A do-or-die moment for Nokia

Over the past 27 years, whenever Microsoft sold a new version of Windows, the world’s dominant computer operating system, the software releases had seismic consequences affecting hundreds of millions of consumers.

But this time, the debut of Windows 8 on Wednesday will cast an even bigger shadow: The success of the software will largely determine the fate of Microsoft’s struggling cellphone partner Nokia, which has bet its survival on the Windows operating system.

Analysts say that if Windows Phone 8, the mobile version of the software, does what Microsoft and Nokia expect, the cellphone maker, which is based in Espoo, Finland, will solidify its turnaround over the next three years and overtake iOS, from Apple, as the No. 2 operating system behind Android, from Google.

If not, Nokia’s future in the cellphone business, and that of its chief executive, the former Microsoft executive Stephen Elop, the architect of the strategy, will come into question, the analysts said. Elop said in April that Nokia had suspended development of its Symbian and MeeGo smartphone platforms to focus everything on Windows.

''This is a make-or-break moment for Nokia,'' said Carolina Milanesi, an analyst at the technology research firm Gartner in San Jose, California. ''Everything is resting on Windows Phone 8. If that doesn’t work, it will cause an existential crisis for the company.''
Nokia’s transition to a Microsoft-centric smartphone business has been costly. The company has lost 3.9 billion euros, or $4.9 billion, since announcing the switch in February 2011 as sales of its older-generation Symbian devices, which still make up the majority of its telephone business, plummeted.

In June, nine months after Nokia began selling the first of its Lumia line of Windows smartphones, its total sales had fallen by 19 percent from a year earlier. On Wednesday, Nokia is expected to announce at least two new Lumia phones, the company’s first to run Windows Phone 8 software, which will complement four Nokia models already on the market – the Lumia 900, 800, 710 and 610.

Jo Harlow, the Nokia executive vice president in charge of the company’s smartphone business, said the new Microsoft software, the first to be developed with input from Nokia, would increase the desirability and demand for the Lumia smartphones.

''The visibility that is going to be created for the Windows user interface, which is the same as that used for Windows Phone 8, is going to create momentum in the marketplace and generate awareness of the platform, where there had not been much awareness in the past,'' Harlow said Friday.

Milanesi, the Gartner analyst, said Nokia would be helped by the use of multicore processors, which are already standard in smartphones made by Apple, Samsung and others; by enhancements to the Windows scrolling tile interface; and by changes making it easier for software developers to create applications that connect Windows computers, phones, tablets and other devices.

But a cutting-edge smartphone platform will not be enough, she said.
''What Nokia needs from a brand perspective is to get back to being seen as the sexy, cutting-edge brand they were when they were on top,'' Milanesi said. ''That is the hardest part. You don’t do that with a platform only. You need compelling hardware.''
Francisco Jeronimo, an analyst at International Data Corp. in London, said there were signs that Lumia devices were beginning to gain market share on Apple and the makers of Android phones, especially Samsung of South Korea, the industry leader.

''I think Windows 8 will make a big difference for Nokia,'' Jeronimo said. ''It is very clear that Microsoft and Nokia are in a marathon. They are not looking at short-term results. This is not about selling devices alone but about selling an ecosystem.''

Through June, Nokia had sold 7.2 million Lumia devices worldwide, which has helped increase Windows’ share of the global market for handset operating systems to 3 percent from 2 percent a year earlier, according to I.D.C. By the end of this year, Windows’ global market share will rise to 5 percent, and it will double to 10 percent by the end of 2013, I.D.C. forecasts. By 2016, I.D.C. predicts, Windows will overtake Apple in operating system market share.

But skepticism remains. Pete Cunningham, an analyst at Canalys, a research firm in Reading, England, said iOS would be more prevalent than Windows in 2016, holding 18 percent of the market compared with 15 percent for Windows. Cunningham sees Windows Phone 8 helping Nokia solidify its comeback, but not catapulting the company to the position of market leader.

''I don’t think we are going to ever see Nokia return to the dizzy heights it was once at,'' Cunningham said Friday. ''Can Nokia build a sustainable business in this space? We think it can. Windows 8 will help them do that. But the market dynamics and power have shifted.''