The rumour about Microsoft working with a contract manufacturer to develop a smartphone using the next generation of its Windows Phone operating system must be leaving executives at Nokia scratching their head.
If the rumour is true, Nokia’s high-profile deal with Microsoft to migrate its smartphone portfolio to Windows Phone and to be the hardware vendor that leads the uptake of the OS could be put at risk, plunging the struggling Finnish company further into trouble.

Microsoft launching Windows Phone 8 on its own device would show a real lack of faith in Nokia’s ability to drive uptake of the forthcoming OS, with the Windows Phone platform still languishing a long way behind Android and iOS in the smartphone market.

Although Windows Phone is used by other handset makers, Nokia has the closest collaboration with Microsoft, with the tightest integration of hardware and software on its Lumia smartphones, exclusive features and combined marketing efforts.
Microsoft has invested heavily in Nokia to support the migration to Windows Phone through the collaboration deal but if the US software giant begins to focus on its own device, Nokia will end up being just another vendor using Windows Phone – albeit with Microsoft still contractually obliged to provide funding.
If this were to happen, Nokia would lose its unique selling point in the smartphone market – that it is Microsoft’s preferred Windows Phone vendor and that the Lumia devices offer the best Windows Phone experience, with the closest integration and best features.
Nokia would be left with little to differentiate itself from other Windows Phone players while the company that stole Nokia’s crown as the world’s number one phone maker, Samsung, and Apple would continue to dominate.
Nokia is really on the ropes at the moment and something like this could be the final straw. If Nokia is to make an impact in the smartphone market, it needs the Microsoft deal to work.
Having said all this, Microsoft’s attempt to take on the iPod with the Zune didn’t exactly set the world alight, meaning the success of a Microsoft-branded Windows Phone device is by no means guaranteed.
Although the launch of a Microsoft phone would suggest a lack of faith in Nokia, the potential failure of the product could drive Microsoft back to Nokia and force it to redouble its efforts in making its deal with erstwhile mobile phone leader the primary driver for Windows Phone.

Another possible, although slightly remote, scenario for a Microsoft-branded phone is if the US company acquired Nokia’s smartphone business – with its distribution network and hardware design expertise – to back up the Windows Phone OS and Lumia hardware, currently produced by Taiwanese contract manufacturer Compal.

There have been rumours of Microsoft buying the Finnish handset gompany since their collaboration was first announced in February 2011 and as Nokia continues to founder, it is increasingly looking like a takeover candidate.
This could potentially mean the Nokia name disappears from the smartphone market and just be seen on low-end devices that the remaining part of the company would produce for developing markets.
The possibility of a Microsoft phone is therefore worrying for Nokia in a number of ways. A device made by someone other than Nokia could severely harm the prospects of the now-not-so-Mighty Finn as it would lose the benefits of its partnership with Microsoft. On the other hand Microsoft buying Nokia to build an own-branded smartphones could see the Nokia brand itself disappear.
Of course, both of these scenarios will only be a possibility if the Microsoft phone rumour is true. The rumour has been denied by a Microsoft executive but as they say, where there’s smoke there’s fire…Tim Ferguson
The editorial views expressed in this article are solely those of the author(s) and will not necessarily reflect the views of the GSMA, its Members or Associate Members