Microsoft (NASDAQ: MSFT) has two main partners to help it enter the mobile world. One is Barnes & Noble (NYSE: BKS), which sells the tabletlike e-reader Nook. The other is deeply troubled Nokia (NYSE: NOK). With each of the companies in increasing jeopardy, the Microsoft decision to launch its own tablet — called the Surface — has become more important.
Nokia’s problems have lasted more than three years as it lost ground to Apple (NASDAQ: AAPL) and Google (NASDAQ: GOOG) Android-powered devices. Nokia surrendered its position as the world’s largest cellphone manufacturer late last year to rapidly expanding Samsung. Nokia’s new Lumia 900 smartphone, which runs Window mobile, has been a failure, if sales are the measure.
Microsoft teamed with Barnes & Noble in March, as the book company decided to spin off its e-book, e-reader and college businesses into a new company. Microsoft contributed $300 million to this NewCo in exchange for a 17.6% equity stake. The idea was to get more content for Windows mobile devices to help the operating system gain ground against the iPad and Amazon.com’s (NASDAQ: AMZN) Kindle Fire. It also was widely assumed that new versions of the Nook would run Microsoft mobile software.
But the most recent quarterly numbers indicate Barnes & Noble’s e-reader prospects have suffered a substantial setback. That makes the success of the Surface all the more essential.
Barnes & Noble lost $58 million in the quarter that ended April 28, on revenue of $1.319 billion. The book retailer commented:
Device sales declined during the fourth quarter due to higher third-party channel partner returns, lower selling volume and lower average selling prices. In order to optimize the supply chain for new products, the company took back NOOK Simple Touch inventory following the previously announced holiday sales shortfall.
Microsoft made mistakes when it picked damaged partners Barnes & Noble and Nokia. That places more importance on Surface sales as the standard-bearer of the software company’s mobile strategy.
Douglas A. McIntyre