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Nokia denies Microsoft takeover rumour Add to ...

Nokia has moved to quash speculation that its partnership with Microsoft could lead to a takeover by the U.S. technology group after a profit warning by the Finnish mobile phone maker sent its shares plunging to a 13-year low.

Nokia described rumours that Microsoft was planning a bid for its core devices business as “completely baseless” and people close to both companies said there had been no talks about such a deal.

Speculation over a possible bid for Nokia has intensified after its shares plunged by nearly 18 per cent on Tuesday when the company warned that sales and profit margins would be “substantially below” previous expectations in the second quarter.

The stock fell a further 10 per cent on Wednesday morning to its lowest level since 1998 but it recovered most of its losses by the close of trading as rumours of a Microsoft bid gained momentum.

The two companies agreed in February to form an alliance that will see Microsoft’s Windows Phone operating system embedded in Nokia phones in an attempt to create a powerful rival to the Apple iPhone and devices using Google’s Android platform.

Some analysts and bloggers have speculated the partnership could be a precursor to a full-scale Microsoft acquisition of Nokia’s mobile phone business. Bankers say the Finnish company could be vulnerable to a takeover after losing nearly three-quarters of its market capitalization over the past five years as it struggled to keep pace with rapid innovation in the smartphone market. At the close of trading on Wednesday, Nokia was valued at €17.79 billion.

Analysts warn the shares could have further to fall after the new profit warning increased concern over the company’s prospects.

Nick Jones of Gartner said Nokia’s transition to the Windows Phone operating system was proving more painful than expected as the company’s existing Symbian range of smartphones lose market share at an accelerating pace.

“When you say something is dead, it’s always going to be hard to persuade people to buy it,” he said, referring to Nokia’s efforts to continue selling Symbian phones after announcing that the platform would be gradually phased out.

Nokia is planning to launch its first Windows Phone device by the end of this year but a complete portfolio of products is not expected until deep into 2012, leaving the company heavily exposed to decline in its Symbian handsets for at least another year.

Stuart Jeffrey, analyst at Nomura, said the biggest threat came from the rapid advance of Android devices into the lower-end of the smartphone market, which was previously dominated by Nokia.

“We believe this is just the start of Nokia’s market share contraction in the mid- and low-end smartphone segments,” he said.

In addition to its smartphone problems in the developed world, Nokia’s traditional strength in emerging markets is also under threat from low-cost Chinese manufacturers.

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