Is Nokia's (NOK) Stephen Elop having a change of heart? It is being reported that Stephen Elop has talked to the Spanish media about Nokia's relationship with Microsoft (MSFT). At some point, he was asked if Nokia would ever consider building an Android (GOOG) phone. Mr. Elop says:
In the current ecosystem wars we are using Windows Phone as our weapon. But we are always thinking about what's coming next, what will be the role of HTML 5, Android... HTML5 could make the platform itself-being Android, Windows Phone or any other-irrelevant in the future, but it's still too soon [to tell]. Today we are committed and satisfied with Microsoft, but anything is possible.
To be honest, this really surprised me as a Nokia investor who has been following the company closely in the last several years. After moving to Nokia from Microsoft, Mr. Elop always said that Nokia would stick with the Windows operating system. In fact, his well-known "burning platform" reference was meant to bury any mobile operating system other than the Windows. Later on, he said:
The single most important word is differentiation. It was about having to make a decision that allows us to stand out separately and distinctly. With the Lumia 920, the product is differentiated based on Nokia innovation, but you also see a fundamental point of differentiation because it is a Windows Phone device. It is also a strategic decision based on establishing a relationship with the carrier. We didn't want to schlep into a carrier and tell them why our Android phone is better. Almost two years ago, we were concerned that someone with vertical integration and an early lead would establish a strong position, and that happened with Samsung and Android. Entering that environment late, we would have a hard time differentiating. We are standing up as different. We still have to fight our way up in terms of market share, but we have an opportunity because people see us as an alternative.
Clearly, Mr. Elop was always strongly against the idea of using an operating system other than the Windows Phone platform. This even made some people think that he was a "spy" from Microsoft on a mission to make sure that Nokia's market value falls so badly that Microsoft could acquire the company for a cheap price. In fact, in the summer of 2012, Nokia's share price fell to as low as $1.7 but Microsoft never attempted to buy the company, which disproves this particular point of view.
Now why did Mr. Elop have a change of heart all of a sudden? Could it be related to Microsoft's recent behavior where it developed a strong relationship with Nokia's rival HTC? In the recent months, it almost looked like Microsoft's relationship with HTC was a stronger one than its relationship with Nokia. It was interesting to see Microsoft backing HTC's flagship phone 8X, which some consider to be a copycat of Nokia's Lumia 920.
Or maybe Nokia just wants to follow Samsung's route where it will build phones for multiple operating systems and let the consumers decide which operating system they want. This is something I have been defending for a while. While it is not a good idea for Nokia to totally drop Windows ecosystem for Android, it makes sense for the company to offer an Android phone in addition to its Windows Phone offerings.
In the same interview, Stephen Elop also confirmed two medium term goals for Nokia: 1) gaining a double-digit market share in smart phones, 2) becoming a serious threat to Apple (AAPL) and Samsung. He didn't specify a timeline to accomplish these two goals, but he seems to be convinced that the "tide is turning" and the company is well positioned to accomplish these goals sooner or later.
On a side note, Nokia continues to crush the competition in Windows Phone platform. As much as Windows Phone platform goes, Nokia's Lumia series enjoy a market share of 74% whereas Samsung's market share is 2% and HTC's market share is 6%. It looks like consumers choose Nokia over competition when the operation system is equal. This is why it is plausible to think that Nokia could sell a lot more phones if it introduced an Android phone to the market. As an ecosystem, Windows Phone still has a very tiny market share and if it wants to become a major player, its only hope is Nokia. This is why Microsoft should pay more attention to Nokia rather than wasting time with HTC before Nokia loses faith with Microsoft.
Nokia still has a lot of ways to go before its turnaround is complete. I am excited to hear more from the company's management in the company's quarterly meeting later in the month. The company is expected to report a loss of 6 cents per share, while the predictions range from 16 cents of loss and 3 cents of profit.
It is good to see that Nokia's management is gaining confidence with the company. If the company can beat estimates once again, the investors will continue to buy up shares. Currently, there is a lot of open interest for Nokia's calls with a strike price of $4.50 expiring in February, which means that many investors expect the company's share price to pass that level within a month. As for me, I am still holding onto my Nokia shares and promise to do so at least until the end of 2014 no matter what happens.