Nokia’s Lengthy Transition to Windows Phone Full of Risks

Nokia’s billion dollar partnership agreement with Microsoft may be an early 2011 event, but the transition will take several years. Mobile Business Briefing reports that the company today said it will take until 2013 before the majority of its phone portfolio moves to Microsoft’s Windows Phone 7 platform. During the transition, Nokia’s already declining market share is likely to accelerate; it expects to only sell 150 million phones using its Symbian platform in the coming years.

These expectations set by Nokia (s nok) come from a nearly 200-page Form 20-F filed with the U.S. Securities and Exchange Commission. Publicly stating potential risk factors in a financial filing is status quo, so the fact that Nokia is doing so is of little concern. However, taking a look at just a few of the many risk points echoes much of the our own sentiment toward’s Nokia’s bleak future. Here are some of the more relevant risks:

  • The Windows Phone platform is a very recent, largely unproven addition to the market focused solely on high­end smartphones with currently very low adoption and consumer awarenessrelative to the Android (s goog) and Apple (s aapl) platforms.
  • Our expected transition to the Windows Phone platform may prove to be too long to compete effectively in the smartphone market longer term given the ongoing developments of othercompeting smartphone platform
  • Our ability to innovate and customize on the Windows Phone platform may not materialize asexpected to enable us to produce smartphones that are differentiated from those of our competitors.
  • We may not be able to change our mode of working or culture to enable us to work effectively and efficiently with Microsoft in order to realize the stated benefits of the proposed partnership in a timely manner.

Simply put, Nokia has decided that its best option to stay viable is to risk it all on an unproven, immature platform praying that it can survive the transition. And it hopes that its current customer base will come along for the ride, saying there’s an “opportunity to retain and transition the installed base of approximately 200 million Symbian owners to Nokia Windows Phone smartphones over time.”

There are a number of issues with the strategy, but perhaps the biggest one is that of time. As Nokia retools its handset portfolio, sales of iOS and Android devices are likely to continue growing, perhaps at a faster rate than today. Apple has already sold 100 million iPhones since mid-2007, so how many will it have sold by 2013 as Nokia’s transition takes place? Even with one handset model released per year, another 200 million iPhones sold by then isn’t out of the question. And Android’s growth rate is currently even higher.

Nokia realizes this, and again admits defeat in thinking that Symbian would be a viable response to competitors, saying this in the SEC filing:

Other smartphone platforms with their related ecosystems have gained significant momentum and market share, specifically Apple’s iOS proprietary platform and Google’s open source Android platform, and are continuing apace. Until very recently, we believed our competitive position in smartphones could be improved with Symbian, as well as MeeGo, and our strategy based on those platforms. We are now of the view, however, that for the longer term our Symbian platform is not sufficiently competitive in leading markets.

Getting back to the issue of time: Nokia isn’t partnering with a company known for moving quickly in the mobile market. Microsoft (s msft ) took nearly three years to respond to Apple’s iPhone by debuting Windows Phone 7 devices last fall. The platform offers a fresh take on user experience, but lacks many features offered by competing operating systems. And perhaps even worse: adding those features to the platform is taking too long.

Earlier this week, for example, I pointed out that my Windows Phone 7 device still hasn’t received the first promised update, which doesn’t even add any new functionality: it simply preps the phone for the next update. Microsoft CEO, Steve Ballmer, promised that the functional update, called NoDo, would arrive within the first two weeks of March. My concern was well founded because last night, Microsoft announced it was pushing back the NoDo update into the second half this month. Eric Huatala, who runs the team responsible for Windows Phone 7 software updates says:

We have the next update waiting in the wings. It delivers copy and paste, better Marketplace search, and other key improvements. But I believe it’s important that we learn all we can from the February update. So I’ve decided to take some extra time to ensure the update process meets our standards, your standards, and the standards of our partners. As a result, our plan is to start delivering the copy-and-paste update in the latter half of March.

I can only wonder what Nokia executives, customers and board members now think of the already unpopular decision to partner with Microsoft; a decision that may not even yield a Microsoft-powered Nokia phone this calendar year. Two partners that are each slow to react and change to market conditions typically don’t equal one fast entity. In this quickly changing “post-PC” world, Nokia may have done better to partner with a non-PC company.

Instead, it appears that Apple and Google are driving a Ferrari on the Autobahn while Microsoft and Nokia take the scenic route in an old clunker.