Are Nokia and Microsoft getting ready to announce a Windows Phone 7 alliance? That's certainly been the buzz-even before a German bank analyst, in a Jan. 31 letter, encouraged the companies to port Microsoft's mobile software onto Nokia smartphones.
Berenberg Bank analyst Adnaan Ahmad's letter, addressed rather familiarly to "Stephen (Nokia CEO) and Steve (Microsoft CEO)," detailed how such an arrangement would benefit both companies: "You get access to their WP7 intellectual property (IPR) scot-free and access to the U.S. market where your share has dived to the low single-digit level, and in doing [so] cut your bloated handset business R&D budget."
That letter followed Nokia CEO Stephen Elop's Jan. 27 earnings-call statement that Nokia "must build, catalyze or join a competitive ecosystem."
Nokia is hosting an event Feb. 11 apparently to reveal its strategy. "We [are] very clearly ensuring that it will give us the opportunity to reopen markets such as the U.S. and some others," Elop added, "where we have not recently been present."
Microsoft already has a software partnership with Nokia extending back to August 2009, when the two companies announced that mobile versions of Microsoft Office would come preloaded on Nokia smartphones. At that time, Nokia also began work on optimizing Microsoft Exchange ActiveSync for its devices, allowing for more streamlined access to e-mail and personal information.
Even as Microsoft and Nokia collaborated on that front-and continued to compete via their respective smartphone platforms-a changeover in the companies' executive suites threatened to spin the relationship in unexpected ways. In September 2010, Microsoft Business Division president Stephen Elop stepped down to take Nokia's reins.
That sparked a new question: Would Elop, in his new role, attempt to deepen the partnership between the two companies, or would he use his knowledge of Redmond's inner workings to heighten competition? Elop had been hired as a change agent within Nokia, even as research firm IDC predicted that the company's share of the mobile market would continue to dip through 2014.
According to one analyst, a Nokia and Microsoft alliance over Windows Phone 7 offers some advantages.
"The hardware competition is fierce, and companies like Samsung and LG [Electronics] have made enormous gains on the device side by being agnostic and opportunistic," Al Hilwa, an analyst with IDC, wrote in a Dec. 20 e-mail to eWEEK. Nokia's quest to "leverage smartphone device economics," he added, will eventually mean "coming to terms with Android and Windows Phone 7."
Should Nokia choose an "agnostic and opportunistic" operating system, Elop's history with Microsoft could potentially give Nokia an advantage. "I would say that [Windows Phone 7] has a much greater alignment with Nokia's intellectual property DNA than [does] Android," Hilwa wrote. "I believe an alignment between these two vendors is a win-win in the industry."
Other analysts see the potential benefits as minimal.
"For the reasons Nokia has always suffered, Microsoft has suffered too," Pierre Ferragu, senior analyst at Bernstein Research, told the International Business Times Feb. 4. "Desktop operating systems don't translate to the phone."
Whatever Nokia's eventual decision, it will likely have a significant effect on the company's fortunes moving forward. Both Nokia and Microsoft find themselves battling in the smartphone market against the growing family of Google Android devices and Apple's iPhone, which have proven themselves to be fierce competitors. Microsoft's Windows Phone 7, introduced in the U.S. in November, is intended to help reverse the company's eroding share of that market.