Nokia Admits Risks with Windows Phone Transition: May Become Unprofitable

From X-bit Labs: Microsoft Corp. and Nokia Corp. announced plans to transit Nokia smartphones to Windows Phone operating system back in February. No actual agreements have been reached so far and the actual negotiations are ongoing. However, Nokia has already outlined a number of risks that it will run into during the transition period and as a result of such changeover.

On February 11, 2011, Nokia and Microsoft announced decision to switch smartphones from the world's largest maker handsets to the operating system from Microsoft. Under the terms of the agreement, Nokia would adopt Windows Phone as its principal smartphone strategy, Nokia would help drive the future of Windows Phone and would contribute its expertise on hardware design, language support, and help bring Windows Phone to a larger range of price points, market segments and geographies. Besides, Nokia and Microsoft would closely collaborate on joint marketing initiatives and a shared development roadmap to align on the future evolution of mobile products. There are other points of proposed partnership, which is yet to be finalized an published, but Nokia has already published the list of risks that it will run into because of the switch.

The fact of the announcement to transit to Windows Phone operating system has already reduced interest towards Nokia Symbian platforms and thus towards actual smartphones based on them. But there are more risks for Nokia, which the company noted in a filing with the Security and Exchange Commission.

Nokia warns that the expected transition may prove to be too long to compete effectively in the smartphone market; Nokia's ability to innovate and customize on the Windows Phone platform may not materialize; new sources of revenue expected to be generated from the partnership may not emerge or may miss the goals; Nokia may prove to be unable to change its mode of working or culture to enable efficient partnership; the proposed Microsoft partnership may cause dissatisfaction among partners and employees, which affects terms of Nokia's business and operations; Nokia and Microsoft may not be able to properly integrate their services or fail to capitalize on the final product. Typically, 8-K and 20-F filings with SEC are full of various risks and uncertainties that almost never materialize, so not all of such factors should be considered in general.

But there are more fundamental risks for the company than just short-term or mid-term conditions or market situations. The long-term future of Nokia is determined by its ability to create leading-edge technologies, sustain the importance of its brand-name and ensure its market share and profitability.

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