There is a buzz everywhere about the news of Google paying $12.5 billion for Motorala Mobility and lots of conjecture about the reasoning and what the strategy play is by Google. Whilst some say it is about ensuring the future of Android, others say that Google is sending a message to Apple, that other big phone manufacturer, that this game is far from over.

But for Nokia it certainly looks as though this news is bad for them and I thought it could be interesting to take the perspective of how things look for Nokia in China. For this may well give some insights into how well Nokia will survive in the changing battleground of the mobile device market. The question now is what does Nokia’s future look like in a Googlerola world?

Retail channel in fragile
Even prior to this new Googlerola landscape, Nokia has suffered over the last two years. It is hard to believe now just how good Nokia had made it in the Chinese market with a market share that reached as high as 40%. It is also hard to believe just how quickly this has changed.

In second quarter of an ordinary year, Nokia would expect retail channels to sign up billion dollar contracts, yet this is not the case in 2011. It is indicated through the media that the channels are clearing up their Symbian-core Nokia inventory due to significant sales decrease last year. It seems that in enterprises the Symbian OS is a yoke around the neck.

One of Nokia’s largest retail channels in China reported a 20% decrease in sales in Q1 2011 while inventory increased by 33% in dollar value as compared with the previous year.
Smaller retail terminals are also suffering from a narrowing profit margin, it has been reported that many of them have already declined to resell Nokia’s products.

Which operating system?
The fundamental reason of Nokia’s fall in China is that people are converting themselves to Android-core mobile devices be it with a well known brand or the popular copycats like ShanZhaiJi. When Nokia is struggling to get traction in the market, Apple, Samsung, HTC and Motorola are eroding its high-end smart phone market share, while the ShanZhaiJi manufacturers are stealing Nokia’s lower-end market given the price is surprisingly low. At this end of the market the pricing makes the devices seemingly throw away or disposalable.

It seems that Nokia have stalled and failed to set the right strategy of aggressively pursuing an Android offering, instead chasing the lower end of the market of non-smartphones. The problem here is that the competition can deliver a cheaper, reduced featured smartphone option and this could be fatal for Nokia. Imagine if Nokia and Motorala had combined forces? But the horse has bolted for Nokia. It seems that Google’s acquisition of Motorola will essentially block the way for Nokia to ship Android-core devices. Google will not allow Nokia to have any price advantage over its own blood-related brother, nowadays Motorola.

The situation looks bad for Nokia, but it may not be the end of the world.Enter Microsoft. There have been rumors around over the last two years that Microsoft would acquire Nokia, although it did not happen, but now seems ever more likely. You would even good reason to expect this today if you put these pieces together namely the MS-Skype deal, the MS-Nokia strategic partnership, Windows mobile 7…

Google has casted a bait to Microsoft that for a software and hardware partnership could be just too tempting to resist. Perhaps Microsoft is waiting for Nokia to fall further to pick up a bargain?