows Phone 7's Mango release can bring sexy back to the company. Elop added:

With our target of shipping of Windows Phones in the fourth quarter of 2011, it will be based on the Mango release. So that is what we're doing.

Now as it relates to ensuring that we're on track with Microsoft, and we have teams of engineers who are every day working side by side on the hardware, on the software, on the support services. I have a WP7 phone device with me right now that has Mango running on it and it looks very good. There's work still ahead; there's still bugs and performance and everything that you would expect there to be at this point in the development cycle, but we feel quite confident about the progress.

So there you have it. Elop believes. Most others are doubtful. Jefferies analyst Lee Simpson spoke for the consensus view in a research note:

Multi-year R&D savings programs and remarks on the expected strength of future WP7 handsets are one thing but with further share loss still evident in key markets, we still believe it's too early to talk on turnaround. We believe the move to WP7 handsets will see weak sales again in 2012 as Symbian enters end-of-life.

If Simpson is on target, Nokia's light at the end of the tunnel may come later than 2012.

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