June 14, 2012 at 2:43 PM ET
Struggling Finnish cell phone maker Nokia said Thursday it will cut another 10,000 jobs in what could be a bad sign for Microsoft's hopes to take market share from mobile leaders Apple and Google.
The job cuts come on top of another 10,000 layoffs announced last year and losses of more than $1 billion in each of the last two quarters. Nokia also announced several top executives will be leaving the company, including Mary McDowell, head of the struggling mobile phones unit.
CEO Stephen Elop said the planned cuts were "a difficult consequence of the intended actions we believe we must take to ensure Nokia's long-term competitive strength."
"We are increasing our focus on the products and services that our consumers value most while continuing to invest in the innovation that has always defined Nokia," he added.
Analysts said the growing trouble at Nokia could have a ripple effect on partner Microsoft, which has invested heavily in Nokia and is depending on success of its new Lumia line to help boost share for its Windows smartphones.
"Microsoft has made a huge investment — financial and strategic — in Nokia. If Nokia sinks, Microsoft goes into crisis mode," Forrester Research analyst Sarah Rotman Epps said via email.
(Msnbc.com is a joint venture of Microsoft and NBC Universal.)
"Windows phones, while very strategically important to the company, are a relatively small part of Microsoft's revenue" today, said Ross Rubin, principal analyst for NPD Connected Intelligence. But that's likely to shift as the post-PC trend continues.
"Over the long term, it would certainly pose problems if they didn't make significant headway in the smartphone and tablet market," he said.
Although Nokia was one of the early entrants into the smartphone arena more than a decade ago, it's had a hard time keeping up, said Carolina Milanesi, research vice president of consumer technologies and markets at research firm Gartner. "They have not been able to transition to the next phase, to the post-iPhone smartphone market."
Microsoft also has a long history in the smartphone sector, but found its head start didn't keep it from falling behind Apple and Google.
Tech research firm IDC predicts Microsoft's share of the smartphone market will improve. It forecasts growth from a 5 percent share of the market today to around 19 percent by 2016, which would put it roughly on par with Apple's current share. That would be a significant achievement, but IDC's optimism is tempered by two caveats.
It "assum[es] Nokia's foothold in emerging markets is maintained," a recent report said. Also, the unwinding of Nokia's old Symbian operating system gave a boost to rival Android- and iOS-operated phones, a bad sign for Microsoft and Nokia. "Clearly, Nokia and Microsoft need to quickly switch Symbian OS user allegiances to Windows Phone 7 in order to maintain relevancy in the smartphone race," it said.
One plus for Microsoft is that users of Windows-operated phones like the experience. In a March survey of customer satisfaction with mobile operating systems conducted by PCMag, Microsoft and Apple tied at the top. The question is whether Nokia can deliver its half of a superior user experience with equal acumen — a crucial part of the equation if Microsoft has any hope of breaking the iOs-Android duopoly.
Here Microsoft has to rely on Nokia to do the heavy lifting.
"I think Nokia needs to work more on its hardware right now," said Katyayan Gupta, analyst and connectivity lead at Forrester Research India. "It's a big risk for Microsoft now going forward. … The next version of Lumia — I think that will be a make or break," he said.
Nokia seems to realize this; the big question seems to be whether or not the embattled company can pull it off. "They're putting everything they have behind the Lumia phone," Milanesi said. "They are looking really at how they can maximize on what they have and move forward."