Nokia warns that a Microsoft Surface smartphone is a risk

Nokia (NYSE:NOK) said that if Microsoft (NASDAQ:MSFT) builds its own branded Surface smartphone, the move could hurt Nokia's business.

"Microsoft may make strategic decisions or changes that may be detrimental to us," Nokia acknowledged in a recent Securities and Exchange Commission filing, first spotted by ZDNet. "For example, in addition to the Surface tablet, Microsoft may broaden its strategy to sell other mobile devices under its own brand, including smartphones. This could lead Microsoft to focus more on their own devices and less on mobile devices of other manufacturers that operate on the Windows Phone platform, including Nokia."

Nokia, like other companies, is required by law to list in SEC filings risks and uncertainties that could impact its business. For example, Nokia also entertains the possibility that Microsoft could abandon Windows Phone: "We license from Microsoft the Windows Phone operating system as our primary smartphone platform. Microsoft may act independently of us with respect to decisions and communications on that operating system which may have a negative effect on us. Moreover, if Microsoft reduces investment in that operating system or discontinues it, our smartphone strategy would be directly negatively affected by such acts."

Microsoft executives have never specifically denied the company could build its own Windows smartphone like Microsoft has done with its Surface Windows 8 tablet. In November, the Wall Street Journal reported that, according to unnamed sources, Microsoft was working with Asian component suppliers on its own smartphone design but had not decided if it would go into mass production. Citing unnamed sources as well, The Verge reported in October that Microsoft was likely considering its own smartphone as a backup plan for the future.

Nokia, which has struggled in its transition to Windows Phone as its primary smartphone platform, also said last week it will receive more "platform support" payments from Microsoft this year. However, Nokia will begin spending money on royalty payments to Microsoft starting next year; Nokia said its payments to Microsoft will exceed what it receives from the software giant by around $650 million over the remainder of their agreement.

For more:
- see this SEC filing
- see this ZDNet article
- see this The Verge article

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