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Nokia, Microsoft join forces in smart phone war

Nokia chief executive Stephen Elop, left, and Microsoft CEO Steve Ballmer during the Nokia Strategy and Financial Briefing at the Intercontinental Hotel in central London, on Feb. 11, 2011.

LEON NEAL/AFP/Getty Images

The bosses of Nokia Corp. and Microsoft together unveiled an aggressive strategy to challenge Apple and Google for domination of the hot smart phone market.

Nokia's Canadian CEO, Stephen Elop, and Steve Ballmer, his Microsoft counterpart, announced that Nokia would make Windows Phone its main phone platform, a move that effectively confirms that Nokia's own platforms, Symbian and MeeGo, are uncompetitive and will be tossed onto the technology scrap heap.

"This is now a three-horse race," Mr. Elop said, referring the Nokia-Microsoft attempt to prevent Google's Android operating system and the Apple iPhone from owning the entire smart phone market..

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Seated next to Mr. Elop in a London hotel auditorium, Mr. Ballmer said "this partnership with Nokia will accelerate - dramatically accelerate - our Windows phone ecosystem."

The partnership did not impress investors, who drove down Nokia's shares by 9 per cent in morning trading in Europe. Analysts said the plunge was in good part due to Nokia's warning of "significant uncertainties" over how the changes would affect the Finish company's performance this year.

Mr. Elop said the partnership with Microsoft was only part of Nokia's strategy to recapture market share and improve profitability in a viciously competitive market. Extensive firings at both the senior management and factory level are expected. "There will be substantial reductions in employment in various parts of the world, including Finland," he said.

Nokia's hefty research and development budget would also come down. He would provide no details on the cost-reduction exercise, other than to promise that it would happen quickly. Nokia has 60,000 employees and is still the leading maker of mobile handsets.

The partnership with Microsoft will see the fledgling Windows Phone 7 platform become the dominant platform on Nokia phones. That means Nokia will eventually cease shipping phones equipped with its workhorse Symbian system, though the company still expects to sell another 150-million.

Some technology analysts quipped that the Nokia-Microsoft marriage was like the marriage of two dinosaurs. One Google executive Tweeted that "two turkeys does not make an eagle."

Analyst Charles Golvin, of Forrester Research in California, described Nokia's partnership with Microsoft as a "big risk" because it could alienate the application developers who had been working on products for Nokia's Symbian and yet-to-be-released MeeGo platforms. "They have to convince all those developers to stay put and it may not work," he said in an interview in London. "Nokia's challenge is to make Windows Phone their next priority."

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Mr. Elop and Mr. Ballmer were vague about the timing of the launch of the first Windows-equipped Nokia products, though analysts do not expect them to appear on the market before next year.

Microsoft Phone 7 was launched a year ago and the first phones with the operating system arrived on the market four months ago. They system's market share is tiny - no more than 3 per cent.

Nokia once dominated the market for standard "feature phones" and smart phones, the Internet-enabled, multi-media devices that are becoming must-have tools for the business and high-end consumer markets. But Nokia's Symbian operating system has not proved popular with consumers, who have been migrating en masse to Android and Apple phones.

In a recent internal memo that was leaked to the media, Mr. Elop said Nokia was "years behind" its new rivals.

Mr. Elop is a former Microsoft executive who joined Nokia in September. He said he first approached Microsoft in November about forming a partnership.

Nokia face three choice in the autumn, he said. The first was to keep developing its own operating systems, Symbian and MeeGo. The second was to adopt Google's Android system and the third was to go with Microsoft.

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The first option was dropped because of the long lead times that would be required to update Symbian and get MeeGo launched. Android dropped off the list, he said, "because we would difficulties differentiating [ourselves]in that ecosystem…[Going with Google]would have felt a bit like giving up."

In the smart phone industry, an ecosystem is the association of hardware developers (in this case Nokia), software developers and the builders of applications, e-commerce, advertising, social applications, multimedia services and the like.

Nokia still sells almost two-thirds more phones than its nearest rival, Samsung, but its share of the market has shrunk from 36.4 per cent to 28.9 per cent in the past year, according to Gartner, a research firm. The company is especially weak in the United States.

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