Getting in bed with the bear

Kevin O'Brien has an article in The New York Times about the 'difficult' deal between Microsoft and Nokia:

With so much uncertainty surrounding Nokia’s smartphone alliance with Microsoft, one thing is becoming clear: Both companies will have to make some difficult changes, a top Microsoft executive said.
The companies are still working out the details of the agreement they announced for Nokia to use Microsoft software in its phones, said Aaron Woodman, the director for mobile communications business at Microsoft.
Among the most basic questions include where to build a factory that will make the new phones, which chips to use inside them, and how to adapt software and hardware that incorporates the two companies’ technologies.
“This is not a matter of spending a long weekend and matching our software to their handsets,” Mr. Woodman, who has been with Microsoft for thirteen years, said during an interview at the Mobile World Congress. In the auto business, he noted, it takes six years to get a car from conception to showroom floor. The software business moves much faster, Mr. Woodman said, but he declined to shed light on when Nokia, the world’s largest cellphone maker, would start selling the first phones with Microsoft’s Windows Mobile operating system.
Nokia's chief executive, Stephen Elop, has promised “significant volumes” in 2012 and is pushing for the first models to reach the market later this year.
The alliance will test both companies, said Rajeev Chand, a wireless analyst at Rutberg, an investment bank in San Francisco that focuses on the wireless industry. “I would call this a daunting challenge,” Mr. Chand said in an interview at the convention. Because of the thorny decisions that will have to be made quickly, Mr. Chand said, “Our general sense is that this is going to be truly difficult.”
Mr. Woodman said Microsoft’s cooperation with Nokia would bring significant benefits to both. With global data from Navteq, the digital map company owned by Nokia, Microsoft will be able to enhance the mapping service of its Bing search engine, he said. Bing has superior mapping detail in the United States but not abroad, Mr. Woodman said. Data from Navteq would put Bing on a par with Google Maps around the world, he said.
Nokia, which shipped 450 million phones last year, will use its leverage over suppliers to rapidly bring down the price of Windows Mobile phones, which have tended to be priced at the top range of the smartphone segment.
“Nokia’s ability to leverage its supply chain will bring Windows Mobile to a bigger market,” Mr. Woodman said. For Nokia, Microsoft will be able to use its brand recognition to help improve the Finnish company’s market share in the United States, where it is in the low single digits, far behind Samsung, the market leader, Mr. Woodman said. Nokia was the market leader in the United States as recently as 2002. “I think we can help reintroduce Nokia into the North American market,” Mr. Woodman said.
Investors remained skeptical a week after Nokia and Microsoft announced their alliance. Nokia’s share price was trading at 6.65 euros, or $8.99, in Helsinki, Finland, 21 percent lower than it was before the announcement.
But Mr. Chand, the analyst at Rutberg, cautioned that investors might be overly pessimistic. Wireless companies want a third operating system to help them avoid becoming dependent on Apple and Google, the maker of the Android system adopted by numerous smartphone makers, he said. Although wireless companies attending the convention were muted in their support of the alliance, Mr. Chand said they would embrace the phones if they were good and if customers demanded them.
“You have to keep in mind that these are early days,” Mr. Chand said. “Remember that three years ago, there was no Android. The market sentiment is so negative on this alliance right now that it probably means that it is going to succeed.”