Nokia to get billions from Microsoft

Over the weekend, as the Nokia-Microsoft alliance was announced, NBR asked the question: what's in it for Nokia?

For Microsoft, whose phone business is relatively tiny, the rationale was clear: its Windows Phone 7 software would now appear on an (un-named) number of Nokia's cellphones. Windows Phone 7 needs scale and Nokia - still the world's largest phone company, by a miile - has certainly got it.

But what do our Finnish friends get out of the deal? Many thought the company should have partnered with Google. After-all, sales of handsets running the search giant's Android OS already out-sell RIM's BlackBerry and Apple's iPhone in the much-coveted smartphone sector, and Android caters to the masses with support for (relatively) cheap phones, too.

Today, Nokia chief executive Stephne Elop answered the question: cash.

Mr Elop told The Wall Street Journal that Nokia will receive "billions of dollars" in financial support from Microsoft over the early years of their partnership to help market and develop Nokia phones using Microsoft's Windows Phone 7 software.

Critics will note an irony here. Nokia's 13.97% fall on the NYSE Friday (US time) as the deal was announced, wiping around $US5 billion from the company's market cap.

SATURDAY, FEBRUARY 12: Last night, Microsoft announced a sweeping deal with Nokia, the world's largest phone company.

The deal will see Nokia use Microsoft's Windows Phone 7 software on an un-named number of models in the smartphone category, where the Finnish giant has been bleeding market share to Apple's iPhone, RIM's BlackBerry and all-comers making phones that run on Google's Android.

Among other measures, Microsoft will adopt Nokia Maps over various mobile and online services, and Nokia will adopt Microsoft's Bing as its default search engine (see the pair's official announcement here).

Some saw the alliance as the precursor to a fully-fleged merger.

But on the face of things, it was a waffly deal. Nokia has previously offered Microsoft software on a some of its smartphones, to little effect.

Nokia dives
The press was not positive. The Wall Street Journal's coverage, for example, was headlined "Nokia's desparate grasp at Microsoft".

And Nokia investors duly took fright, with the company's shares falling 14.98% on the Helsinki exchange, and its NYSE-listed ADR's (NYSE: NOK) diving by the same amount when the US market opened.

Microsoft investors shrug
Microsoft investors were more sanguine (smartphones, and Bing, represent a relatively small part of its business), with its shares (NAS: MSFT) dipping 0.95% against a broader market rise of 0.53%.

Good deal for Microsoft
To NBR's mind, the deal is a good one for Microsoft.

The company's new Windows Phone 7 software is user-firendly, and makes smart use of online services, whether you're into Xbox, photo-sharing, music or more corporate pursuits.

But you'd never know it. There's been little for Windows Phone 7 (WP7) worldwide. Microsoft has simply lacked the political nous, and mobile industry muscle, to get phone companies to push handsets from HTC, LG, Dell and others that run on (WP7).

In New Zealand, Vodafone and Telecom (if you look hard) carry a single WP7 model each. 2degrees has ignored the platform altogether.

It's a stark contrast to the way all three carriers fall over themselves to push Google's Android platform. Telecom and 2degrees event expend a lot more effort pushing Apple's iPhone - even though they're not even oficial carriers.

Bad deal for Nokia
The deal was no surprise. It had been widely speculated since Stephen Elop left Microsoft to become financially-troubled Nokia's new chief executive in September last year.

Yet with Microsoft's relatively tiny share of the smartphone market, and Bing struggling to pull back Google's huge lead in search (many New Zealanders are simply unware Bing exists), it was not immediately clear what was in it for Nokia.

Some hoped the company would instead bet on Google's Android platform. 

Clearly, the decision to go with Microsoft did not sit well with shareholders.

That burning man memo
Yesterday, an email from Mr Elop to Nokia staff was leaked to The Wall Street Journal. 

It was apocalyptic in tone,  comparing Nokia to a man standing on a burning oil platform who jumps into icy waters to escape the flames, Mr. Elop said dramatic action is needed to reverse a decline that has left Nokia "years behind" the competition.

A senior Telecom executive told NBR it was a "half-written" memo. 

It covered the "we're f***ked" bit, but did not outline a plan for saving the company, the Telecom executive said.

Today, the rescue plan was detailed.

But it seems that rather than wait for the good ship Microsoft to save them, many Nokia investors have decided to jump into the sea.

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