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Nokia, Microsoft Reveal Details Of Their Deal While Nokia’s Earnings Drop

The handset maker and software giant may have already walked down the aisle as far back as February 11, but it was only today that they finally closed the deal on paper, complete with more details on who gets what out of it. The news comes on the same day that Nokia (NYSE: NOK) announced its quarterly earnings — in which the device maker reported declines in almost every key area compared to the quarter before.

Here are the details of the Nokiasoft deal:

Mapping. As suspected, Nokia will take over all the mapping and navigation services for the Windows Phone “ecosystem” — which may even extend to include WP7 implementations on other, non-Nokia devices. Also included will be “certain” location-based services.

Search. Again, not too surprising to see that Microsoft’s Bing will be the defualt search service across all Nokia devices. The agreement says that Microsoft (NSDQ: MSFT) will also be “contributing strength” to other services such as “productivity [enterprise, presumably], advertising, gaming and social media.” That seems to imply that Nokia will retain and possibly try to integrate some of the content services it already has in all these areas, particularly in gaming.

Developers. A joint outreach program will be put in place. Cleverly, those who are already developing for Nokia today will get free registration to develop on the Windows Phone platform.

Integrated app store and billing. This is an interesting one. Looks like Ovi might disappear as a brand in favor of Nokia. And the app store that exists today is getting scrapped. The app store will cover all the company’s platforms — Windows Phone, Symbian and Series 40 devices — and will be “leveraging” the Windows Phone Marketplace “infrastructure”. That should include all the search and ranking algorithms, SDKs, and some billing arrangements — but not all. Nokia already has deals with 112 operators in 32 markets to charge for apps and other services using the operators’ billing systems (which can mean charging to a user’s monthly bill; or deducting from a prepay account); those will be integrated into the app store too.

Royalties: Microsoft will get a royalty payment from Nokia to use the WP platform. No details on the number, except to say it is “competitive” and reflective of the volumes Nokia is expected to shift, as well as engineering work to integrate the platform into Nokia’s device framework. (That looks like Nokia’s way of saying that it might be at a discount to what other OEMs pay…)

Meanwhile, Nokia, too, seems to be getting a payment from Microsoft: again, no specific number but a sum “measured in the billions of dollars” will be paid by Microsoft to Nokia in recognition of what Nokia is doing. This also includes payments for intellectual property: “Nokia will receive substantial payments under the agreement” in exchange for licensing IP to Microsoft for this deal. Again this may be related to the maps products, which will get used for Windows Phone services with other OEMs.

Who is the net winner in those payments, we wonder?

The news comes as Nokia today reported lackluster quarterly earnings. Sales for Q1 2011 were €10.4 billion for the period ended March 31, representing an increase of nine percent on the same quarter one year ago, but a drop of 18 percent on Q4 2010.

Devices, at €7 billion, accounted for the majority of Nokia’s business, but they also saw the smallest growth: six percent on Q1 2010, and a drop of 17 percent on Q4 2010.

Total mobile device volumes were 108.5 million units, which reprsented growth of only one percent over last year, and a decline of 12 percent from last quarter.

Smartphones fared slightly better than feature phones. They were up 13 percent over last year to 24.2 million units. But that was still a decline of 14 percent on last quarter.

Tellingly the average selling price for Nokia’s devices is currently €65, compared to over $300 for Apple’s iPhones.

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