The news is full of reports on the abysmal second quarter results posted by Nokia today, which saw such a massive drop for the company that it has been surpassed by Apple in smartphone sales for the first time (16.7 million Nokias, compared to 20 million iPhones).

Some are suggesting that it’s a sign the move to Windows Phone 7 was the right one, but most analysis and opinion is that Nokia might not survive long enough at this rate, given that we’re only likely to see one WP7 handset by the end of the year, and although the operating system is a nice one, it might not be nice enough to make any impact into the growth of Android and iOS. For a full and complete analysis of how far Nokia have floated up the creek without any propulsion, Tomi Ahonen is as comprehensive as ever in his figures, predictions, and critical analysis of Microsoft and Nokia CEO Stephen Elop.

But I think I may have spotted a big opportunity for a core of growth for Nokia, and it’s all based around Windows Phone 7 and their relationship with Microsoft

Here’s where Nokia, Microsoft and Windows Phone 7 could nail it:

• Microsoft posted record quarter profits for Q4 last year, and record annual profits of $69.94 billion.
• The biggest growth has come from the Entertainment and Devices division, which includes Kinect, and the Xbox, which was picked out as contributing significantly to the record profits.
• Whether you prefer WP7, Android or iOS, you can certainly see that WP7 is a good enough OS to on a par with the others, but the perception is that the huge app catalogues of Android and iOS and the continued increase in developers devoting time and effort to them make their leads pretty unassailable.

But here’s what I think would give Nokia, Microsoft and WP7 a significant core group of growth from which to build….

• Xbox is growing and making significant revenue.
• Kinect is a record-breaking success.
• Integration with Xbox Live and gaming on mobiles has been mentioned by senior Microsoft staff for years, even before the Xbox 360 launched (One of the chief people involved in the Xbox project, J Allard, talked about it in-depth in an Edge magazine feature back in 2005).
• The biggest selling entertainment product of last year, which broke records for all videogame sales, was Activion’s Call of Duty: Black Ops, which is currently time-exclusive for the Xbox, meaning all updates etc are released way earlier for the Microsoft Console.

Non-gamers may still be asking why this matters, but consider the fact that there is a huge group of Call of Duty gamers who have bought an Xbox purely to play Call of Duty. And these generally aren’t 15-year-olds – these are mainly late-20s and early-30s men (and some ladies) who also bought an iPhone when they became cool and fashionable because a guy at work showed them Angry Birds.

These are people with limited time, and limited interest in comparing operating systems, or app inventory. There are plenty of other great games on the Xbox, but they’ll possibly buy a football game (Fifa for English football, Madden for American football, or maybe a golf game, and that’s it. They’ve spent £200 for a console, £40 for a game, and £30 for additional content, plus a £40 annual Xbox Live subscription to play one game online with their friends.

• Now most manufacturers using Windows Phone 7 also produce Android handsets which have a much, much higher rate of sale and adoption at the moment by a massive margin, so Nokia is in a position to be a massively preferential partner with Microsoft.
• If Nokia hardware, which is still trusted by consumers, and Microsoft WP7 could be put to Activision in a way that gets exclusivity on the Call of Duty franchise for mobile in addition to the Xbox console, or if they’ve already set up the contract that it’s Xbox Live exclusivity regardless of device.
• Suddenly you have hardware people still remember as trustworthy, even if Symbian was perceived as stone age compared to smartphone rivals. You have Xbox Live which is doing massively well as the established online videogame network, and you have the game which gets a large audience of adults with a disposable income in a position to spend £300 plus just to access that game. If they can figure out the right way to get CoD onto a mobile handset in a way which is enjoyable, ties into the console game as well (Most likely feeding into the new Call of Duty XP social network/stats package), then they’ve got a strong and solid core from which to build.

And given that the mobile/console interaction was being discussed 6 years ago, and increased Xbox Live connectivity is constantly being mentioned in every WP7 upgrade, I wouldn’t be surprised if this was announced pretty soon. Given the fact that one Nokia WP7 handset is out this year, and the next installment in the series, Call of Duty: Modern Warfare 3 is due in early November, marketing for such a phone and app would have to begin pretty soon, but having work on a launch app for a previous Nokia handset, the turnaround times for actually producing something were relatively short in that case.

Now the one thing that would probably scare anyone inside of Nokia from the idea would be remembering the ill-fated N-Gage – the gaming/phone ‘sidetalking’ abomination which ranks as one of the most notable gaming hardware failures of all time (and also produced the stil funny ‘sidetalking’ meme of imitating the N-Gage will all sorts of objects).

Just pretend the sidetalking taco phone never happened...

Fortuntely we’ve come a long way since then, with the Sony Xperia Play as the ‘Playstation Phone’ and the success of games including Angry Birds lifting simple mobile games. At the same time, most big games publishers, such as Activision and EA, are already publishing their games on the bigger mobile OS platforms.

If I was Stephen Elop and wanted to grab an established userbase which has disposable income for both hardware and digital content, and already has a strong word-of-mouth community with an established property, I’d be trying to get in a room with Ballmer and Robert Kotick in days or hours to get a deal done.