Nokia succumbs to Android appeal in low-cost phone battle

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Nokia Chief Executive Stephen Elop presents the new Nokia X at the Mobile World Congress in Barcelona. (Getty Images)

Nokia Chief Executive Stephen Elop presents the new Nokia X at the Mobile World Congress in Barcelona. (Getty Images)

Nokia, soon to be acquired by Microsoft Corp, is turning to software created by arch-rival Google for a new line of phones it hopes will make it a late contender in the dynamic low-cost smartphone market.

Its first models, Nokia X, X+ and XL, rely upon an open version of the Android mobile software system created by Google that has become the world's most popular software used in smartphones.

The release of the phones just days before Nokia sells its handset business to Microsoft in a $7.2 billion deal, is an attempt to stay relevant in emerging markets, where low-cost Android phones are being snapped up by hundreds of millions of buyers.

Nokia Chief Executive Stephen Elop said the market had "shifted dramatically", and the group needed to address a sub-$100 segment that is set to grow four times faster than more expensive phones.

He told a crowded press conference at the Mobile World Congress trade fair in Barcelona that rather than being an 180-degree turn in its strategy of using Microsoft's Windows Phone for smartphones, it was a move that introduces the "next billion" users to Nokia's hardware and Microsoft's services.

"We see the X family being complementary to (Windows Phone) Lumia at lower price points," he said. "Even as you see Lumia push lower and lower, you will see us push lower with Nokia X below that."

But the strategy shift underlines the many missteps made by the Finnish company since Apple launched its ground-breaking iPhone in 2007.

Nokia was caught between a rock and a hard place - committed to using Microsoft's Windows Phone software but needing Android software to reach more cost-sensitive customers, CCS Insight's head of research Ben Wood said.

"That a company soon-to-be owned by Microsoft, the creator of the original operating system, is moving to Android is almost an "admission of failure", he said.

Global smartphone shipments grew 41 percent annually to reach nearly 1 billion units in 2013, according to market research firm Strategy Analytics. Android phones from dozens of handset makers accounted for almost four out of every five smartphones sold, or 781.2 million units.

In the past year, Apple shipped 153.4 million smartphones worldwide for a 15 percent share of the market, making it the second largest smartphone platform after Android.

Microsoft was a distant third in market-share terms, shipping 35.7 million units worldwide with its Windows mobile software platform, but still struggling to gain traction in the low-tier and premium-tier smartphone categories, Strategy Analytics said.

In February 2011, Elop famously compared Nokia's failing smartphone strategy - based on multiple software platforms of its own making - to a man on a burning platform.

He chose to jump into the arms of Microsoft, producing high-end Lumia-branded smartphones that have been well received by critics, but less popular with customers and app developers, the people who make the software that turns phones into multi-purpose tools.

Elop said on Monday he had not jumped the wrong way.

"There's quite a lot of vendors ... who made the Android decision but couldn't differentiate," he said. "We wanted to build with Microsoft a third ecosystem, and that's what we are doing while others fall by the wayside."

But the Microsoft technology does not work on the chip sets found in cheaper smartphones, the fast-growing market crowding out Nokia's Asha feature phones, which lack the full Internet capabilities of smartphones.

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