“I am an optimist,” declared Nokia’s new chief executive on Friday as he bet the farm on an alliance with Microsoft. But investors were – justifiably – in a darker mood. The phonemaker’s shares, which have already lost two-thirds of their value since Apple launched the iPhone in 2007, fell another 14 per cent after Stephen Elop announced the deal.
On paper, teaming up with Microsoft to produce good smartphones makes good sense: Nokia has a poor operating system but vast scale, while Microsoft has a great operating system but no scale. Yet it requires a leap of faith to believe the two dinosaurs will become more innovative and speedy by working together – let alone as nimble as Google or Apple.
Nokia also got the worse end of the deal. It will not have the exclusive right to Microsoft’s operating system and will have to pay royalties to use it (whereas it could have used Google’s Android for free).