Nokia Releasing First Android Phone

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Finnish Smartphone Maker Readies Device for Barcelona Exhibit

Nokia Corp. NOK1V.HE +2.77% plans to release this month a smartphone that runs a version of Google Inc. GOOG -0.47% ‘s Android mobile software, according to people familiar with the matter, as it concludes the sale of its handset business to Microsoft Corp. MSFT +0.42%

Nokia engineers had been developing the Android phone when Microsoft was conducting due diligence on its €5.4 billion ($7.4 billion) deal to buy the Nokia handset business and license the company’s patents. The Android phone was aimed at emerging market customers, and has been tailored in a way that won’t promote some of the key Google-developed features that a more traditional Android-powered phone might, these people said.

Three years ago, Nokia agreed to abandon the homegrown software used on most of its smartphones in favor of Microsoft Windows Phone software after Microsoft offered billions of dollars for marketing and development. Last year, the Finnish company agreed to sell its handset business to Microsoft, cementing that partnership.

One of newly appointed Microsoft Chief Executive Satya Nadella’s key tasks is helping the U.S. software company catch up in mobile using its Window operating system. But as Android’s share of the global smartphone market continues to climb, Nokia’s new phone could signal that Microsoft is willing to be pragmatic, including relying on a bitter rival’s software to help boost sales volumes.

That pragmatism has its limits. The coming Nokia Android phone won’t promote Google’s Play application store, from which Google takes a percentage of profits. Instead, the phone will come installed with a suite of services created by Nokia and Microsoft, including Here maps and Mix Radio, and a Nokia application store with Android apps. People familiar with the matter say Nokia will show the phone at the Mobile World Congress in Barcelona.

Google declined to comment on the new phone planned by Nokia.

The strategy echoes the approach of Amazon.com Inc., AMZN +0.56% which has used a modified version of Android for Kindle tablets that are configured not to directly accept Android apps. While Google backs Android, the software can be modified and distributed by rival developers and manufacturers.

One reason for the move is Microsoft’s need to increase handset sales volumes to support its vast manufacturing capacity, and to help cover the high cost of competing and innovating in a smartphone industry dominated by Google, Apple Inc. AAPL +1.98% and Samsung Electronics Co. 005930.SE +0.16% , according to people familiar with the plans. Part of that strategy is taking a more dedicated approach to developing Windows phones that can better compete with high-end Apple’s iPhones or Samsung’s Galaxy devices.

Another reason for the Nokia Android phone is Microsoft’s Windows Phone—currently the only operating system on Nokia’s higher-end Lumia smartphones—doesn’t work on low-cost phones because of the software’s technical requirements.

When it comes to mobile software, Google has stepped into the market leading position that Nokia once held. While popular in the U.S. and other mature markets, Android has amassed a dominant position in emerging economies because it can be run on cheap phones. In India, for instance, Android was installed on 93% of smartphones shipped in 2013, or 41 million devices, according to an estimate provided by International Data Corp.

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