Nokia (NYSE: NOK) will launch its new N9 Microsoft (NASDAQ: MSFT) Windows-powered smartphone later this year. It does so as the entire industry faces slowing sales and a dizzying number of new products and potential alliances. Research In Motion (NASDAQ: RIMM), its future blackened by faltering sales and market share loss, has been rumored as a takeover target for Microsoft and China-based smartphone firm HTC. Nokia has also been mentioned as a merger partner for RIM. The Sony Ericsson joint venture may be bought out by Sony so its can bundle smartphone sales with its PS3 and VAIO PCs.
What is certain is that the market has left Nokia for dead. That is a mistake. Nokia on its own has little chance for a resurrection. Its partnership with Microsoft changes that. Fresh from a buyout of Skype, Redmond has turned to the telecom industry for its growth as much as it has new cloud computing products, search, or consumer electronics like its Xbox 360. Skype may be Microsoft’s software play along with Windows mobile, but Nokia is a hardware platform it cannot match even with a buyout of RIMM. Nokia still makes a third of the world’s handsets and has inroads to every major country in the world, which includes the critical markets of China and India.
Microsoft is viewed as a smaller and smaller force in most of the markets it serves or tries to serve. Mobile telecom may be CEO Steve Ballmer’s last and best stand. Skype has 170 million active users. Nokia sells over 200 million handsets a year. Microsoft has set itself to perform a “virtual merger” of VoIP, an operating system in Windows, and a line of smartphones which has begun to grow despite Nokia’s problems.
The idea that M&A is the key to the future of Microsoft mobile plans is a false one. It has the pieces in place to win a large portion of the market, especially with the weakened fortunes of RIMM and Sony Ericsson. Many experts say that the world’s largest software company has no chance to compete with Apple and the surge of availability of Google (NASDAQ: GOOG) Android-powered phones. Apple and Android have armies of developers to build apps to tether customers to their products. The dirty little secret about apps is that very few of them power 90% or more of total downloads. Microsoft only needs to develop versions of those successful products to have a viable mobile OS platform in Windows.
Microsoft should not have 25% of the search business in the US. Its Xbox 360 should not have been able to dislodge Nintendo and Sony (NYSE: SNE). Sometimes stubbornness and access to nearly unlimited capital, marketing, and R&D is enough to offset slow and cumbersome attempts to enter competitive markets.
Douglas A. McIntyre