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Should Microsoft Buy Nokia or Make Its Own Smartphone?

Speculations have gripped the market in recent days that {complink 3426|Microsoft Corp.} may begin making its own tablet PC and smartphone as it continues efforts to propagate the Windows operating system.

I wouldn't bet against either this or even the possibility the company may purchase {complink 3847|Nokia Corp.}, its troubled partner in the wireless communications equipment market. In fact, if Microsoft wants to take the lead in being disruptive and making Windows OS competitive, I believe it should bring Nokia firmly under its wings.

Microsoft won't be new to the hardware business and is probably better prepared to extend its brand into newer areas than many of the companies that have ventured into tablet PCs and suffered significant setbacks, including Hewlett-Packard and Research in Motion.

Although primarily a software company and the dominant competitor in the PC operating system segment, Microsoft has also established itself as a major player in the gaming market with the Xbox, in addition to selling other hardware, including keyboard, mouse, and branded headphones. The extensive supply chain network the company has built for the Xbox can easily be leveraged to support other equipment the company may want to introduce in future. Click here for a list of Microsoft products.

I suspect for several reasons Microsoft may have no options but to dive headlong into the communications equipment market with its own products and rather than through surrogates as it has so far done. The profile of the traditional OEM is changing rapidly with former partners morphing into rivals and new alliances and support systems being constantly forged in the rapidly evolving market.

The expertise available at electronic manufacturing services (EMS) providers, coupled with off-the-shelf IP from companies like {complink 444|ARM Ltd.} as well as offerings from fabless chipmakers, which in turn get support from semiconductor wafer foundries like TSMC, has made it easy for companies like Amazon.com, Barnes & Noble, and Walmart to stray well beyond their traditional markets to embrace hardware products. Even companies that could be described as regular OEMs are enlarging the pool of products they offer in response to changing customer needs.

Companies like {complink 2294|Google}, for instance, have changed the way we look at service providers. The acquisition of {complink 12925|Motorola Mobility Inc.} by Google, for example, is still reverberating in the wireless equipment market, while its introduction of the Android operating system has contributed to the displacement of Nokia as market leader in favor of {complink 4751|Samsung Electronics Co. Ltd.}. Google, while more popular for its search engine, is essentially today a hardware company via the acquisition of Motorola Mobility, but there are ongoing speculations the company itself may be getting ready to make and sell its own smartphones.

If this idea seems strange (since Google already owns a smartphone vendor), consider this: Even Facebook may get into the smartphone business, according to a report in the New York Times. Why should Facebook get into the hardware business? Because more people are accessing the company's services via mobile devices than on regular computers, making it difficult for the social media company to track users and sell advertising against their online behavior.

Even {complink 379|Apple Inc.}, once a purely PC company, has changed the dynamics of several adjacent markets with the iPhone, the iPad, and the iPod. It's fair to say today that Apple is more of a consumer electronics company than a PC vendor. But even that description is in flux as Apple seeks to expand its influence into other end markets. On EBN, one of our more successful blogs — in terms of page views — is a report that speculated on new directions Apple might take that could supercharge any of a bunch of currently dull markets. (See: Apple’s Next Big Thing Will Be Huge.)

The wireless handset and computing equipment market is obviously evolving too rapidly, and the changing profile of the players indicates enterprises in this area will continue to redefine whatever they consider their core operations.

For Microsoft, its days as a software-only company are over. It is today compelled to mix up hardware and software to remain competitive. The alliance with Nokia in the smartphone market gives it a good opportunity to light a fuse under Windows OS for mobile devices, but the market response has so far been lukewarm. A Microsoft-branded tablet PC or smartphone might be the game-changer the company needs to be more competitive against Apple OS and Android.

One option Microsoft has is to simply purchase Nokia. It has the funds ($60 billion in cash and short-term investments at the end of the March quarter) and the market value to support such a transaction. Plus, the target company is wounded and in survival mode. Its market capitalization has dropped to less than $10 billion versus $250 billion for Microsoft. Will Microsoft make such a move? I doubt it, but I wouldn't be surprised.

12 comments on “Should Microsoft Buy Nokia or Make Its Own Smartphone?

  1. Houngbo_Hospice
    June 18, 2012

    Microsoft is certainly pondering upon the pros and cons of a purchase of Nokia – supposing that Nokia were for sale. An acquisition of the Finland phone-maker could help Microsoft boost its struggling Windows Phone platforms. But nothing is so sure. If Microsoft takes the risk and fails, its future in the smartphone market will take a severe blow.

  2. bolaji ojo
    June 18, 2012

    Hospice, Acquiring Nokia may be in Microsoft's longer-term interest but is the vision there to make the union work?

  3. Barbara Jorgensen
    June 18, 2012

    You make a good argument for Microsoft developing its own tablet and/or smartphone. Another example of “never say never” when it comes to the high-tech industry.

  4. bolaji ojo
    June 18, 2012

    Barbara, Microsoft today announced the debut of Surface, its tablet PC. The product is aimed directly at the iPad and similar devices. See: Microsoft Windows 8 Surface Tablets: Big Hardware Play.

  5. prabhakar_deosthali
    June 19, 2012

    In my opinion, it will be best in its interest for Microsoft to launch its own Tablets and smartphones rather than carrying the legacy of a brand that has already taken a lot of beating in the smartphones market.

    Having its own brand products will definitely give a fresh look to its products.

  6. Himanshugupta
    June 19, 2012

    In already crowded segement of PC, iPad and smartphone, launching a new brand can not be a good idea. Many comanies are already struggling to keep their brand afloat and one of them is Nokia. Acquiring Nokia can be an option at this stage for Microsoft given the low purchase value but the turnaround of Nokia in smartphone segment will be a textbook casestudy. Rather, MS should focus on better software and try to convince more hardware companies to use the platform to be able to compete with iOS and Android.

  7. bolaji ojo
    June 19, 2012

    Someone at Microsoft had a similar idea. The company just announced it will offer its own tablet PC. This marks the first time Microsoft is directly in competition with its software customers in the operating system market. I thought it made sense for Microsoft to do this but now we watch and wait for customer reaction.

  8. Adeniji Kayode
    June 19, 2012

    well for me, even if MS acquires Nokia and there is no vision, something that can steal the attention of consumers to its products, it  will still be the same old story.

  9. Nemos
    June 19, 2012

    “The alliance with Nokia in the smartphone market gives it a good opportunity to light a fuse under Windows OS for mobile devices, but the market response has so far been lukewarm”

    But why the market should change behavior if Microsoft presents a Hardware product with windows Os on it?

  10. JLS
    June 19, 2012

    Microsoft and Nokia are a natural pair in light of what both seem to need.  Nokia needs Microsoft to prove they are in it to stay and Microsoft needs a legitamate telephone platform after previous fizzles.  Judging from the adverts on TV, they are in it together, so they might as well make it official

  11. Wale Bakare
    June 20, 2012

    Should Microsoft puts cards on the table for offer would Nokia accept to play? And how would acquisition of Finnish giant techie impact on socio-economy of people there thereafter? Finnish government also acknowledged its substantial contribution to the country's GDP as well as transformation the country has withness since Nokia phone hit world market.

     

     

     

     

  12. ahdand
    June 30, 2012

    I think this should not be a merge as such because Microsoft and Nokia both are good companioes which have stabilized their names in the field. If they merge we will loose 2 best companies and the merge will change the thinking aspects of the 2 companies which I feel will harm the market alot.

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