I’ve spent most of my day at the Nokia (NYSE: NOK) strategy day in London, where the Finnish handset maker announced a landmark agreement with Microsoft (NSDQ: MSFT) for Windows Phone to be its future smartphone platform, with the two Steves (Ballmer and Elop) delivering their joint message and soft-shoe dance. I covered the proceedings live here. For a bit of color, I spoke with a couple of analysts over an early-bird lunch (at 10:50 AM!) and got their take on the news:
Strong Android interest. The reports about Android being weighed up as a possibility were very real. During the presentation Elop spoke a lot of about the pros and cons of that platform, and concluded — in language very fitting for the author of the “burning platform” memo: “Android is a black hole sucking innovation out of other ecosystems,” says Elop.
But Scott Sutherland, MD of equity research at Wedbush Securities, told mocoNews that this was not the opinion of all Nokia executives. “A lot of executives working for Nokia in the U.S. will be angry. They were really backing Android. But given the senior leadership at Nokia, Microsoft was the obvious choice.”
Hedging bets benefits Microsoft more than Nokia. Microsoft and Nokia say that the deal is non-exclusive. That means that competing OEMs like Samsung, HTC and Dell can continue to make devices based on Windows Phone 7. Nokia can also continue to look at MeeGo and even use Symbian for the time being, but it has effectively, for all intents and purposes, said Microsoft will be its primary smartphone platform going forward.
Standard & Poor’s equity research analyst James Crawshaw thinks this is bad news for Nokia, and great for Microsoft. “It’s like a one-sided marriage. Nokia is committing itself, and getting getting rid of its ugly girlfriends [that would be Symbian and MeeGo]. But Microsoft gets to keep seeing other people.
“Nokia had no other option other than to sign on with Microsoft,” he continued, while Microsoft will continue to have the benefit of getting its operating system tinkered around with by other handset makers.
In Nokia’s defense, later in the afternoon, Elop promised that Nokia will have deeper integration with Microsoft, more than other OEMs, in areas like maps and search. Ultimately, we’ll have to wait for the first devices (no dates on those yet) to see how Nokia runs with this one.
“Nokia will need to carve out a niche for themselves. They’re terrified of just being a hardware company,” said Crawshaw. “They have the maps and content for recurring business. It’s theirs to play for.”
What are the margins? Timo Ihamuotila, CFO of Nokia, said: “We will be making royalty payments to Microsoft,” to use its platform, but that in exchange “We will be getting significant marketing support.” Crawshaw questioned whether that royalty will be on the same percentage that other handset makers like Samsung and HTC are paying. This will have a big impact on margins for devices.
Impressed with Elop. “I’m very impressed with Stephen Elop,” said Crawshaw. “He’s very charaismatic, very convincing, especially in the live Q&A.”