Standard & Poor’s suspects that the new strategy from Nokia Corp. (NYSE: NOK), set to be announced February 11th, is not going to be enough to boost the company’s competitive position in the mobile handset market that Nokia has dominated for years. S&P has put the Finnish phone giant on credit watch for its ‘A’ rated long-term debt and its ‘A-1’ rated short-term debt. What does Nokia have in mind that would forestall such a hit? Unless the company bites the bullet and adopts Android from Google Inc. (NASDAQ: GOOG), Nokia’s outlook will get even darker.

Back in December, we noted that Nokia was in discussions with Microsoft Corp. (NASDAQ: MSFT) to offer the Windows Phone 7 operating system on Nokia’s high-end smartphones. The discussions made sense, given that Nokia’s new CEO came from Microsoft, but we concluded that such a move was not really going to save Nokia from the tidal wave known as Android. That’s just as true now as it was then.

In Nokia’s quarterly report, CEO Steven Elop noted that “Nokia faces some significant challenges in our competitiveness and our execution. In short, the industry changed, and now it’s time for Nokia to change faster.” The company’s venerable Symbian operating system simply can’t compete with the iPhone/iOS combination from Apple Inc. (NASDAQ: AAPL) or Android.

Nokia is developing a new OS, Meego, in a joint venture with Intel Corp. (NASDAQ: INTC), but does the world really need yet another mobile operating system? And even if it does, how long before Nokia/Intel can deliver one? The end of 2011 or the beginning of 2012? By then, Android activations could be way more than the 300,000 a day that Google now claims. Does a new mobile OS have a chance, considering that Apple, too, will still be shipping millions of iPhones?

Marketwatch’s John Dvorak suggests today that Nokia could punt on February 11th, and announce that Nokia will make phones using both Android and Windows Phone 7. Dvorak notes that being a loyal, if apostate, Microsoftie, Elop could introduce a Windows Phone 7-based phone, while never expecting it to succeed. At least then he can tell his old friends at Microsoft that he tried.

If Nokia sticks with its own Meego OS or opts for Windows Phone 7 exclusively, S&P would almost surely downgrade the company’s credit rating. The ratings agency is worried about Nokia’s falling market share, and S&P can surely read the tea leaves that say, “Android.”

Paul Ausick

 

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