Nokia drops new Meego phone, bemoans plight

HELSINKI Wed Feb 9, 2011 1:19pm EST

Nokia Executive Vice President of new Devices Kai Oistamo (R) and Intel Senior Vice President and General Manager of Software and Services Renee James (L) speak during 'MeeGo' presentation at the Mobile World Congress in Barcelona February 15, 2010. REUTERS/Albert Gea

Nokia Executive Vice President of new Devices Kai Oistamo (R) and Intel Senior Vice President and General Manager of Software and Services Renee James (L) speak during 'MeeGo' presentation at the Mobile World Congress in Barcelona February 15, 2010.

Credit: Reuters/Albert Gea

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HELSINKI (Reuters) - Nokia has ditched plans for a new smartphone and compared the company's plight to an oil platform on fire just days ahead of a key strategy presentation, according to industry sources.

The sources said the Finnish firm had dropped its plan to launch a phone based on the MeeGo operating system, increasing the possibility it might switch systems. Such a switch is seem by some investors as the best option for troubled Nokia.

In a leaked internal memo, Chief Executive Stephen Elop hinted at the move, writing: "We thought MeeGo would be a platform for winning high-end smartphones. However, at this rate, by the end of 2011, we might have only one MeeGo product in the market."

In the same memo posted on Nokia's internal website this week, Elop comparing its position to a man on a burning oil platform, wondering whether he dares to jump. Industry sources said the memo, published in full in the Financial Times on Wednesday, was genuine.

A spokesman for Nokia declined to comment.

MeeGo, seen key to Nokia's battle in the high-end smartphone market, was created last year by the merger of Nokia and Intel's Linux-based platforms Maemo and Moblin.

Nokia, the largest handset maker by volume, has seen industry newcomers Apple and Google sweep up most of the profits in the wireless industry in just few years after their entrance to the sector.

Chairman Jorma Ollila brought in Elop from Microsoft last September.

Elop will unveil on Friday his strategy for turning Nokia around. He is widely expected to say Nokia will start to use Google's or Microsoft's software.

Shares in Nokia rose on Wednesday to highest level since last May as Meego's setback was seen as boosting the likelihood of Nokia switching platform, and were 1.2 percent higher at 8.37 euros by 1434 GMT.

Investors are betting on a change of strategy, picking up call options on Nokia ahead of an investor event on Friday, said Nick Tranter, head of derivatives at Espirito Santo.

The move would enable Nokia to benefit from wide developer support to Android or Windows Phone 7 and cut costs in a longer term, but having its own platform has given Nokia full control over its devices rather than being beholden to a third party.

Apple, along with BlackBerry maker RIM, have used their own platforms to great effect, while the market is flooded with very similar smartphones running Google's Android.

Analysts said Nokia could still show off the next MeeGo device, even if unfinished, at its investor day in London on Friday, or a news conference in Barcelona on Sunday.

"Frankly, Nokia has to decide whether maintaining MeeGo is of strategic value in the short or longer term. If it believes MeeGo will not deliver value, it should divert resources elsewhere," said Canalys analyst Tim Shepherd.

"One good thing about Stephen Elop is that he is not emotionally attached to any platform."

(Additional reporting by Dominic Lau in London; Editing by Greg Mahlich and David Hulmes)

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