Nokia, Intel team up in phone software race

Nokia, the world's biggest maker of mobile handsets, said on Monday it would merge its Linux Maemo software platform, used in its flagship N900 phone, with Intel's Moblin, which is also based on Linux open-sourced software, to create a new platform, MeeGo.

"They have understood the only way to beat Microsoft, Google and Apple is to do it through scale -- get the platform to more devices," said John Strand, owner and head of Strand Consult after the announcements at the Mobile World Congress fair.

"However, they have not realized it's not about getting to many platforms, it's about making something the consumer likes. The bees don't go for the biggest garden, they go for the most beautiful flowers," Strand said.

The cellphone industry is increasingly focusing on smartphones, devices with computer-like capabilities that have fatter margins than ordinary phones, whose sales may overtake those of other phones as early as this year.

Microsoft's long-awaited revamp of its mobile software follows a lukewarm reception for Windows Mobile 6.5 in October, which most analysts viewed as a poor competitor.

It has been losing the battle for advanced phone users over the past few years, taking just 8.8 percent of the global smartphone systems market last year, according to technology analysis firm Canalys, down from 13.9 percent the year before.

"We hope seven's our lucky number," Chief Executive Steve Ballmer told a news conference.

In the launch of Windows Phone 7 Microsoft has put an emphasis on appealing to everyday users as well as its core business market.

Phone 7 handsets to be made by companies including HTC, Samsung and Sony Ericsson, will feature touch screens with quick access to social networking functions from Facebook, music and video through Microsoft's Zune software and games linked to its Xbox system.

Microsoft said its main network carrier partners are AT&T and France Telecom's Orange and the new phones will be in stores by the holiday season at the end of the year.

"We're really trying to go after the life market. People work, they live, and I think on their phone they don't make a big distinction, so we need to support all aspects of somebody's life," Ballmer told Reuters Television in an interview.

However handset makers such as HTC, Samsung and Motorola are also turning to Google's Android operating software, which is not only free but attracting a fast-growing developer community and already has 4.7 percent of the market.

Microsoft is the only major phone software maker to charge a license fee to handset makers.

Ballmer told Reuters Television he had no plans to change the company's charging policy.

"Windows Phone 7 is a massive bet by Microsoft to try and get themselves back in the game. They're going to throw a lot of money at it to reassert themselves in the sector," said Ben Wood, director of UK-based telecoms research firm CCS Insight.

Meanwhile the news from Intel and Nokia came as more of a surprise to the industry.

Nokia only rolled out its first Maemo phone -- the result of a five-year development project -- three months ago, with analysts seeing Maemo boosting the firm's chances of succeeding in the higher end of the market.

The market for software platforms on cellphones is led by Nokia's Symbian, but it has lost much ground lately to Apple, BlackBerry maker Research in Motion and to Google.

Nokia said it was still committed to using Symbian in most of its smartphones, but would use the new MeeGo in the most advanced models.

The software deal announced on Monday is also set to boost Intel's chances of getting its chips into the cellphones of the Finnish company, which controls around 40 percent of the global phone market.

"We believe the partnership ... will result in significant sales volumes for Intel," said CCS Insight analyst John Jackson.

Nokia's shares closed up 0.3 percent at 9.49 euros. The DJ Stoxx European technology sector index fell 0.3 pct.

Google said it was relaxed about the development.

"Google benefits when anyone produces a great phone that enables the Web experience," Vic Gundotra, who leads Google's mobile engineering, told reporters. "If Intel and Nokia can deliver innovation we think that's very exciting."

Network operators have wanted a smaller number of operating systems, as supporting them is timely and costly, but the number has in recent years only increased.

Samsung, the world's second-biggest handset maker, joined the party on Sunday by unveiling its first phone to use its own new operating system, called 'bada'.

But now the open-source computer operating system Linux is starting to win traction, with Google using Linux for its Android platform, and Nokia rolling out its top-of-the-range model N900 using Linux Maemo.

"There has been a step change for Linux in mobile," Morgan Gillis, head of the wireless Linux system user foundation LiMo, said in an interview. "No other operating system now matches the vendor coverage of Linux.

(With additional reporting by Bill Rigby in Seattle; Writing by Kate Holton; Editing by Greg Mahlich, Andrew Callus).