Windows Phone 8, coming in the fall, won't run on existing Windows Phones, Microsoft said during the launch of the smartphone operating system Wednesday.
As a result, analysts expect sales of existing Windows Phone models to get battered in the coming months, creating acute problems for the ailing Nokia, which makes Lumia smartphones running Windows Phone 7.5.
"Because Windows Phone 7 is not truly upgradeable to Windows Phone 8, this could have a negative impact on sales of existing WP7 smartphones, Nokia's Lumia devices in particular," said Malik Saadi, an analyst at Informa Telecoms & Media, on Thursday.
Saadi said wireless carriers and users will hold off on purchasing smartphones running the Windows Phone OS until the new devices that run WP8 are on the market in the fall. "This will have a serious impact on Nokia's financial performance this quarter as the company relies strongly on Windows Phones as the main platform for its smartphones."
Nokia could not be reached for comment. A week ago, Nokia said it was laying off 10,000 workers amid poor sales of low-cost phones and its Symbian-based phones, while the share of its new Windows Phone sales was still small.
Some features of Windows Phone 8 will be part of upgrades to Windows Phone 7.0 and 7.5 devices, including the Lumia 900 and Lumia 800, with an interim version called Windows Phone 7.8. But WP7.8 will only "mimic Windows Phone 8 but will lack performance and functionality that will require a deep integration with the hardware," Saadi said in an email.
Part of the reason for the lack of integration is that today's Windows Phones run single-core processors. Microsoft is promising that WP8 will run on smartphones with multicore processors and high-definition screens that support more sophisticated video and gaming applications.
Aside from concerns over phone sales, Saadi said he considers WP8 a marked improvement over WP7, and a possible "game-changer" for the platform that could bring back key manufacturers like HTC, Samsung and LG. Microsoft on Wednesday said that Nokia, Samsung, HTC and Huawei are working on Windows Phone 8 smartphones.
For the most part, analysts say Windows Phone 8 brings the OS into parity with Android and iOS smartphones. WP8 will have near field communication (NFC) technology, a mobile wallet, an updated start screen, support for encryption and the "secure boot" specification, built-in Nokia Navteq map technology and a full Internet Explorer 10 browser with new HTML 5 features.
Another new feature -- a removable micro-SD card -- will allow users to expand storage. Apple doesn't have expandable storage in its iPhone, and the feature would help set the Windows Phone apart, analysts noted.
"Differentiating WP8 from the iPhone by adding SD card capabilities is ... a positive move," said Al Hilwa, an analyst at IDC.
However, Saadi said IT managers might be concerned about losing corporate data when a micro-SD card is removed from a WP8 phone and obtained by someone not authorized to have the data. "An external SD card makes operators and IT managers quite nervous," he said. It isn't clear whether WP8's encryption capabilities could be applied to the SD card data.