Nokia spells out potential pitfalls for Microsoft alliance

By Stuart Corner
Monday, 14 March 2011 09:23

Opinion and Analysis

Annual reports that US stock market listed companies are required to lodged with the SEC (aka Form 20-F) are of necessity pessimistic documents. They are required to list under ‘risk factors’ almost every conceivable eventuality that could befall a company.

counter customizable free hit Many such risk factors are common to any entity, but what is worrying about those listed by Nokia in its latest annual report lodged with the SEC last week is the number of risk factors related to its recently announced decision to hitch its smartphone fortunes to those of Microsoft and to take Symbian and MeeGo along for the ride. Not only are these risk factors unique to Nokia there is, to my mind, a relatively high chance of them becoming reality.

For example Nokia lists, among other ‘generic’ risk factors: “Our failure to increase our speed of innovation, product development and execution will impair our ability to bring new competitive smartphones and mobile phones to the market in a timely manner,” and “We may be unable to retain, motivate, develop and recruit appropriately skilled employees, which may hamper our ability to implement our strategies, particularly our new mobile product strategy.”

Nothing to worry about unduly there: these are pretty much statements of the obvious and you would find similar in the filings of all Nokia’s competitors.

But the Microsoft-specific risk factors are an entirely different matter and they paint a picture very different from the bullish pronouncements of CEO Steven Elop when he announced the alliance last month. For example: “The Windows Phone platform is a very recent, largely unproven addition to the market focused solely on high-end smartphones with currently very low adoption and consumer awareness relative to the Android and Apple platforms, and the proposed Microsoft partnership may not succeed in developing it into a sufficiently broad competitive smartphone platform.”

And given the speed of innovation in the smartphone market these statements taken together are worrying. “We expect the transition to Windows Phone as our primary smartphone platform to take about two years. We and Microsoft have entered into a non-binding term sheet, and the proposed Microsoft partnership remains subject to the negotiation and execution of definitive agreements…Definitive agreements with Microsoft for the proposed partnership may not be entered into in a timely manner, or at all, or on terms beneficial to us…[and] the Microsoft partnership may not achieve in a timely manner the necessary scale, product breadth, geographical reach and localisation to be sufficiently competitive in the smartphone market.”

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