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Windows Phone 8 announcement puts partner Nokia in tough spot

With new OS coming in the fall, sales of Nokia's current Lumia smartphone line could be hit hard

By , Network World
June 21, 2012 05:02 PM ET

Network World - Microsoft made important headway in its bid to compete in the smartphone market this week, announcing the next-generation Windows Phone 8 smartphone operating system. But in the process, the company has "placed their hardware partners in a very awkward situation," says Wayne Lam, IHS senior analyst in wireless communications.

RELATED: Microsoft's Surface tablet will not kill the iPad, but might sour OEM relations

MORE: Microsoft previews Windows Phone 8

Windows Phone 8 is Microsoft's first mobile operating system based on the Windows NT kernel. In addition to the ability to run multi-core processors and take advantage of higher-quality graphics, the upgrade from the legacy CE kernel means that Windows users could have the same fluid experience across their PCs, tablets and smartphones.

"With Microsoft's announcements this week they really have brought clarity and focus to their mobile OS ecosystem," adds Lam. "Where they were kind of all over the place before, now we kind of see their cards, so to speak, and it's a pretty exciting week for their announcements."

The move may have also caused some collateral damage. Unlike Apple's iOS, Windows Phone 8 will not be available as an upgrade for older smartphones running Windows Phone 7; anyone who wants the OS will need to purchase an entirely new device running it.

Lam says Microsoft "basically cleaved off all existing Windows Phone 7.5 devices," effectively nullifying existing versions of the Nokia Lumia, the current flagship product of its primary smartphone manufacturing partner. Although Microsoft is offering the ability to upgrade to the new Windows Phone 7.8, the decision will shorten the Lumia's shelf life to about nine months, Lam says.

"Nokia is already having a tough time building market momentum behind their Lumia line, and now to basically have Microsoft signal to the market that they might as well stop thinking about purchasing Lumia because they're going to have something new in October, it sets up for a difficult sales cycle for Nokia moving on," Lam says.

The Windows Phone 8 announcement wasn't Microsoft's only move this week to have repercussions in the OEM community. On Monday, when Microsoft introduced its internally manufactured Surface tablets, analysts predicted fallout from OEM partners who would now have to compete against Microsoft while also paying to license Windows 8 for their own tablets. Roger Kay, principal analyst at Endpoint Technologies Associates, said in an interview with IDG News Service that he believes Microsoft's manufacturers "are fairly discontent" about the move from Microsoft.

"The tablet is the heart and soul of Windows 8, and it looks like Microsoft has reserved it," Kay said.

Similarly, Lam says "with the Surface announcements, [Microsoft] basically said to their traditional PC manufacturers making tablets based on Windows 8 that 'this is how you do it right.'"

However, the political squabbles will be a minor bump in the road for Microsoft, say analysts. Earlier this month, IDC released a report that reiterated its previous predictions for Windows Phone to assume the No. 2 spot in the smartphone race, and forecasted a 46% compound annual growth rate from 2012 to 2016. Google's Android, Apple's iOS and Research In Motion's BlackBerry are all expected to lose market share during that time, IDC said.

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