Analyst: Nokia Deal Reeks Of Desperation

It's been a memorable day for Nokia as the company announced an alliance with Windows at an event in London, marking a shift in strategy and direction.

Nokia Chief Executive Officer Stephen Elop and Microsoft CEO Steve Ballmer announced a strategic partnership in which Nokia will provide the devices and location services, while Microsoft will provide the Windows Phone 7 operating system for Nokia's most advanced phones. Until this announcement, Nokia has completely relied on in-house research and development.

The move puts Nokia's own operating system, Symbian, and another in-house developing smartphone (and possibly tablet) oriented system called MeeGo, on the backburner. After five months as CEO, Elop clearly decided neither Symbian nor MeeGo were the right operating systems to lead the charge against Apple's iPhone and the Google Android devices. Instead, he went to a familiar face, Microsoft, which is where he worked as the vice president in charge of Microsoft Office prior to becoming Nokia CEO.

Nokia's stock did not react favorably to the announcement as its American depositary receipts plummeted more than 15 percent to $9.12 per share before rallying to $9.36 per share, which is still 13.97 percent lower than its start-of-day price of $10.88 per share.

Industry analysts were no kinder than investors. ABI Research analyst for mobile devices Michael Morgan said the move did not make much sense to him. It reeks of desperation because of the speed in which it happened, he said. They did have another option, Android, which was right in front of their face. It seemed obvious, but they didn't go for it. When someone is drowning, they reach for closest thing to them, in Elop's case, it was Microsoft.

He said more than anything this move will upset developers of MeeGo and Symbian. With Windows Phone 7 not supporting Qt, which was a developer's framework that could work across old and new versions of Symbian as well as MeeGo, developers will be forced to leave or stay with a dying platform.

Just reading the comments from developers, they are very angry. They don't want to jump ship to Windows, Morgan said. Even worse, he says there is no roadmap to allow Nokia's massive user base to shift from Symbian to Windows Phone 7.

Morgan says for Nokia, Windows Phone 7 is more limiting than Android, which has exploded over the past year. While Windows Phone 7 has gotten some big app developers to commit, he says, the two-man shops which have allowed Android and iOS to grow in popularity aren't on it. The only advantage for Nokia adopting this platform is content, since Windows Phone 7 comes with established properties like Zune and Xbox.

Both Morgan and Gleacher & Company's Mark McKechnie say Microsoft has a lot more to gain from this partnership than Nokia. Immediately, Nokia will become Windows Phone 7's biggest handset manufacturer.

Nokia's scale and global brand are clear assets, McKechnie wrote in a note. Nokia also brings additional technology to the Microsoft partnership including its Ovi Store and the NAVTEQ mapping programs.

Morgan's colleague, ABI Research vice president Kevin Burden, however, sees a downside for Microsoft. Kevin Burden stated, With Nokia taking over the Windows Phone 7 universe, the other OEMs who have initially supported Window Phone 7 may rethink their commitment, and eventually end support of Windows Phone 7 the way they did with Symbian, due to Nokia's dominance and influence over the platform.

To contact the reporter responsible for this story call (646) 461 6920 or email g.perna@ibtimes.com.