This is from the MWC discussion board...i will post is here as it requires registration to read:

Nokia/Microsoft alliance marks the start of a three horse race
11/02/2011 15:56:41
Posted by: Joss Gillet.

Nokia announced today that it is partnering with Microsoft to deliver smartphones based on the Windows mobile platform – a strategic move that we previously anticipated. Such a strategic alliance now clearly marks the end of the Java-based era for mobile phones where manufacturers were celebrities in consumers’ eyes and the start of a new era where all three computer giants (Apple, Google, Microsoft) are in complete control. The wow-factor is not about handset design anymore or “what it looks like” - as most smartphones and tablets all wear the same black costume these days - but rather about operating systems and “what it can do”.

Now, casual street talk will go something like: “What phone do you have? Is it an Apple phone, a Google phone, or a Microsoft phone?” Nokia, Samsung, Motorola, Sony-Ericsson – all once fashionable names – will become side-lined adjectives. This is what Stephen Elop, Nokia’s CEO, today called “a three horse race”.

Microsoft is now in a position to aggressively compete with both Apple and Android and is expected to grow considerably its market share of smartphones by 2012. Through this alliance with Nokia, Microsoft will benefit from an unrivaled global scale backed by mobile operators which feared the consequences of an OS monopoly should Nokia have selected Android as its primary smartphone strategy.

It was a logical path for Elop, who comes from Microsoft. The newly appointed CEO faced a critical decision as the Finnish manufacturer lagged behind competition in an industry where time-to-market means everything. Many competitors failed and disappeared from the radar because they could not launch a compelling smartphone in time and keep up with both demand and fast moving competition from the East. An alliance with Microsoft is the quick fix that Nokia needed - a strategic move that took Elop less than five months to construct. As a matter of fact, Elop said today that “we are moving faster through this partnership than we have ever done before,” even though Ballmer acknowledged that “no journey is complete over a single step”.

Both firms expect to attract more developer commitments as they combine their content services under a global delivery platform in the shape of Microsoft Marketplace, which today only hosts 8,000 applications. The Ovi portal will be contributing to the new ecosystem, of which Nokia Maps will be a key component along with location-based services, entertainment and e-commerce services as well as the integration of Bing and Microsoft Office to the content mix. Elop mentioned that the success of Windows Mobile 7 smartphones is Nokia’s priority and that there are possible routes for the vendor to differentiate itself from competitors. As a matter of fact, Ballmer stated that this alliance is not exclusive as more vendors are expected to develop Windows Mobile 7 devices.

In addition, Nokia will focus on delivering Windows Mobile 7 smartphones to various segments and price tiers which will boost competition with Android in the sub-US$200 smartphone price range; a segment that Apple should consider seriously in its upcoming portfolio of devices. Nokia also anticipates that this strategic move will improve its presence in the US where it has been losing ground to competitors.

The transition to this new ecosystem will happen between 2011-12 and is only one pillar of Nokia’s new strategy. The Finnish firm is also implementing drastic changes in its Symbian handset portfolio as well as its MeeGo platform which has been refocused to address long-term needs and demand. The company has announced it will launch one MeeGo handset this year and that it still expects to sell 150 million more Symbian handsets in the years to come. Elop has made no comments on redundancies but has made it clear that there will be a reduction in cost, notably as Sales & Marketing costs and R&D costs are being streamlined to improve margins. Interestingly, Nokia expects that future royalty payments to Microsoft will negatively impact gross margins.

Lastly, one could wonder how Elop managed to convince the Board of Directors, since Nokia’s financial results did not immediately imply any real emergency. To date, the Finnish vendor is far ahead of its competitors in terms of global handset shipments and is very profitable for a company that mainly relies on low to mid-range devices (operating margins at 12-14 percent). But shareholders possibly became concerned when they saw Apple challenging their leading position in terms of total revenues and margins last year. It clearly shows that they were missing the game in the high-end of the market as Nokia’s value share dropped from around 30 percent in 2008 to around 24 percent last year. As a matter of fact, Nokia’s average selling price (ASP) stands at around EUR65 in 2010 which is far lower than the iPhone’s ASP at US$640. Post-transition, Nokia expects its net sales to grow faster than the industry’s average and its operating profit to remain stable at around 10 percent.

The game has changed, from a battle of devices to a battle of services and, incidentally, it’s a war of the Steves (Jobs, Ballmer, Elop).