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It was the announcement everyone had been waiting for, the one that meant Nokia could stop trying to be a software company and focus on what it's always been good at: making phones: Nokia this morning announced a strategic alliance with Microsoft to make Windows Phone 7 its primary operating system for smartphones and integrate its software services into Microsoft's.
The news was announced in a glitzy blue-lit ballroom in London this morning with Microsoft CEO Steve Ballmer and Nokia's Stephen Elop talking up their collaboration on an ecosystem to help revive Nokia's fortunes.
And yet--investors are unconvinced. Nokia's shares opened 11% lower in New York this morning, having fallen by 12% in Helsinki, Finland; Microsoft's shares ticked up by 0.4%. Nokia's shares have lost 6% of their value since the start of 2011 and 26% in the last year.
Why a further drop today? One analyst tells me that investors are still unconvinced by the Microsoft partnership - Citigroup is said to be "deeply skeptical" of the alliance." On top of that, Nokia's guidance on margins was disappointing, according to Jefferies & Co analyst Lee Simpson.
Nokia and Microsoft announced this morning that they were integrating their services in a big way. Windows Phone 7 will become Nokia's "principle smartphone strategy," while many of Nokia's software services (the Ovi store, and Ovi maps) will be integrated (perhaps even completely subsumed) into those offered by Microsoft.
Till now analysts have said that while a tie-up with Android might not have offered the kind of differentiation that Nokia was after, it would have better protected, even boosted margins with a reduction in R&D costs.
Nokia might be able to better control software and services development by aligning itself with Microsoft, but investors worry that could come at the expense of future profitability.
