Nokia announced new strategic and financial plans. Central to the plan is a new, broad partnership with Microsoft, as well as a new company structure and investments in 'disruptive technology'. Nokia expects 2011 and 2012 will be transition years as a result of the shift in strategy and has withdrawn any financial guidance. The company still expects the market to show healthy growth thanks to the further rise of the smartphone, including in emerging markets ('the next billion'). Over the long term margin pressure is expected due to competition. The long-term outlook for the company’s core Devices & Services division is above-market growth and a margin of 10 percent of higher (at its annual results the company forecast a margin of 7-10 percent in 2011). The outlook for Nokia Siemens Networks was improved versus the annual results in late January: the company now expects slight market growth and breakeven for NSN, versus the earlier outlook for a margin of 0 to -3 percent. NSN still targets another EUR 500 million in cost savings.
Nokia in future will consist of two main divisions, Smart Devices and Mobile Phones, with the additional units Markets (sales & maketing), Services & Developer Experience (services), Navteq and Design (product & user experience design). Windows Phone will be its most important operating system, although Nokia will continue to support Symbian given its large installed base (200 million devices and another 150 million expected in the coming years). The company also reiterated its intention to launch this year a 'computer' based on the open-source MeeGo platform.
Nokia and Microsoft are giants with the requisite strengths. Nokia brings for example a strong position in the market for traditional handsets, high growth in emerging markets (especially China) and Navteq. Microsoft’s contribution is Windows Phone 7 (which received a relatively positive reception), Bing (number two search engine at a distance to Google), adCenter (for monetizing search advertising), Office and the Xbox. In addition certain activities can work together well. Nokia Maps (Navteq) will be used by Microsoft in Bing and adCenter, and Ovi will be integrated into Microsoft Marketplace. The two will also work together on development, and Nokia’s new unit Smart Devices "will be responsible for creating a winning Windows Phone portfolio". But how do you make all this happen?
Nokia are Microsoft are also the losers, or in the best case the runners up, in a number of areas. Nokia is not on top of the smartphone, and has seen its market share in the US hit a new low point as a result; Bing’s long-term sustainability is far from certain given its ongoing losses; and it’s still to be seen if Windows Phone can really compete with iOS (Apple), BlackBerry (RIM) and Android (Google with partners). A serious question is also why Android hasn’t been allowed in. In short, putting two weak players together doesn’t necessarily make a winning combination. The initial market reaction gives an indication: Nokia’s shares fell 12 percent.
Still, we have to welcome the ex-Microsoft man Stephen Elop’s daring. If the smartphone market share falls in one quarter from 40 to 31 percent then something is not right. It also takes daring to try and build a new ecosystem alongside Apple/iOS and Google/Android, creating a three-horse race. Elop has noted that Android is driving prices down (leaving the value to Google), which is a reason to not adopt Android. Nokia's share price reaction is more the result of scrapping its guidance for 2011 and 2012. Without guidance, analysts lose the ability to predict and investment risk increases. One can also ask though if Nokia has gone far enough. In the run-up to its presentation, there was speculation the company could move its HQ to the US. The meaning being, if you want to make progress in software development, it’s better to be in Silicon Valley. In that sense, the cooperation with Microsoft (which is not just in Redmond, Washington) is positive. Stephen Elop underlined still that Nokia is a Finnish company and will remain so.
In the end, some skepticism is needed on the partnership of these two fading powers. Two supertankers choosing a new course takes a long time. And to think that while Nokia and Microsoft are talking almost entirely about smartphones, the competition is already headed a new way: the tablet.
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