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On Monday, Nokia's (NYSE:NOK) chairman Risto Siilasma announced that Nokia had a contingency plan in case Windows 8 phones weren't enough to save the company. Mr. Siilasma didn't actually specify the contingency plan; however the mere mention of the plan was able to cause a mini-rally in the company's stock price, moving it up as much as 3% during the day. Of course, 3% is little compared to the 60% investors lost in Nokia in less than a year, but it is still something.

Immediately after the announcement, many people start to think about possibilities for a contingency plan. What could the plan possible be? Hopefully, we will never have to find out what the contingency plan is; however, Nokia investors have already learned to expect the worst out of all possible scenarios. Then what are the possibilities for Nokia if Windows 8 phone fails to turn the company around?

One possibility, perhaps the one with the least amount of trouble, is a takeover by Microsoft (NASDAQ:MSFT). At the end of the day, Microsoft wants to be a major player in the mobile phone market, as smart phones are replacing computers at a rapid pace all over the world. Many investors in Microsoft already feel that the company is too late to the game.

I don't believe that Microsoft is too late to the game; however, it risks being too late if Nokia goes bankrupt and Microsoft doesn't find a replacement fast enough. Of course, the easiest replacement to Nokia would be the company itself after being acquired by Microsoft. It is difficult to tell whether Microsoft would want to own all of Nokia or just part of it.

Nokia's mobile device and mapping-location segments would be good buys for Microsoft, as the company will be involved in both industries in the future. How about Nokia Siemens Networks? While Microsoft provides a lot of infrastructure and maintenance services in the IT industry, it might not be interested in buying a business segment with 70,000 employees. I can see Microsoft buying Nokia with an exception of this segment.

Many people know about Nokia's amazingly rich patent portfolio; however, acquisition of Nokia would come with much more than that. Besides its portfolio of patents, Nokia also enjoys one of the best distribution channels in the world. The company is able to distribute its phones almost seamlessly to almost every country in the world. The company has stores in towns no one even knew existed. This is something even companies like Samsung and Apple (NASDAQ:AAPL) could make use of.

Of course Microsoft might continue its commitment in this partnership without actually buying Nokia. Very possibly, Microsoft could buy Nokia's debt instead of buying the whole company. Microsoft sits on large pile of cash and the company wants to make the best use of this money. Since the company desperately wants to make an impact in the mobile phone industry, buying either existing or newly issued debt of Nokia would serve to this purpose and give Nokia some breathing room.

Another possibility would be Nokia building phones for operating systems other than Windows, such as Android (NASDAQ:GOOG). This sounds like a good idea to many investors who believe that Nokia should have joined the bandwagon of Android a long time ago. On the other hand, by the time Nokia goes through trial and errors, it may be too late to switch operating systems. The company would have to raise a significant amount of money (by selling assets) to survive, as it would run out of cash by the time it decides Windows 8 is not working out. The assets for sale might include additional stocks, company property or patents.

Of course, even such a bold move doesn't guarantee success. I like the idea of Nokia adding one Android phone to its portfolio; however, I still believe that the company should focus on differentiating itself from the competition by mainly offering Windows Phones, as I mentioned multiple times in the past couple months. Out of the companies that heavily focus on Android, only Samsung seems to remain comfortably profitable.

By the way, in the very same announcement, Risto Siilasma defended the company's partnership with Microsoft and mentioned that all of the Nokia's board supports the decision. This should put a stop to rumors claiming that CEO Steve Elop signed up for this partnership in order to sabotage Nokia and make it a cheap acquisition target for Microsoft.

In conclusion, for Nokia, time is running out, and to quote Elop, "Plan B is that Plan A is very successful." The company already put all its eggs in one basket, and it has to be successful. In case Nokia doesn't find success with the Windows Phone, Microsoft will need to save the company one way or another. Both companies have so much in stake in this partnership and neither can afford to lose.

If Windows Phone doesn't work for Nokia, the company will have very limited resources and time to turn things around. Hopefully the Windows Phone will work out and we will not even get to find out what the company's contingency plan is. Many people believe that the company's contingency plan is to build an Android phone; however, I believe that it has more to do with Microsoft buying either assets or debt of Nokia.

Disclosure: I am long NOK, GOOG, MSFT, AAPL.

Source: What's Nokia's Contingency Plan?