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  (Source: WinExtra)
Deal shows some signs of progress

Nokia Oyj. (HEL:NOK1V) and Microsoft Corp. (MSFT) shocked the mobile phone world in Feb. 2011 when they announced a deep strategic partnership, which spelled the end of the competitive Symbian platform.  The criticism was quick to come and the union was slow to deliver.

But with in late 2011 the pair began to turn the corner.  

I. What did $250M USD Buy?  1M Windows Phones, Thus Far

The story is in the spotlight today after Nokia revealed in an earnings conference call that it had received $250M USD as part of a series of "platform support payments".  The revelation pulled back the cloak that Microsoft had been keeping over the deal, commenting only that it had made "significant investments" in Nokia.

Clearly Microsoft is living in bizarro world, paying a third-party $250 USD per handset, approximately.  By contrast Apple, Inc. (AAPL) gets paid approximately $600 USD per handset.  Microsoft made $6.6B USD in profit for the quarter, so it has some money to play with.  And at this point Microsoft doesn't have much choice, as customers simply aren't lining up in the heat or cold to wait for the latest Windows Phone.

When looking the $250M USD payout, the big question is -- was it worth it?

The bad new is that Nokia did lose a massive €954M ($1.254B) for Q4, despite the payment.  The loss plunged its fiscal calendar 2011 to a loss of €1.073B ($1.411B).  For the quarter Nokia clung to its top spot in global feature phone sales, shedding only 1 percent.  But smart phone sales plunged by almost a third (31%).  

Aside from the sales, further signs of Nokia's struggles can be seen in its €1.090B ($1.434B) partial impairment (reevaluation of assets) concerning "goodwill" -- an accounting term that indicates brand reputation.  In other words, Nokia admits financially, at least, that its brand took a massive hit in 2011.

The pressing question is what will happen next.  Nokia's biggest problem is that it's scrapping its Symbian smartphone lineup, but lacks as diverse a Windows Phone family to replace it at present.  Nokia did sell 1 million Windows Phones in Europe in Nov.-Dec. 2011 with only two models -- the Nokia Lumia 710 and 800.

Lumia 800 and 710

The Nokia Lumia 800 (left) and 710 (right). [Image Source: Nokia]

With U.S. sales kicking off with the Lumia 710, which just went on sale on Deutsche Telekom AG's (ETR:DTE) T-Mobile USA, and with a slick new superphone -- the Lumia 900 -- landing in the U.S. and Europe later this year, Nokia has the potential to pick up some steam.

The Nokia Lumia 900. [Image Source: Nokia]

Nokia financials -- while seemingly bad -- were better than analyst expectations, as were its smartphone sales.  Analysts expected Nokia to only sell ~18.5 million smartphones for the quarter, but the better-than-expected Windows Phone launch dragged in 19.6 million.  By contrast Apple sold 37 million smartphones for the quarter -- putting it in first place globally -- followed closely by Samsung Electronics Comp., Ltd.'s (KS:005930) 35 million Android smartphone sold.

II.  2012 is Windows Phone's Biggest Test Yet

The big test will come this year as Microsoft and Nokia work to bring Windows Phone to emerging markets -- a place where Nokia's budget smartphones have traditionally outperformed Apple and Samsung.  Nokia is the top smartphone seller in China, which recently passed the U.S. to become the biggest market.  It outsold Samsung smartphones nearly 2-to-1 in China.

Nokia and Microsoft have what looks to be a winner -- attractively packaged smartphones with a slick, intuitive, colorful operating system.  The key test in terms, aside from the transition on the budget smartphone end in China, will be how much traction Nokia can get with U.S. carriers.

Nokia Lumia 800
Nokia faces unique challenges both in the U.S. and abroad [Image Source: Nokia Blog]

AT&T, Inc. (T) has announced that it will be carrying the Nokia Lumia 900.  Given AT&T's focus on the Lumia 900 at CES 2012, it can be presumed that AT&T will market this as the "premium" Windows Phone model (despite the HTC Corp. (TPE:2498Titan II carrying slightly better specs).  

