Both companies are trying to make up ground lost to Apple's iPhone and handsets based on Android
(Bloomberg) — Nokia Oyj Chief Executive Stephen Elop tried yesterday in Barcelona to defend his decision to join forces with Microsoft Corp., a move that's wiped 5.7 billion euros ($7.7 billion) off the company's market value in two days.
Making a surprise appearance during a presentation by Microsoft CEO Steve Ballmer at the Mobile World Congress, Elop sought to portray the challenge of winning back ground lost by the Finnish company to Apple Inc.'s iPhone and handsets based on Google Inc.'s Android software as "a war of ecosystems." Elop announced on Feb. 11 that Nokia would make Windows Phone 7 its primary mobile-phone platform, replacing its home-grown Symbian.
Elop's claim on the previous day that the company will get "billions " in benefits from its partnership with Microsoft did little to stem the slide in Nokia's stock. He and Ballmer yesterday tried to show they would be the "the most operator- friendly" choice. Analysts remain skeptical.
"The decision to transition its smartphone portfolio to Microsoft Windows Phone is a risky one for Nokia," said Alex Spektor, an analyst at Strategy Analytics Inc. "As Nokia transitions its smartphone portfolio to an entirely different platform, there is a risk that previously loyal Nokia consumers might abandon the vendor, hurting Nokia's previously colossal smartphone volumes in the long term."
Nokia's shares, which fell 14 percent on Feb. 11, tumbled 5.3 percent in Helsinki yesterday, closing at 6.63 euros, the lowest level in seven months.
Delivery of "even a single Windows Phone 7 device" in time for the Christmas shopping season will be difficult for Nokia, JPMorgan Chase & Co. analyst Rod Hall wrote in a report. "For a substantial change like this, it's imperative that the first device is declared a success in the marketplace."
Elop promised to listen to mobile operators' concern about the growing dominance of Apple and Google mobile platforms. Mobile operators' discontent with Google and Apple, whose software accounted for about 53 percent of smartphone sales worldwide last year, is rising.
France Telecom SA, Telecom Italia SpA, and Telefonica SA executives have complained that traffic generated by the U.S. companies is overwhelming their networks, and are looking for ways to increase revenue with their own applications. Creating "the best place for operators to add value" will be a priority for the Microsoft-Nokia alliance, Ballmer said.
Since Elop, a former Microsoft executive, took over as CEO in September, Google's Android software has passed Nokia's Symbian as the most popular smartphone operating system, according to analysis of shipments by research firm IDC.
While the Microsoft software offers many features, selling the phone frequently means overcoming initial consumer skepticism, Telstra Corp. Ltd. CEO David Thodey said in an interview in Barcelona.
Windows Phone 7 devices have accounted for about 7 to 8 percent of new sales at Australia's largest phone company since they were introduced late last year, he said.
Windows Phone also lags far behind Apple and Google's respective operating systems in the number of mobile applications available, limiting its exposure to what Booz & Co. estimates will be a $40 billion market by 2014.
About 8,000 apps are currently available for Windows Phone 7, which began sales late last year, Ballmer said yesterday. By comparison, about 130,000 apps are available for Android and more than 300,000 for Apple's iOS. Other device-makers, who apart from Apple are overwhelmingly choosing Google's Android for new devices, are downplaying the significance of the Nokia-Microsoft deal.
The alliance is "almost a non-event" for Motorola Mobility Inc., which is unveiling new devices based on Android, senior vice-president Alain Mutricy said in an interview. "It sends a very strong signal to the market that Nokia doesn't expect to have very competitive products in the short term."