Nokia's all-or-nothing deal with Microsoft fails to answer key questions about smartphone development and risks a turbulent transition period, analysts said on Monday, driving its shares down yet further.
Nokia's new CEO Stephen Elop announced a partnership with Microsoft on Friday -- which he said was worth billions -- under which Nokia will adopt Microsoft's Windows Phone software across its devices, replacing its home-grown Symbian platform.
Elop likened the plan to leaping from a burning platform, but Nomura analysts responded: It's a long way down and said the fact Nokia was so uncertain that it could not give a 2011 outlook made the stock hard to own over the next 12 months.
Nokia stock was down 3.7 percent at 6.75 euros on the Helsinki bourse by 1109 GMT. The shares are down 20 percent since the middle of last week when news of the deal leaked and are now at their lowest level since August 2010.
The chief executive will suffer from a lack of credibility among investors for a long time, fixing that will be a major task, said Swedbank analyst Jari Honko, cutting his recommendation on Nokia to sell from buy.
Other technology analysts noted Nokia was now looking at a short-term collapse of consumer demand for its Symbian-based phones which would slam margins -- the phones currently make up around half of Nokia's devices sales.
In the meantime, they added, Nokia had failed to answer questions about the development of new smartphone models.
I believe Nokia's smartphone sales will go down by some 20 percent for the rest of the year. They will lose a lot of market share, said Nordea analyst Sami Sarkamies, adding that the alliance could prove to be successful in long term.
Nokia has already lost major market share on high-margin smartphones to Apple's iPhone and products based on Google Inc's Android platform.
We have lowered our Nokia smart-phone forecasts for 2011 by 7 percent and we are concerned by both the lack of preparation the industry/employees appear to have had (some key suppliers weren't told, operators were given 24-48 hours and Nokia's employees 0-72 hours), UBS analyst Gareth Jenkins said.
We expect significant technological and re-organizational disruption in the next twelve months of transition.
Others pointed out that Microsoft's experience in the mobile phone market did not bode well.
Nokia is...handing responsibility for its user interface to Microsoft, which has a poor track record in this area, and giving access to its innovations to key rivals, said Stuart Jeffrey at Nomura in a research note.
J.P Morgan lowered its recommendation on Nokia to underweight from overweight, as HSBC cut its stance to underweight from neutral.
UBS cut its target price for the share to 7.3 euros from 8 euros, Deutsche Bank lowered its target to 6.5 euros from 8.50, and Credit Suisse to 6 euros from 7.
(Additional reporting by Tarmo Virki; writing by Sophie Walker; editing by Alexander Smith)