The real test is whether Nokia can "pull a Samsung" and crank out a repackaged Lumia 900 (or some similar high-end offering) to sell on America's largest carrier, Verizon Wireless (Verizon Wireless is a joint subsidiary of Verizon Communications Inc. (VZ) and Vodafone Group Plc. (LON:VOD)).

If Nokia can manage to squeeze on Verizon and get a firm commitment out of the top U.S. carrier, it will have devices available to around 80 percent of American consumers.  That's a big deal.
  1. So to recap, Nokia's earnings are better then expected, but a loss is still a loss.  Nokia's homework in 2012 will be to:
  2. Successfully transistion its budget lineup to Windows Phone
  3. Carry out a strong Lumia 900 launch on AT&T
  4. Lure Verizon into a H2 2012 launch
Even if they don't like Nokia's devices, Windows Phone fans should be rooting for Nokia to pull off this turnaround.  Because for better or worse, both companies' smartphone futures are now intimately tied to each other in terms of brand image and finances.

Sources: Nokia [earnings], Microsoft [earnings], Bloomberg, Slashgear

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Funny how the carriers tie in
By Varun on 1/26/2012 2:36:16 PM , Rating: 2
I just find it funny how the carriers fit into the equation. AT&T seems to be a big supporter of Nokia and Windows Phone, where as Verizon seems to show nothing but disdain. I think the key difference being that AT&T sells far more iPhones than Android phones, and Verizon sells far more Android than iPhone.

I want the Lumia 900 in Canada, but it is not announced here yet. The 800 is "Coming Soon" to Telus Mobility so I will be getting one of those for my wife the second it is released.

Nokia has great apps on their Windows Phones, plus they all look great (even the 710 is not too bad, though nothing like the 800 and 900).

RE: Funny how the carriers tie in
By ltcommanderdata on 1/26/2012 3:16:08 PM , Rating: 2
I think the key difference being that AT&T sells far more iPhones than Android phones, and Verizon sells far more Android than iPhone.

It's not just AT&T where iPhones outsell Android in the US. As Verizon reported earlier, 55% of their smartphone sales were iPhones last quarter.

Let's say we're horribly off and that the iPhone sold only ~52%. Recent estimates show Canada's Research in Motion, Ltd. (TSE:RIM) to hold about 6% of U.S. sales, while Microsoft Corp. (MSFT) and others took up about 5 percent of sales. That would place Android at around 37%.

Jason Mick just did a feature where at worst, the iPhone is thought to represent 52% of US smartphone sales last quarter compared to 37% for Android. Whether pushed by carriers or not, US consumers apparently want iPhones, by a large margin.

RE: Funny how the carriers tie in
By sprockkets on 1/26/2012 3:25:08 PM , Rating: 2
Why would an android prefer iOS...

RE: Funny how the carriers tie in
By Alexvrb on 1/27/2012 1:19:30 AM , Rating: 2
Maybe he wants to be human.

By ltcommanderdata on 1/26/2012 3:33:13 PM , Rating: 2
I should note that since my comment was written, the linked article where the iPhone was thought to lead overall US smartphone sales has been updated to reflect ambiguity in the numbers preventing a definitive conclusion from being drawn one way or another.

By jimbojimbo on 1/27/2012 12:47:18 PM , Rating: 2
US consumers apparently want iPhones, by a large margin
This is only true when a new phone comes out. Quarterly numbers are skewed since there's always a HUGE spike when the new iphone comes out. I'll wager numbers will be completely different for the next couple of quarters.

RE: Funny how the carriers tie in
By CZroe on 1/26/2012 3:18:55 PM , Rating: 2
"Verizon sells far more Android than iPhone."

Not anymore. iPhone sales account for more than half of Verizon's smartphone sales last quarter, and Android isn't the only other smartphone platform they sell.

