Nokia-Microsoft: Will they succeed or continue to limp along in smartphones?

Early success seems elusive for both, analysts say

The broad Nokia-Microsoft partnership announced Friday in which the Windows Phone operating system would run on Nokia smartphones sounds like good news for both companies because of their struggles in the smartphone arena.

But many analysts wonder what the companies will make of the relationship in the coming year. Can Nokia come up with smartphones, tablets and related services and applications that will outdistance Google's Android, Apple's iPhone and others?

Two wrongs don't make a right, several cynical bloggers quipped earlier in the week when the partnership was rumored. And even after the news was announced Friday, more charitable analysts were guarded or even skeptical of the partnership's success.

"The Nokia/Microsoft alliance ... is far from a natural fit, and it's going to take some serious re-engineering and a lot of time to make it work," noted Carl Howe, an analyst at Yankee Group, in an e-mail.

For one, Windows Phone has a "very high hardware requirement," Howe said, arguing that it will only fit in expensive Nokia smartphone hardware. That means that at least 70% of Nokia buyers won't see any Microsoft software "for years to come."

Ted Schadler, an analyst at Forrester Research, wrote in his blog, "It's way too early to tell if this partnership will be successful or if anybody ... will care about Nokia smartphones or tablets running Windows Phone 7." Schadler listed a number of things that need to happen for the alliance to succeed, among them creating a tablet computer on a Windows Phone OS. Nokia also has to sign up carriers willing to sell the new WP7 smartphones and tablets, he said, and the partnership must ensure porting of Microsoft Word, PowerPoint, Excel and SharePoint Workspace to those devices.

After ticking off that list of requirements, Schadler added, "If they execute brilliantly, then they could be relevant."

Phillip Redman, an analyst at Gartner, said the entire ecosystem for selling smartphones requires retailers, carriers, application developers and others, which might or might not be in place for the Nokia smartphones running Windows Phone 7 or a future Windows Phone OS.

"I don't see how this [partnership] changes their opportunity much," he added. "Tight integration between the OS and hardware could improve functionality. However, Microsoft has never been able to take advantage of its core developer group for mobile, so I don't see why this would help much. Android would be better for Nokia smartphones."

Will Stofega, an analyst at IDC, attended the London partnership announcement where Microsoft CEO Steve Ballmer and Nokia CEO Stephen Elop spoke, saying he was impressed by Elop, a former Microsoft executive, and his rationale for moving to Windows Phone.

Given the need for Microsoft to put WP7 and its future generations of mobile OSes in more devices and Nokia's fall-off in smartphone market share, "they both had to do something," Stofega said in a telephone interview. "Elop made a logical, well-thought-out decision. He laid out the case for why they did this and where they're going, and he certainly has the Microsoft experience to get things moving."

Elop's general argument for partnering was that when Nokia considered whether it could find an OS internally that would do well in the market, "the answer was no," Stofega said.

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