Analyst's Letter Sparks Nokia, Microsoft Rumors

Rumors are again surfacing pertaining to the possibility of some Nokia phones running Microsoft's mobile OS Windows phone 7.

The latest rumor began at least partly due to an "open letter" to the two companies' leaders written by a stock analyst and published on the Financial Times' alphaville blog on Wednesday.

The letter was addressed to Microsoft (NASDAQ: MSFT) CEO Steve Ballmer, and to Nokia's new CEO Stephen Elop.

"[Stephen Elop should] announce an exclusive deal with ... ex-colleague, Steve [Ballmer]. You get access to their WP7 intellectual property scot-free and access to the U.S. market where your share has dived to the low single-digit level, and in so doing cut your bloated handset business R&D budget," Adnaan Ahmad, an analyst for Berenberg Bank in Hamburg, Germany, said in his letter.

In late December, rumors first popped up that Nokia and Microsoft were discussing some kind of agreement to use the software titan's mobile OS.

Whether such a deal would put Windows Phone 7 on all or just some of the handset maker's devices is unknown, although, given that Nokia already owns the Symbian operating system, it seems unlikely to go whole hog all at once.

Microsoft officials declined to comment.

However, such a deal could help both companies better confront their mutual competitors.

Sales of phones built using Microsoft's new Windows Phone 7 finally began in the U.S. in early November, and its future is far from assured, especially considering all of Microsoft's missteps in the mobile space in recent years.

In fact, market researcher Canalys said Friday that even Microsoft's Windows Phone 7 launch came late enough into the holiday selling season that its smartphone systems, which also includes its aging Windows Mobile line, actually lost share during the fourth calendar quarter of 2010.

Many observers already are counting Microsoft out in the smartphone race. Canalys' latest numbers give Microsoft 3.1 percent of the worldwide market in the fourth quarter.

That leaves Microsoft still number five in a five-horse race that includes Android with 32.9 percent, Nokia at 30.6 percent, Apple iOS with 16 percent, and RIM BlackBerry with 14.4 percent.

Altogether, more than 106 million smartphones were sold worldwide in the fourth quarter, Canalys said.

Nokia, for years the dominant player in the mobile handset market worldwide, has been slipping of late in the face of new market entrants and the sudden explosive popularity of smartphones over feature phones. Nokia's overall market share has slipped, and the company brought in its first non-Finnish CEO last summer to try to turn the company's decline around.

That replacement was Stephen Elop, who left his job as president of Microsoft's highly-successful Business Division.

Since Elop's move, there have been repeated rumors of behind-the-scenes negotiations. Despite the natural competition between, over the past few years, the two companies have worked out deals that suggested a warming, even before Elop's switch.

In 2008, Nokia said it would provide support for Microsoft's Silverlight media streaming technology on most of its phones. Using Silverlight is one of the main ways to write apps for Windows Phone 7.

Last May, the two announced a deal to deliver Microsoft's Office Communicator Mobile unified communications client on some of Nokia's mobile devices for business. Microsoft also has an agreement to port its mobile version of Office to run on Symbian.

Stuart J. Johnston is a contributing writer at InternetNews.com, the news service of Internet.com, the network for technology professionals. Follow him on Twitter @stuartj1000.


Microsoft, mobile, Nokia, Windows Phone 7, Symbian