Could Nokia's Miracle Be Microsoft?

Now that Nokia has a new CEO, should it adopt a new smartphone strategy as well? There are strong arguments on both sides. On the one hand, Nokia has put an awful lot of money and effort into Symbian^3 and MeeGo, the mobile operating systems with which it hopes to regain high-end leadership in the industry. On the other, the person who defined that strategy, former CEO Olli-Pekka Kallasvuo, was ousted last September after an ugly 70 percent decline in Nokia’s market value.

Should Stephen Elop, Nokia’s new CEO, continue executing the strategy established by his ousted predecessor, strengthening it by improving execution and operating costs? Or should he map out an entirely new strategy, perhaps one based on a third-party operating system. Canaccord Genuity analyst T. Michael Walkley favors the latter, suggesting Nokia make the jump to Android or Windows Phone 7. And interestingly, he feels WP7 is the better option of the two.

Why?

Well, for one thing, Elop is a Microsoft veteran. He seems to have left the company on good terms and presumably still has close ties to it. For another, Microsoft and Nokia are a better cultural fit than Google and Nokia. And finally, the two companies need each other to succeed in the mobile market long term.

“We believe Microsoft needs more support from a leading device OEM to compete with Android longer term and Nokia likely needs to adopt a new high-end smartphone strategy to stem smartphone share losses,” Walkley says. “Further, Microsoft could create a differentiated tablet strategy with stronger enterprise support and Nokia could clearly benefit with a tablet and smartphone combined strategy that is offered by competitors….We believe the combination of Microsoft’s marketing muscle and software expertise with WP7 and Nokia’s global brand, distribution and scale advantages could drive solid sales of WP7-based devices worldwide. Additionally, it would provide Nokia a much-needed re-entry into the North American market, where its market share has stagnated at low-single-digit levels for multiple years.”

In other words, a Nokia-Microsoft alliance could bolster the WP7 ecosystem to the point where WP7 becomes a third dominant mobile OS alongside Android and iOS.

That would suit Microsoft–which has been struggling with mobile for years–just fine. But what about Nokia, which still makes quite a bit of money selling feature phones in the BRIC countries?