Microsoft-Nokia alliance --- a great way to turbocharge Windows Phone 7 sales

The rumor mill is working overtime, saying that Microsoft and Nokia will announce an alliance putting Windows Phone 7 on the most advanced Nokia smartphones. It would be a good move that could help the flagging fortunes of both companies in the mobile market.

The rumors began when analyst Adnaan Ahmad of Berenberg Bank in Hamburg wrote an open letter suggesting that Microsoft CEO Steve Ballmer and top Nokia executive Stephen Elop (a former Microsoft exec) form a partnership.

According to Seattlepi, here's what he suggested to Nokia's Elop:

"Announce an EXCLUSIVE deal with your ex-colleague, Steve: you get access to their WP7 intellectual property (IPR) scot-free and access to the US market where your share has dived to the low single-digit level, and in so doing cut your bloated handset business R&D budget by at least €1bn ($1.4 billion), or 30%, which should add 300 bps to your operating margin. Get rid of your own proprietary high-end solution (MEEGO) -- it's the biggest joke in the tech industry right now and will put you even further behind Apple and Google.

"Focus your high-end portfolio around WP7, and over time you can take the cost down (that's Steve's job and cost base) to get this into the mid-range market. Push your Symbian solutions into the low-to-mid-range smartphone market as quickly as possible to defend market share versus Android's upcoming lowered cost ecosystem."

Nokia wins by cutting its budget significantly, abandoing MEEGO, and getting a solid, useful phone OS for high-end smartphones. Microsoft wins by getting the onetime market leader to consolidate its smartphones on the lagging Windows Phone 7.

Ahmad's letter, written to the Financial Times, has this to say about why the alliance would help Microsoft, according to PC World:

"two million units shipped in the last quarter is not really much to write home about, given $500m in marketing programmes (ouch), but with Nokia on-side, you get access to a potential 20-25 percent global share over time--and exclusivity. You need to tie yourself to a high-volume player to be relevant."

The New York Times reports that rumors have such an announcement taking place Feb. 11 when Elop gives a speech in London to investors.

This arrangement could be the boost that Microsoft needs in order to gain market share against Android and the iPhone. And Nokia, which once ruled the mobile roost, has struggled, especially in the U.S. market. The New York Times notes:

Nokia was the U.S. market leader as recently as 2002, but has since ceded almost all of its market share in the world’s largest mobile phone market to Samsung, Apple, Research in Motion, HTC and LG. In the third quarter, Nokia’s U.S. market share was just 2 percent, according to Strategy Analytics, a research firm based in Boston.

This is just the kind of move that Microsoft needs to make if it wants Windows Phone 7 to gain any traction. The Windows Phone 7 launch was underwhelming, and it's still losing ground to both Android and the iPhone. An alliance with Nokia could make a big difference.

Copyright © 2011 IDG Communications, Inc.

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