Nokia Shares Fall, Elop Defensive Over Microsoft Deal

Shares in Nokia suffered today on the back of its decision last week to adopt the Windows Phone 7 operating system as its primary smartphone platform.

The decision, announced at an investor event in London,  had been rumoured for some time, following the appointment of Microsoft strategist Stephen Elop as Nokia’s CEO last year. But the move has been met with a great deal of scepticism, as well as negative reaction from investment analysts, despite some previously supporting the deal.

Share Slide

Shares in Nokia on the New York Stock Exchange are currently trading at $8.91 as of 4pm GMT on Monday. This is down 4.8 percent of Friday’s close, and comes amid a barrage of negative analyst reaction. At some stages, Nokia’s stock was down by as much as 14 percent since the news was announced.

According to Reuters, Nomura analysts quoted Elop’s memo from last week, which likened Nokia’s position on smartphone platforms, to that of a man on a burning oil rig, faced with certain death or a 30 metre drop into icy water. “It’s a long way down,” they warned, adding that with no 2011 outlook, Nokia’s shares would be “hard to own” over the next 12 months.

Others warned of a potential collapse in Nokia’s market share. “We expect Nokia’s smartphone market share to collapse as developers abandon Symbian support following Elop’s dismissive comments about Symbian and Qt software platforms,” Tero Kuittinen, analyst at MKM Partners, was quoted as saying by Reuters. Elop effectively begged operators to stick with Symbian during the transition.

Sales Worries

“I believe Nokia’s smartphone sales will go down by some 20 percent for the rest of the year. They will lose a lot of market share,” said Nordea analyst Sami Sarkamies, although Sarkamies believed the alliance could prove successful in the long term.

“We have lowered our Nokia smartphone forecasts for 2011 by 7 percent and we are concerned by both the lack of preparation the industry/employees appear to have had,” UBS analyst Gareth Jenkins was quoted as saying.

“Nokia is…handing responsibility for its user interface to Microsoft, which has a poor track record in this area, and giving access to its innovations to key rivals,” said Stuart Jeffrey at Nomura in a research note.

Billions Not Millions

Meanwhile Nokia has gone on the offensive over allegations that it got a poor deal when it agreed to adopt Microsoft’s smartphone OS. Exact details of the arrangement are confidential, but Elop was quoted as saying last night that the “value” of the deal to Nokia would be measured in “Bs not Ms” (i.e. billions not millions).

This means that Microsoft is effectively paying Nokia billions to get its operating system on Nokia handsets with access to Nokia’s distribution networks. The payment is  presumably in the form of discounted software licences, marketing cooperation, and other non-cash benefits.

Microsoft’s payments are recognition that Nokia had “substantial value to contribute,” Elop was quoted as saying by the Seattle Times. It is understood that Nokia will still pay royalties for using Windows Phone 7, although it remains to be seen at what level.

Windows Phone 7 was introduced last year, and has appeared on phones made by LG Electronics, HTC, and Dell, but has so far only captured a tiny amount of the overall smartphone market.

Trojan Horse

Elop was until September the president of Microsoft’s business division, and he has been forced to  defend himself against claims that he had pressed Nokia to accept the deal because of his allegiance to his former employers.

Elop stated that he had also spoken with Google (Android) and that the entire board had been involved in the decision to adopt Windows Phone 7.

“I am not a Trojan horse,” he told the audience at Mobile Word Congress in Barcelona, in response to a question about his loyalties. “The obvious answer is ‘No,’ ” Elop said. “Thanks for asking.”

And at a press conference at MWC, Elop confirmed that he will seek to sell off his numerous shares in Microsoft, after reports (which Elop denied), that he was the seventh-biggest individual investor in Microsoft.

“As soon as I’m clear of the legal restrictions, of course I’ll get rid of those remaining shares,” Elop was quoted as saying.

Meanwhile Nokia is also facing potential workforce disruption, after the Finnish mobile giant admitted it will cut its own research and development spending following the Windows Phone 7 decision.This decision prompted a walkout at its Finnish sites on Friday.

Google used the opportunity to try and poach Nokia engineers. “Any Nokia software engineers need a job? We’re hiring,” said Google recruiter Aidan Biggins on Twitter.