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Chairman Sees More Pain For Nokia

Nokia’s board expects the mobile phone company to suffer more losses in smartphone market share before it enjoys gains from its radical change in ­strategy, said Jorma Ollila, chairman.

Stephen Elop, chief executive of Nokia , announced in February that the Finnish company would link up with Microsoft to build a new series of phones based on the US software company’s Windows operating system.

Nokia’s Symbian system will eventually be phased out, but the group still aims to sell 150 million Symbian phones over the next two years.

Nokia is expected on Tuesday to announce two new Symbian devices and updates and improvements to the Symbian software.

Mr. Ollila said the board had “discussed explicitly that there would be an expected lower market share in the meantime with the opportunity then to pick up and build on the new concept”.

He added that management incentives, linked to the achievement of public and private commercial milestones, meant Nokia was “very much geared to win”.

In interviews with the Financial Times, Mr. Ollila, Mr. Elop and the Nokia leadership team identified the transition from Symbian to Windows Phone as one of the most challenging parts of the new strategy.

Jo Harlow, who runs Nokia’s smart devices division, told the FT: “The easier task is to start Windows Phone from a fresh perspective, but the more difficult task is to continue to operate Symbian.”

In 2007, Nokia’s Symbian operating system commanded 64 percent of the smartphone market, according to Gartner, the research firm. But competitors, led by Apple , cut Symbian’s share to 38 percent last year and Gartner estimates it will be 19 percent this year.

Although several analysts think Nokia can meet its 150 million Symbian smartphone sales target, some warn it will have to continue to cut prices.

Pierre Ferragu, an analyst at Bernstein, said falling prices of Symbian smartphones was the main factor in his forecast for a fall to 8 percent in operating profit margins at the handset unit this year, compared with 10.9 percent in 2010 — and 20.1 percent in 2007.

Nokia is on course to complete the Microsoft deal by the end of the month.

There are few details of how revenue from the alliance will be split, but Mr. Elop told the FT that Nokia would “participate in advertising revenue in a way that we’ve never before been able to do”.

He said Nokia would also be able to do “unique and differentiated things with Windows Phone” as part of its contribution to a third “ecosystem” alongside Android and Apple.

Nokia and Microsoft would use their patent pools to protect the ecosystem and “encourage others who may be taking advantage of our patents to be properly licensed for the use of those patents — at a fee”.

Mr. Elop said Nokia was also giving “a turbo boost” to its basic mobile phone business in developing markets, by investing in efforts to reach “the next billion” mobile phone users.

In a “buy” note issued last month, Goldman Sachs said there was scope for Nokia “to materially recover lost market share” in basic mobile phones, which accounted for 48 percent of overall device revenues in 2010.

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