Microsoft, Nokia Pin Hopes on New Lumia as Mobile War Escalates

Nokia and Microsoft Corp (NASDAQ:MSFT) will take the wraps off the struggling European company's most powerful smartphone on Wednesday, in what may be their last major shot at winning back a market lost to Apple (NASDAQ:AAPL), Samsung and Google (NASDAQ:GOOG).

The world's largest software maker and the Finnish company that once dominated the cellphone market will showcase the device in New York on Wednesday morning and demo it for industry insiders about the same time in Helsinki.

Microsoft and Nokia hope the new Lumia will become a potent weapon in an escalating global mobile industry war.

Google's Motorola Mobility intends to show off its latest smartphone on Wednesday, Amazon.com Inc will unwrap new Kindle Fire tablets the day after, and Apple is expected to unveil the latest version of its seminal iPhone on September 12. Samsung Electronics says it will sell its own Windows phone as early as next month.

The Lumia 920 and smaller Lumia 820 will run on the latest Windows Phone operating software, which Microsoft hopes will rival Apple's iOS and Google's Android to become a third mobile platform. If the new phones do not appeal to consumers, it could spell the end for loss-making Nokia and deal a serious blow to Microsoft's attempts to regain its footing in the market.

Leaked pictures of the two models show a similar look to Nokia's previous Windows phones, but analysts say these alone will not be enough to turn the corner.

"There have to be more devices, and their features have to stand out more. There has to be a 'wow' device," said Hannu Rauhala, analyst at Pohjola Bank, who cut his recommendation on Nokia's shares to "reduce" on Tuesday.

The stakes are high for both Nokia and Microsoft.

The Finnish handset maker has logged more than 3 billion euros ($3.8 billion) in operating losses in the past 18 months, forcing it to cut 10,000 jobs and pursue asset sales.

Its share of the global smartphone market has plunged to less than 10 percent from 50 percent during its heyday, before the iPhone was launched in 2007.

Windows phones have only captured 3.7 percent of the global smartphone market, according to Strategy Analytics. Android phones have 68 percent, while Apple has 17 percent.

For Microsoft, successful Lumia sales could convince more handset makers and carriers to support its Windows Phone 8 software, which promises faster performance and a customizable start screen.

Last week Samsung became the first to announce a smartphone running Windows Phone 8, at the IFA trade show in Berlin. But it was not able to provide the model to visitors at the show.

ECOSYSTEM WARRIORS

Apple's first iPhone revolutionized the mobile industry, popularizing the model of a third-party developer "ecosystem," today considered pivotal to the success of any operating system.

Part of the reason for the limited success of Windows phones is that they support only 100,000 or so apps, compared with about 500,000 or more for Android or iPhones.

There is also the interconnection between apps and content, typified by Apple's iTunes and iCloud, which share content across devices, that acts as a powerful disincentive to switch between vendors.

"Much has been made of Windows Phone emerging as ‘the third ecosystem' in mobile. This is a huge task in itself, but Apple's and Google's entrenched positions where consumers have already invested heavily in apps and content makes switching platforms less attractive," said Ben Wood from mobile sector research firm CCS Insight.

The new phone software is similar to the Windows 8 desktop and tablet software to be released on October 26, making it easier for developers to write apps for both, and Microsoft hopes this will boost the platform's popularity.

But the Windows operating system is by no means universally popular in the PC market, so consumers will not necessarily come to the mobile phone equivalent with unalloyed goodwill.

"Consumer perceptions of the Windows brand have been shaped by PC usage. Although Windows 8 will help, there is still plenty of work required to overcome historical prejudices in the transition to mobile," said Wood.

The new Lumias could, however, benefit from the continuing decline in Research In Motion Ltd's BlackBerry, and also from a recent legal blow to the Android operating system.

A California jury decided last month that some of Samsung's hot-selling Android smartphones copied features of the iPhone, which may result in import bans and drive handset makers to put more resources into making Windows-based phones.

But for Nokia and Microsoft to exploit that window of opportunity, it must first find favor with consumers, who so far have shown little enthusiasm for smartphones with Windows software.

($1 = 0.7947 euros)

(Additional reporting by Bill Rigby in Seattle; Editing by Will Waterman, Edwin Chan and Tim Dobbyn)