But without controlling their software, Nokia's almost entirely surrendered control over their product direction to Microsoft. Contrast it to Apple, where having their own hardware and software lets them do things like the retina display upgrade. In Nokia's case, MS says "This is what the OS is capable of," and Nokia has no choice other than "Ok, we'll make a touchscreen with some buttons that comply with your interface conventions."
They're going from a mobile phone company to a widget manufacturer. It's a position not very different from where Dell, Gateway, HP, etc have been in control of product design, but unable to innovate in ways that would really improve the customer experience. So they're relegated to hardware design (within some pretty narrow constraints) and differentiating their computers by loading some shitty bloatware on and saying " doesn't have a dock on all four screen edges like we do!"
There's still money to be made in the hardware business, but it's not something I'd aspire to were I in the cellular industry. It's better than being put out of business, but Microsoft's lack of direction in OS design is likely to hobble them as they try to compete with Apple's ecosystem. I mean, WM7 tried to copy iOS 1 and say "Nah, you don't need copy/paste". Apple's continued to make progress toward a capable mobile OS, and MS still hasn't fixed it. Do you see them having a good chance at competing in the long run?
My prediction: Nokia and WM7 won't be able to compete on features or design, so they'll compete on price. As the smartphone market portion continues to grow, a lot of it will be on the bottom end, with people moving from crappy featurephones to crappy smartphones. If they can find a market niche, it'll be the people who just say "I want a phone," and not anybody who knows or cares any more than that. Which is a pretty big market to be calling a "niche," but it's got slim profit margins. Maybe they can make up for it in volume.