Note to Microsoft: Nokia Doesn't Have Two Years

It will take two years for Nokia to transition to Windows Phone. The question has become will it still be in business by then?

When Microsoft and Nokia announced their deal for Windows Phone 7 to replace the Symbian and MeeGo operating systems, there was a fair amount of skepticism around the deal.  Funny thing is at the time, most people thought the deal was worse for Nokia than Microsoft.

Now we've got a reversal of fortune. Nokia's most recent quarterly results were an utter disaster and Microsoft has to wonder if its partner is going to last the two years it needs to make the transition to a new operating system.

The results are rough. Revenue fell 7 percent year-over-year to €9.275 billion. Sales for the Devices and Services division, which covers the feature and smartphones sales, was €5.5 billion, down 23 percent sequentially and down 20 percent year-over-year. Smartphone sales were down 34 percent. The company reported an operating loss of €487 million. A year ago, it reported an operating profit of €295 million.

Nokia has for a long time been the top phone seller in the world by units, but that party is over. Apple has surpassed it as top smartphone seller, with 20 million iPhones sold in the recent quarter vs. 16.7 million Nokia smartphones in the same period.

Francisco Jeronimo, an analyst following the European mobile device market for IDC, told Bloomberg that Nokia's new strategy with Microsoft can reverse this situation. "Nokia was the king of the user experience 10 years ago. They lost it to Apple and they lost it to Google devices. With the new platform Microsoft released a year ago, we do believe Microsoft can reverse this current situation," he told Bloomberg's Owen Thomas.

The question is whether it has the time. The perception of Nokia will only worsen and sales will continue to decelerate. There will come a point in the next two years where Microsoft will be forced to decide if it wants to stick with this partner, and I say the sooner, the better.

Nokia's value may come down to its patent portfolio, since it has a lot and recently forced Apple to cry uncle, something Apple doesn't do very often. So Microsoft may hang in there. But in the end, it may be left with a partner so weak, and with a brand so out of favor, that Windows Phone is tarnished by association.

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Copyright © 2011 IDG Communications, Inc.

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