Nokia, Microsoft Must Team Up on Phone, Analyst Says

Nokia Oyj and Microsoft Corp. need to join forces to avoid the dinosaur fate of mainframe makers, Berenberg Bank analyst Adnaan Ahmad wrote in an open letter to the chief executive officers of the two companies.

At Nokia’s investor meeting on Feb. 11, CEO Stephen Elop ought to announce a deal that gives the Finnish company exclusive access to Microsoft’s Windows Phone 7 and commits to a date for product shipment, Ahmad said.

Elop, a former Microsoft executive, said last week that Nokia “must build, catalyze and/or join a competitive ecosystem” to adapt to a faster-moving industry. His comments fanned speculation Nokia may adopt Windows Phone 7 or Google Inc.’s Android software. Microsoft CEO Steve Ballmer is grappling with a slow start for the company’s revamped Windows Phone 7, which shipped just 2 million units in the 100-million market in the last quarter.

“Nokia is no longer in denial,” Ahmad wrote in his letter to “Stephen and Steve.” “Microsoft also faces very big strategic challenges as smartphones and tablets attack your highly profitable installed base business.”

Nokia’s reported smartphone market share slid to 31 percent in the fourth quarter from 40 percent a year earlier as consumers defected to Apple Inc.’s iPhone and models based on Android. Apple has changed the game for smartphone makers just as Microsoft’s personal computer software changed it for mainframe makers like International Business Machines Corp. and Burroughs Corp., Ahmad said.

Symbian, MeeGo

Nokia spokesman Doug Dawson declined to comment on the letter. Microsoft officials couldn’t be reached for comment.

Nokia rose 4.3 percent to 8.17 euros today in Helsinki. Microsoft fell 5 cents to $27.94 at 4 p.m. New York time on the Nasdaq Stock Market.

By joining forces with Microsoft, Nokia would get a new smartphone operating system to replace Symbian in high-end devices, and access to the U.S. market where the world’s largest phonemaker currently has a single-digit market share, Ahmad said. It would also be able to shift research and development costs to Microsoft, permitting it to cut staff, he said.

Ahmad recommended Nokia scrap MeeGo, the platform it is developing with Intel Corp., saying “it’s the biggest joke in the tech industry right now, and will put you even further behind Apple and Google.”

To contact the reporter on this story: Diana ben-Aaron in Helsinki at dbenaaron1@bloomberg.net

To contact the editor responsible for this story: Vidya Root in Paris at vroot@bloomberg.net

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