Microsoft Just Shafted Its Most Important Smartphone Partner, Nokia

deepwater horizon

Photo: Flickr/SkyTruth

This is a news note from Business Insider Intelligence, a new research service focused on the mobile industry. Sign up for a free trial here.Nokia has gone from the world’s leading smartphone manufacturer to a company on the edge of disaster.

Earlier this month, the company announced a major restructuring, including layoffs of 10,000 employees and a bunch of executive replacements, and lowered its guidance for the second quarter.

This Wednesday, Microsoft made Nokia’s problems much worse.

Microsoft unveiled Windows Phone 8, the next version of its mobile platform. As part of the announcement, Microsoft admitted that no current Windows Phones will be upgradeable to the new platform.

Recent Windows Phone customers will get the new start screen. But most of the major new features, like NFC support and NFC-based wireless sharing, new maps (provided by Nokia, which is faint consolation), the digital wallet for storing coupons and credits, and Internet Explorer 10, will not be available to any current Windows Phone customer.

Windows Phone 8 also supports a lot of new technology for developers — for instance, they can write apps in C and C++, and can create voice-over-Internet apps that work like regular cell phone calls. Those technologies aren’t supported on Windows Phone 7, which means many new Windows Phone 8 apps won’t work on the current platform.

Microsoft had to announce the break eventually — developers need time to create apps for the new platform, and rumours of a platform break had been circulating since February anyway.

But in doing so, Microsoft just killed the market for Windows Phones for the next three to six months. No customer will buy one today knowing that it will be outdated and not upgradeable in months.

So Nokia’s smartphone sales, already small, will probably grind to a halt until Windows Phone 8 is out.

Nokia CEO Stephen Elop — who joined from Microsoft in 2010 and made the fateful decision to choose Windows Phone rather than Android (or stick with Symbian) — must have known this was coming. But the company probably understated the case on its last earnings warning when it said that it didn’t expect sales to pick up in Q3.

In all likelihood, Nokia smartphone sales in Q3 will approach zero. The only question is if Nokia’s other products will generate enough cash to keep the company afloat.


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