June 24, 2008 / 6:50 AM / 9 years ago

UPDATE 6-Nokia buys Symbian, opens up smartphone software

6 Min Read

(Adds comments, updates shares)

By Tarmo Virki

HELSINKI, June 24 (Reuters) - Nokia NOK1V.HE will pay $410 million for the remaining shares in UK-based smartphone software maker Symbian and make its software royalty-free to other phone makers, in response to new rivals such as Google Inc (GOOG.O).

The world's biggest cell phone maker said on Tuesday it would contribute Symbian's assets to a not-for-profit organisation in which it would unite with leading handset makers, network operators and communications chipmakers to create an open-source platform with wide industry appeal.

Symbian software is used in two-thirds of smartphones -- mobile handsets with computer-like capabilities -- but Apple Inc's (AAPL.O) iPhone or new categories of phones based on Google's Android software could challenge that dominance.

"It indicates that Nokia is worried by the rise of lower-cost operating systems from Google Android and LiMo Foundation," analyst Neil Mawston from Strategy Analytics said on Tuesday. LiMo is an industry consortium to promote the popular free Linux software on phones.

Symbian was formed exactly a decade ago to the day in London by a consortium of top mobile handset makers looking for a standardized way of building software to run new phones. It was the descendant of software used to run Psion electronic organizers popular with business professionals in the 1990s.

Symbian's closest rival is Microsoft's (MSFT.O) Windows Mobile operating system, which has just 13 percent of the market despite the U.S. software maker's drive to gain share.

Microsoft charges $8 to $15 per phone, according to research firm Strategy Analytics, while Symbian has charged, on average, $4.10 a device.

"This puts a lot of pressure on Microsoft right at a time when they are trying to really push into the consumer space," Gartner analyst Carolina Milanesi said of Nokia's bid to drop royalty prices. "For operators this offers a good alternative to Android," she said.

Microsoft said Nokia's move was likely to confuse operators and handset makers with unwanted extra choices and said it would not change its own strategy as a result.

"Absolutely not," said Scott Rockfeld, group product manager at Windows Mobile. "We've seen more Linux consortiums come and go than Linux mobile phones."

LiMo, with members across the industry except for Nokia, welcomed the move as creating a structure similar to its own, with software open for all to use.

Google spokesman Barry Schnitt hailed Nokia's move to open up Symbian. "Openness fosters innovation, benefiting consumers. We're very pleased to see other major players in the mobile industry moving in this direction," he said.

Nokia, which makes 40 percent of all cell phones sold, will pay 264 million euros ($410 million) for the 52 percent of Symbian it does not own. But the move will save it money as its big market share means it now pays more in royalties to Symbian than it gets from its share of Symbian royalties from others.

Newer, Faster Products

Other members of the new not-for-profit Symbian Foundation are Sony Ericsson (6752.T), Motorola Inc MOT.N, NTT DoCoMo (9437.T), AT&T Inc (T.N), LG Electronics (066570.KS), Samsung Electronics (005930.KS), STMicroelectronics (STM.PA), Texas Instruments Inc TXN.N and Vodafone Group Plc (VOD.L).

Nokia will give Symbian and its S60 software assets to the foundation, while other members said they will lend their UIQ and MOAP software to create a joint Symbian platform in 2009.

"It offers us an opportunity to innovate faster on a bigger, united, more widely accepted platform," Kai Oistamo, head of Nokia's devices business, said. "It also enables us to deliver new products, we believe, faster to the market."

The first phones based on the existing software will be unveiled shortly after the closing of the transaction, he said, while phones using a completely new version of the software would reach consumers within the next two years.

Nokia expects the deal, accepted by all shareholders except Samsung so far, to be completed this year and dilute profits through 2009. On a reported basis, Nokia expects the deal to reach break-even in 2010, and begin to boost earnings in 2011.

"The biggest surprise is that Nokia gets full ownership all at once, and at a good price," Karri Rinta, analyst at Handelsbanken, said of the long-coveted Symbian franchise.

Shares in Nokia rose 0.4 percent to 15.73 euros, slightly outperforming the DJ Stoxx European technology index .SX8P. (Additional reporting by Marc Roca in London, Georgina Prodhan in Frankfurt, and Sakari Suoninen, Julie Breton and Rauli Laitinen in Helsinki and Eric Auchard in San Francisco; Editing by Quentin Bryar/Paul Bolding/Braden Reddall) ($1=.6440 Euro)

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