RE: Funny how the carriers tie in
By Varun on 1/26/2012 4:57:55 PM , Rating: 2
I had not seen their numbers yet when I posted. Pretty amazing quarter for Apple.

Still seems like Verizon favors Android over Windows Phone - comments like they made about LTE support make me think that. Windows Phone now has several models with LTE support but none are on Verizon, even after Verizon made a stink about it.

RE: Funny how the carriers tie in
By Samus on 1/27/2012 3:40:35 AM , Rating: 2
AT&T and T-mobile traditionally support Nokia because they have a large international user base, especially in Europe and Asia where Nokia has always done quite well.

In the USA, Nokia has always competed against 'home' carriers and 'recognized' brands from Verizon and Sprint who have traditionally pushed Motorola, Palm, Blackberry, etc. Most carriers here have never carried high-end Nokia offerings. Nokia products always seem to catter the budget customer because carriers only offer budget phones, which are good, but don't yield huge profits for Nokia nor repute them as a mobile technology leader, which they are, and always have been.

AT&T and T-mobile's most advanced Nokia offerings ended with the E-series. Neither officially have carried an N-series phone for 5 years. Verizon and Sprint have been selling phones like the 2610 for 10 years.

By MrMilli on 1/26/2012 4:06:37 PM , Rating: 2
It's funny that Nokia wants to kill a platform that still sells +18 million a quarter, has a much bigger app market than WinPhone and is actually quite competitive thanks to Symbian Belle.

RE: Symbian
By NellyFromMA on 1/26/2012 4:26:16 PM , Rating: 2
...except for the fact that realistically it was not going to survive or really have a chance beyond the run it already had therefor not worth investing it much further.

The writing was sort of on the wall, no? Microsoft was a much safer bet.

RE: Symbian
By wordsworm on 1/27/2012 6:00:17 AM , Rating: 2
What bet? Microsoft gave them 250m. How much was Symbian offering? I'm sure that had a lot to do with it.

In any case... the sad thing about the whole affair is that Motorolla was the only company to sell a Linux phone, and that isn't happening any more.

RE: Symbian
By cjc1103 on 1/27/2012 12:26:03 PM , Rating: 2
Nokia bought Symbian back in June 2008, and turned the software over to the Symbian Foundation. They don't pay any money for using Symbian, likewise the Symbian Foundation was not going to pay Nokia any money. Symbian was a difficult programming language, and wouldn't scale to work with smartphones. Instead Nokia developed MeeGo for it's smartphones, until that bombed, and they ended up in Microsoft's arms. The tech world is brutal, just because you have a good product, it doesn't mean it survives. Look at WebOS.

RE: Symbian
By wordsworm on 1/28/2012 8:11:49 AM , Rating: 2
I'm not giving up on WebOS yet. :) Open source it will be!

Apples to, uh...
By wpodonnell on 1/26/2012 4:44:38 PM , Rating: 5
Clearly Microsoft is living in bizarro world, paying a third-party $250 USD per handset, approximately. By contrast Apple, Inc. (AAPL) gets paid approximately $600 USD per handset.

Clearly you live in a bizarro world if you think that a cash infusion to an exclusive partner, one that will greatly assist in further development and visibility of the platform, is in any way analogous to Apple receiving money from a carrier that is subsidizing their hardware.

US Market
By Paj on 1/27/2012 7:07:15 AM , Rating: 2
I dont know if Nokia is missing something by trying to push WP7 so heavily in the US, where iOS and Android dominate.

If Nokia has such an established, trusted brand name in China, Latin America et al, why not focus efforts on building the brand there? As these economies industrialise and develop further, and their populations acquire more disposable income, Nokia/MS would be in a great position to take advantage of that.

They would then be in a better position to tackle the US/European market head on - at the moment it feels like theyre taking a risk they cant really afford to take.

Nokia Made a Massive Mistake
By dark matter on 1/28/12, Rating: 0
"What would I do? I'd shut it down and give the money back to the shareholders." -- Michael Dell, after being asked what to do with Apple Computer in 1997

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