Nokia embraces Microsoft's Windows Phone 7, warns of mass job cuts

Nokia (NYSE:NOK) CEO Stephen Elop announced a wide-ranging mobile alliance with Nokia's former rival--Microsoft (NASDAQ:MSFT)--that involves Nokia using Windows Phone 7 as its primary smartphone platform. Nokia also said there will likely be mass layoffs ahead as it transitions from Symbian to Windows Phone. There were reports on Friday that over 1,000 Nokia workers walked out of work in protest at Nokia facilities in Finland.

Click here to watch a portion of Nokia and Microsoft's press conference.The announcement, unveiled in a much-anticipated investor conference Friday in London, will create a pact between the world's largest handset maker and one of the world's largest software companies as they try to outduel Apple's (NASDAQ:AAPL) iOS and Google's (NASDAQ:GOOG) Android platforms. Yet many questions remain, analysts said, and neither party has much momentum in the mobile market.

The alliance represents a fundamental break from Nokia's past and culture, and is an admission that its smartphone strategy to date has largely failed. It also signals a decisive shift away from the Symbian platform, which has long been Nokia's mainstay smartphone operating system.

With regard to the job cuts, Elop said that company is not "announcing how many and in what country," but said they will likely come soon. The Finnish government is apparently bracing for huge layoffs.

"You're talking about 20,000 people, it's a big number," Minister for Economic Affairs Mauri Pekkarinen told YLE. "We're talking about far and away the biggest process of structural change that Finland has ever seen in the new technology sector."

However, Nokia declined to confirm that figure for the job cuts. "Stephen mentioned that there would be significant changes but the impact of the new strategy on personnel is not known yet until the planning process for implementation of the new strategy is started," a Nokia spokesperson told the blog AllThingsD. "We have a strong track record and positive experiences of supporting employees in this kind of a situation and will aim to support the employees with different solutions. As always, when impact on employees are known we will announce them, and if job reductions are warranted we will follow all relevant legislation and practices."

According to the Finnish newspaper Helsingin Sanomat, over 1,000 Nokia workers walked out of Nokia facilities in Finland in protest of the decision or took the day off using flex-time work rules. The report said that Nokia will be closing its facility at Tempere, where 3,000 people work, including 1,500 who work on Symbian.

The two companies did not disclose financial terms of the partnership.

As for Symbian, Nokia expects to sell 150 million more Symbian phones as it transitions to Windows Phone, but will decrease investment and focus on Symbian over the next few years. Nokia likely will phase Symbian out at some point in the future.

MeeGo's fate is a little less clear. Nokia said that MeeGo, the open-source project it developed with Intel, will become a long-term initiative focused on "next-generation devices, platforms and user experiences." Nokia said it will ship one MeeGo device in 2011--but didn't provide additional plans for the platform.

Nokia and Microsoft sought to cast the move as more strategic than Nokia simply licensing Windows Phone. For instance, Nokia's Ovi Maps will be integrated with Microsoft's Bing search engine and adCenter advertising platform; Bing will power Nokia's search services across its devices and services; and Nokia's Ovi Store and services will be melded with Microsoft Marketplace. "It's far more interesting than a simple licensing deal," Elop said.

Elop said Nokia will differentiate Windows Phone 7 but that it must "resist the temptation to customise just for the sake of customisation."

In discussing why Nokia went with Windows Phone over Android, Elop said Nokia would be just one of many handset OEMs using Android. He also said Nokia couldn't leverage its services, like the mapping software it acquired from Navteq. "Our sense was differentiation could be a pretty big challenge," Elop said. "The risk for commoditisation would increase dramatically."

As part of its change in smartphone strategy, Nokia also will shake up its organisational structure. As of April 1, Nokia will have two distinct business units: Smart Devices and Mobile Phones, which will focus on high-end devices and mass-market phones, respectively. Smart Devices will be led by Jo Harlow and will focus on the Windows Phone portfolio, MeeGo, Symbian and strategic business operations. The Mobile Phones unit will be led by Mary McDowell and will focus on connecting people to the mobile Internet in emerging markets. Most notably, Alberto Torres, the company's MeeGo chief, will leave the company. Nokia will name a new head of its North American operations in the coming days--Elop has talked multiple times in recent weeks about how the company needs to gain traction in the U.S. market. 

Nokia also said that from a financial perspective, both 2011 and 2012 will be transition years, but that after the transitions its Devices and Services net sales are expected to grow faster than the market and its operating margin is expected to be 10 per cent or more.

Many questions remain about the new strategy. Nokia would not commit to when it will release its first Windows Phone device, but said the deal will allow it to move at a faster pace than it did with Symbian. Elop said that by 2012 Nokia will be shipping Windows Phone devices in large volumes at a variety of price points. Elop also said that its Qt development platform will continue to be used for Symbian and MeeGo, but will not be ported to Windows Phone.

On tablets, in which neither Nokia or Microsoft has a particularly strong strategy, Elop said Nokia is not announcing any tablet plans, but hinted that Windows Phone could possibly power a tablet.

Analysts were skeptical of Nokia's strategy, but admitted it was essentially the only option Nokia has. They also said it was a major win for Microsoft, which battled Nokia for years before the emergence of Apple and Google in the smartphone market. Gartner analyst Michael Gartenberg said it was also a loss for Google.

"Is this a case of two parties that are coming together because they see the value in each other's strengths, they can play off each other, and they have value they can bring to the table? If it's that, then something good can come out of it," Gartenberg told FierceWireless. "If it's 'The enemy of my enemy is my friend,' and we are going to come together because we have to, that usually doesn't work out well."

For more:
- see these three Nokia releases
- see this AllThingsD live blog
- see this AllThingsD article
- see this article
- see this Helsingin Sanomat article (translated) 
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