Nokia hopes Windows 8 will turn the tide

29 Oct, 2012

When Microsoft unveils its Windows 8 operating system for mobile phones on Monday, one company in particular will be hoping it can deliver the much promised "effortless" transition for users of Windows PCs and tablets.

For handset maker Nokia, the new platform represents the latest – and, according to some analysts, potentially the last – chance to claw its way back into the smartphone market.

The once dominant Finnish manufacturer saw its fortunes decline rapidly when early iterations of Windows software for smartphones were not widely embraced – having discarded its own operating platform in favour of Microsoft's solution.

Windows phones account for only about 4 per cent of the smartphone market, having struggled to compete with Google's Android and Apple's iOS. As a result, Nokia found itself pushed out of the top five smartphone makers in the third quarter of 2012 "the first time it has not featured in the rankings since researchers at IDC began compiling them in 2004.

Microsoft and Nokia will at least avoid direct competition for their Windows 8 launch this week. A spoiler event showcasing Google's latest Android devices – also due to take place on Monday – was cancelled because of storm warnings in New York.

This is not the only timing issue to beset Windows phone partners. Mobile operators have been complaining about being made to wait more than a month to sell Windows phones.

In the US Nokia's flagship Lumia 920 handset was unveiled at a lavish New York event in early September. But the first handset to run Windows 8 is not expected for several weeks, and will then be available through only one operator: AT&T.

This rollout gives operators little time to establish the Windows 8 platform in the minds of consumers ahead of the Christmas period.

"They have already missed the window for the critical fourth quarter [sales], which is also an most important quarter for establishing a platform for next year," says Ben Wood, analyst at CCS Insight.

While Nokia's handsets have been held up, other premium phones launched this autumn have won large numbers of out-of-contract customers. The iPhone 5 sold 5m units in its first weekend and Samsung's Galaxy III has continued to build on record-breaking sales. Few consumers have been waiting for the Windows launch, according to operators.

Even so, these operators hope Windows 8 will help build Microsoft's platform as a credible contender for the fiercely contested third place in a market unlikely to sustain other players. Lowell McAdam, Verizon's chief executive, said recently: "The carriers are beginning to coalesce around the need for a third ecosystem. It'll be between [BlackBerry maker] RIM and Microsoft, and I expect Microsoft to come out victorious."

Analysts remain sceptical, however. Pierre Ferragu, analyst at Bernstein, says: "In the smartphone market, characterised by winner-take-all dynamics for ecosystems, we do not see material room for Windows Phone 8."

Customers often follow the tech experts, and Windows 8 was greeted with mixed reviews when launched last week. Analysts play down the importance of an instant success for Microsoft, however.

Benedict Evans at Enders says Windows 8 was designed to unify PCs and mobile devices, giving confidence to developers to build applications and content that has so far been lacking from Windows phones.

"There are incremental improvements but this is about creating a virtuous circle," he says. People want to use applications such as Microsoft Office on tablets and phones, adds Mr Evans.

But while Microsoft can afford to be patient, its device makers are under pressure for quick sales. Nokia, HTC, Samsung and Huawei have supported Windows so far, but only Nokia has thrown its smartphones fortunes entirely behind the platform.

"Microsoft knows that this is going to be a slow burn," says Mr Wood, "whereas the phones – and in particular Nokia, which has bet the ranch on Windows – need to hit the ground running. People are not going to upgrade straight away on their PCs, which means that knock-on to the phones may not happen instantly."

Analysts who cover Nokia express concerns about its cash position unless it starts to sell more phones using Windows 8.

"The next six to nine months are binary," says Mr Evans. "If there isn't take-up by then there will be radical changes at Nokia."

Some analysts see a window of opportunity for Microsoft to make ground on Apple – given that the latest iPhone was not a radical upgrade. Apple's invulnerability has also been questioned after its botched launch of Apple Maps, and the inability of the new iPhone to operate on some European 4G networks.

Nokia phones, meanwhile, are generally regarded as well built and innovative, with additional selling points such as market-leading mapping and photo technology.

But the Microsoft software has so far failed to persuade many smartphone customers to switch platform.

"From the perspective of consumers, I don't think Windows 8 brings anything new. I would expect Windows 8 to be received with the same indifference as its predecessor last year," says Mr Ferragu.

For Nokia, Windows 8 needs to turn round such opinions and transfer sales numbers in the PC market to phones and tablets. If the message is about a universal platform, with common applications and content, phone users have yet to pick it up.

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