PREVIEW-Nokia, Microsoft head for 'Last Chance Saloon'

Fri Aug 31, 2012 7:35pm IST

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* Nokia unveils new Lumia handsets next week

* Phones will feature Microsoft's new Windows Phone 8 system

* Loss-making Nokia needs phone to be hit

* Microsoft's mobile ambitions may hinge on launch

By Sinead Carew and Bill Rigby

NEW YORK/SEATTLE, Aug 31 (Reuters) - Microsoft Corp (MSFT.O) and Nokia Oyj (NOK1V.HE)(NOK.N) are loading up for their best -- and possibly last -- shot at denting a smartphone market dominated by Apple Inc's (AAPL.O) iPhone and Google Inc's (GOOG.O) Android mobile software.

If the new Lumia phones do not appeal to consumers when they are unveiled next Wednesday, it could mean the end for Nokia, and a serious blow to Microsoft's attempts to regain its footing in the mobile market, analysts and investors said.

"This is very high stakes," said Canaccord Genuity analyst Michael Walkley. "Nokia bet everything on Windows, and if this doesn't succeed the next step might be having to do what's best for shareholders, and that might include selling off key assets or selling the whole company."

The Finnish handset maker has logged more than 3 billion euros in operating losses in the last 18 months, forcing it to cut 10,000 jobs and pursue asset sales.

Its share of the global smartphone market has plunged to less than 10 percent from 50 percent during its heyday before the iPhone was launched in 2007.

For Microsoft, a successful Lumia launch would convince more handset makers and carriers to support its latest phone software, which is based on the same code as the upcoming Windows 8 computing system, and promises faster performance and a customizable start screen.

Windows phones have only captured 3.7 percent of the global smartphone market, according to Strategy Analytics. Android phones have 68 percent, while Apple has 17 percent.

The new Lumia phones will hit the market just as the world of Android reels from a potentially crushing legal blow, and as Research In Motion Ltd's RIM.TORIMM.O BlackBerry continues its decline.

A California jury decided last week that some of Samsung Electronics Co Ltd's (005930.KS) hot-selling Android smartphones copied features of the iPhone, which may result in import bans and drive handset makers to put more resources into making Windows-based phones. [ID:nL2E8JP2NV]

The judgment opens a window for Microsoft to exploit -- but it first needs to find favor with consumers.

"Windows Phone really is going to have to stand or fall on its own, it's going to have to appeal to consumers," said Jack Gold, an independent mobile analyst who runs consultancy J. Gold Associates. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Graphic of smartphone market: link.reuters.com/zuc42t Samsung's new Windows phone [ID:nL6E8JTKY7] Latest on Apple-Samsung dispute [ID:nL2E8JT06X] Microsoft's Windows Phone 8 launch [ID:nL1E8HK8OK] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

GOOD TIMING?

Nokia is expected to launch two new Lumia phones on Sept. 5, on the same day that phone maker Motorola, now owned by Google, also unveils a new product.

It kicks off a busy fortnight for mobile devices, with Amazon.com Inc (AMZN.O) expected to introduce new Kindle tablets on Sept. 6. Apple is seen unveiling the newest iPhone on Sept. 12.

The costlier of the two Lumias will go up against the iPhone, and is expected to feature a larger, brighter screen; a powerful camera on both sides; Qualcomm Inc (QCOM.O) dual-core chips; Skype calling; voice recognition; short-range radio technology for wireless payments and built-in maps for navigation.

But Lumia will need something completely different to beat the iPhone and Android, such as a bold new shape, exceptional camera quality or a mini-projector, said Tero Kuittinen, an analyst at mobile diagnostics company Alekstra.

Part of the problem is that Windows Phones have only 100,000 or so apps, compared with about 500,000 for Android or iPhones.

"Developers want to see more devices, and people want to buy only when they see more apps," said Sid Parakh, an analyst at fund firm McAdams Wright Ragen. "I'd say it will take years, they are so far behind."

Nokia may not have years. Finland's most famous company, relegated to second place in the global cellphone market by Samsung after more than a decade at the top, has bet its smartphone future on Microsoft.

Samsung stole some of Nokia's limelight by being the first to unveil a phone based on Windows Phone 8 software on Wednesday, a week before Nokia's event. Canaccord's Walkley expects Samsung to offer steep price discounts for Windows phones in markets where Nokia is also launching its phones. [ID:nL6E8JTKY7]

While Samsung, HTC Corp (2498.TW) and Huawei Technologies Co [HWT.UL] are also making phones based on the new Windows software, only Nokia is focused entirely on Windows Phone 8. This means that Nokia should be able to deliver more sophisticated Windows phones.

SUPPORT FROM CARRIERS

The job of saving Nokia, and getting the new Windows Phone 8 software off to a strong start, falls to Nokia Chief Executive Stephen Elop, the former Microsoft star who forged the agreement between the two companies.

One thing Elop has in his ammunition bag is support from big U.S. mobile service providers who want see Windows become a third strong smartphone platform to counterbalance the market heft of Android and Apple, which charges a heavy price premium.

Top U.S. wireless providers Verizon Wireless (VZ.N)(VOD.L), Sprint Nextel Corp (S.N) and Deutsche Telekom's (DTEGn.DE) T-Mobile USA have all said they will support Windows Phone 8, and AT&T Inc (T.N) said it will sell Nokia phones based on the Microsoft software.

"Everybody's liking what they see coming from Microsoft with the Windows 8 (mobile) platform from the user experience perspective and the integration perspective," said Bill Versen, a Verizon Wireless executive who works with business customers on their smartphone strategies.

"Enterprises have Windows-based platforms they're using for their businesses. They've been waiting for Microsoft to mobilize that in a user-accepted way," he added.

Because Microsoft's new phone software is similar to the upcoming Windows 8 desktop and tablet software - to be released on Oct. 26 - developers can more easily write apps for both, which should help the platform's popularity and may even lead developers to eventually build apps for Windows before Android, Current Analysis analyst Avi Greengart said.

Microsoft actually makes more money from royalties on Android products than it does on sales of its own phone software, but "can't afford not to have a significant position in the global smartphone market," said CCS Insight analyst John Jackson.

Microsoft needs to get at least a 10 percent share of the smartphone market by the end of 2013 to be a contender, Canaccord's Walkley added.

(Additional reporting by Tarmo Virki; Editing by Jeffrey Benkoe)

((sinead.carew@thomsonreuters.com)(+ 1 646 2236186)) Keywords: NOKIA MICROSOFT/

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