Nokia (NYSE:NOK) is set to release its own phone running on Google’s (NASDAQ:GOOG) Android software by the end of the month, according to sources familiar with the matter who spoke to the Wall Street Journal. This news comes shortly after Nokia completed the $7.2 billion sale of its smartphone unit to Microsoft (NASDAQ:MSFT).
Reports that Nokia was working on an Android-powered device first came out back in September when the Microsoft acquisition was announced. Nokia had the option to exit the Microsoft partnership at the end of 2014, and a New York Times report revealed that Nokia was building phones running on Android to prepare for that exit, or possibly to intimidate Microsoft by reminding the company that Nokia could easily switch platforms to a competitor.
The Journal’s sources said that the Android phone was already in development when the Microsoft acquisition was announced. The Nokia-Android device was planned to be used in targeting emerging markets, where cheap Android phones have been popular. Microsoft has its own Windows Phone operating system, which has been featured on Nokia phones since 2011 when Nokia decided to ditch its unpopular Symbian platform. The fact that this Android-powered Nokia is still being released is a sign that Microsoft may be willing to be flexible on using its Windows operating system in order to sell more devices.
According to the Journal, the version of Android used in the Nokia devices has been modified to downplay the promotion of Google products and services, similarly to the way Amazon (NASDAQ:AMZN) has altered Android for its Kindle tablets and e-readers. The phones won’t carry Google’s app store the Google Play Store, but will instead promote apps from Microsoft and Nokia.
Perhaps the biggest challenge being faced by Microsoft’s new CEO Satya Nadella is making Microsoft a competitive player in the smartphone market. Microsoft didn’t focus on transitioning to mobile quickly enough and hasn’t been able to keep up with competition from smartphone rivals, including Apple (NASDAQ:AAPL) and Samsung (SSNLF.PK). Google’s Android operating system, which is featured on phones from a variety of smartphone makers, is by far the most popular operating system in the world, taking a 79 percent share of the market in 2013.
While sales of the Windows Phone have shown continuous growth, the device still only makes up a tiny percentage of a smartphone market dominated by Apple and devices running on Android. Research from Gartner has shown promising signs of the Windows Phone’s growth — with research from the firm showing that the Windows Phone managed a 123 percent growth in the third-quarter — but Nokia’s fourth-quarter earnings reported at the end of last month revealed that sales of the company’s handsets fell during the final quarter of 2013. Revenue from Nokia’s handset unit dropped 29 percent year-over-year.
While exact quarterly sales numbers for its handsets were not released, the company explained that the revenue decline was due to lower shipping figures for both its smartphones and more basic mobile phones. The poor smartphone sales were attributed to the “strong momentum of competing smartphone platforms” and the difficult transition from its old Symbian-based devices to the Windows-powered Lumia line. Nokia did say that it sold 30 million Lumia handsets throughout 2013, about twice as many as in 2012.
It will be a tough, if not impossible, climb up the smartphone ladder for the Windows-powered Nokia Lumia. Apple’s iPhone and devices running Google’s Android platform dominate the $300 billion smartphone industry; with an overall market share of less than 5 percent in the third-quarter, according to Gartner.
Research from Strategy Analytics on 2013 as a whole backed up Gartner’s findings that the Windows Phone has managed to achieve a little growth, particularly in the void left by the disintegration of BlackBerry (NASDAQ:BBRY). Microsoft devices accounted for 4 percent of the smartphone market share in 2013 and the company shipped 35.7 million devices in the year, making Microsoft “firmly established as the smartphone industry’s third major ecosystem.” Strategy Analytics also predicted that Microsoft would be ready to take advantage of any slowdowns from Android in the next year.
For now, it remains to be seen if a boost in smartphone device sales will be worth pushing software from one of Microsoft’s biggest rivals. As the smartphone market in developed countries has stagnated, emerging markets are the areas showing the highest growth in terms of smartphone sales. Since Android phones have proven popular in those markets, it may be beneficial to Microsoft to swallow some of its pride and peddle Android phones in developing nations.
More From Wall St. Cheat Sheet:
- Nokia Earnings Broach the Lumia Question
- Microsoft’s Future Is Now in the Hands of Satya Nadella
- Firm: 2013 Was the Year of the Android, One Apple Wants to Forget
- Microsoft’s Nokia Deal Is Only Rattling Chinese Smartphone Makers
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