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Nokia filing lists Microsoft deal risks

Nokia has spelled out the risks of its partnership with Microsoft, in a filing lodged with the US Securities and Exchange Commission on Friday.
Written by David Meyer, Contributor

Nokia has spelled out the risks of its partnership with Microsoft, in a filing lodged with the US Securities and Exchange Commission on Friday.

A month after revealing the partnership, which will see Nokia phase out Symbian and scrap major launch plans for MeeGo in favour of Windows Phone handsets, Nokia said in the SEC filing that the tie-in "may not succeed in creating a competitive smartphone platform for high-quality differentiated winning smartphones or in creating new sources of revenue for us".

The listing of such risk factors is a legal requirement in filings with the SEC, as investors are supposed to be informed of any potential downside to their investment.

"Until very recently, we believed our competitive position in smartphones could be improved with Symbian, as well as MeeGo, and our strategy based on those platforms," Nokia said in its filing. "We are now of the view, however, that for the longer term our Symbian platform is not sufficiently competitive in leading markets."

However, Nokia said, there is a risk that the terms of the deal may not work in Nokia's favour. If the deal falls through, Nokia might have missed out on the opportunity to adopt another, more competitive platform. The deal may not succeed in making the "largely unproven" Windows Phone platform "a sufficiently broad competitive smartphone platform".

Other platforms may have moved on too far by the time the two-year transition period to Windows Phone is completed. Nokia may not be able to sufficiently differentiate its Windows Phones from those made by other manufacturers, and "new sources of revenue expected to be generated from the Microsoft partnership, such as increased monetisation opportunities for us in services and intellectual property rights, may not materialize as expected, or at all".

The company also pointed out that, during the two-year transition period, consumers and mobile operators may decide it is no longer worthwhile investing in Symbian handsets.

Nokia also expressed doubts over the successful integration of its services with Microsoft's search and advertising platforms, and the switch from royalty-free (for Nokia) Symbian to royalty-bearing Windows Phone 7 (WP7) might hamper the creation of a profitable business model. The change of culture involved in the partnership was another stated risk, as was employee dissatisfaction.

Intellectual property is another cause for concern in Espoo: Nokia said the fact that it would no longer be developing the core technology in its phones meant it "may not be able to generate sufficient patentable inventions or other intellectual property to maintain, for example, the same size and/or quality patent portfolio as we have historically".

Interestingly, Nokia also noted that consumers might be more reluctant to share personal data with the Finnish firm once they realise that data is going to Microsoft as well.

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