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Crucial Test for Nokia as Latest Smartphones Arrive

When Stephen Elop, the chief executive of Nokia, introduces the company’s first phones bearing Microsoft Windows Phone software Wednesday, he will probably be met with equal parts good will and skepticism.

On the one hand, many mobile operators are pulling for Nokia and Microsoft to succeed, creating a credible third smartphone lineup that they can use to leverage better terms from Google and Apple, which in four years have taken over the high-end mobile business.

On the other, the partnership with Microsoft was struck while Nokia, the erstwhile market leader, was under duress, undertaking an 18 percent cut to its work force. The company absorbed combined losses of €436 million, or $597 million, in the second and third quarters.

Worst of all, since the deal was made in February, Nokia has had to tread water as engineers combined the companies’ smartphone technologies, allowing Google, Apple and Samsung to secure their positions in the pecking order.

As a result, Nokia’s share of the global smartphone market has fallen by nearly half, to 15.5 percent in September from 27.5 percent in December, according to International Data Corp., an information technology research firm.

“The road back for Nokia is going to be a long one,” said Francisco Jeronimo, an analyst in London for International Data. “There is a risk that they are too late to the party.”

At a conference in London on Wednesday, Nokia intends to present at least two new phones, one aimed at high-end users and one for the midrange mass market, people with knowledge of the presentation said.

Time is not an ally for Nokia in the fast-moving smartphone segment of the mobile market, which now accounts for more than half of all cellphone sales in North America and Western Europe. For Nokia, the decision to abandon its own Symbian operating system in favor of Windows Phone came at a price. Operators quickly reduced their stocks of all Symbian devices, both smartphones and basic phones, hurting Nokia’s bread-and-butter business.

Nokia’s share of the overall global cellphone market fell to 24.5 percent in September from 30.7 percent in December, according to International Data. On Thursday, when the company reported a €68 million loss for the third quarter, which was smaller than some investors had expected, Mr. Elop spoke of the “many important steps ahead in our journey of transformation.”

“With each step,” he continued, “you will see us methodically implement our strategy, pursuing steady improvement through a period that has known transition risks, while also dealing with the various unexpected ups and downs that typify the dynamic nature of the industry.”

For Mr. Elop, a former Microsoft executive who made the decision to enter the alliance, and for Nokia, the success or failure of the collaboration will be a defining event.

Carolina Milanesi, an analyst in London with the technology research firm Gartner, said Mr. Elop so far appeared to be delivering on his promise to turn Nokia around. The company’s upgrades this year of Symbian, Symbian Belle and Symbian Anna were tangible improvements that showed Nokia could innovate on the fly.

Nokia released the N9, considered its best smartphone to date and a product of the now-defunct alliance with Intel, to positive reviews. Sales of two new dual-SIM devices, the C2-03 and C2-06, helped Nokia lift sales of basic phones 8 percent in the third quarter.

Gartner is predicting that Nokia and Microsoft will succeed, gaining 20 percent share in the smartphone market by 2015. While that would still be below Nokia’s peak, it is a lot better than where it is now.

“I am not sure if success is a given,” Ms. Milanesi said. “Their major issue will remain brand and making both Nokia and Microsoft sexy enough for consumers.”

Nokia must succeed at the top and middle ends of the smartphone business to reclaim a leadership position, said Neil Mawston, an analyst at Strategy Analytics in Milton Keynes, England. Profit margins for top-end devices, like Apple’s iPhone, are about 36 percent, Mr. Mawston said. For midrange devices, the gains are much smaller, from 1 percent to 15 percent.

“The top end is where the biggest revenue and profit pools lie,” Mr. Mawston said. “The volume is at the low- and midtier.”

Mobile network operators are hoping that Nokia-Microsoft smartphones will sell well, because that will help them command lower prices from Apple and the makers of Google’s Android phones for their models, Mr. Mawston said.

“Apple’s iPhone is widely perceived among operators as being overpriced, but Apple is so popular that operators can’t reduce the price they pay for it by even a small amount,” he said.

Nokia is expected to introduce the first new Microsoft devices in places where it already has a relatively strong market share, like Western Europe. It hopes to build momentum and positive reviews and take the devices to the United States, the world’s largest smartphone market.