Monumental changes are taking place in the wireless handset and tablet PC market. Companies are crossing operating lines as it becomes more obvious that the dividing lines between software and hardware businesses were artificially created and are no longer justifiable or viable.
The recent decision of Google (Nasdaq: GOOG) to purchase Motorola Mobility Inc. (NYSE: MMI) for $12.5 billion is the latest step in the evolution of the high-tech industry towards the creation of more compelling business narratives. (See: Google Draws New Battle Line With Bid to Buy Motorola.)
The next shoes will soon be dropping. By offering to acquire Motorola Mobility, Google literally demonstrated that the old walls companies have built around industry segments do not need to exist. Admittedly, there was justification for the industry to rip up the old vertical manufacturing system OEM used up until the last decade of the 20th Century. However, simply because we do not believe an OEM needs to have a semiconductor division does not mean we can also justify the dividing lines between software vendors and hardware manufacturers.
This is why I believe Microsoft Corp. (Nasdaq: MSFT) is next in line to make a major acquisition in the hardware space. The company has enough cash to fund any deal it wants (aside from buying Apple Inc. (Nasdaq: AAPL) or Google, of course), and if it wants to expand beyond the PC operating system market and make a big splash again in the consumer electronics sector, it should consider making a play for OS partner Nokia Corp. (NYSE: NOK). (See: Nok-Win a No-Win Combination.)
The two companies need each other, and together they can become a tougher competitor in the wireless handset and tablet PC market. Microsoft already signaled its intention to move closer to Nokia by agreeing to a joint-development plan for Windows OS that would net its partner billions in support dollars. Also, Microsoft's Windows OS for mobile platforms hasn't done very well in the market so far and has badly trailed offerings from Apple and Google. If Microsoft swallows up Nokia, the relationship becomes more entwined, and both could benefit from the interplay of hardware and software.
Such a transaction would be a no-brainer for Nokia. CEO Stephen Elop's decision to abandon Nokia's Symbian operating system admittedly hurt the company, but that decision is now irreversible. Rather than try to untangle the relationship with Microsoft, the Finnish company should instead seek an even tighter engagement. Nothing can be closer than an acquisition that makes Nokia a business division within Microsoft.
Will investors support the arrangement? They may not like it at first, but it's clear already Microsoft is no longer in a fast-growing business, while Nokia appears to have run out of steam. Together, they would be a formidable presence in the fast-growing wireless mobility market and would be better able to compete against Apple, Google-Motorola Mobility, and Samsung.
Sure, some Windows OS licensees may find the deal unpalatable, but many of these were already irritated at Microsoft's earlier announcement that it would help Nokia migrate to its platform. And, there aren't enough heavyweight companies supporting Windows OS, anyway. The few that are already in Microsoft's camp also have offerings that feature competing operating systems such as Google Android or internally-developed platforms.
By the way, the idea of Microsoft buying Nokia isn't really that far-fetched. It isn't a great mystery, either, that Google would offer to buy Motorola Mobility. Hewlett-Packard Co. (NYSE: HPQ) acquired Palm Inc., absorbing its operating system and using this in its products. Research In Motion Ltd. (RIM) (Nasdaq: RIMM; Toronto: RIM) is not on the block today, either. But I wouldn't be surprised if some other company with a deep-enough pocket makes a play for the Canadian enterprise mobility company. At their current market capitalization of $24 billion and $14 billion, respectively, Nokia and RIM are certainly affordable, having been trading at a discount for some time. Bolaji Ojo is the editor-in-chief of EBN, an EE Times sister community site. This story was originally posted on EBN.
Both MS and Nokia are sinking fast in smartphone space. Together they would just sink faster.
MS have already got everything they want out of Nokia by having Elop throw out Symbian - the strength behind Nokia software - and replacing it with WinPhone which is slowly dying in the corner.
MS has never understood mobile and never will. Unfortunately they are big and make their presence felt. They need to leave the industry before they cause even more damage.
I do not think this will happen. Microsoft are an old dog, SW is their core business and they will stick at it IMO. Wrt Google's acquisition, I still think Google have taken a big gamble by purchasing a mobile phone manufacturing business. Is that the only way they could have got hold of the patents they so much prize? I am sure it is.
As Larry Page said in the conference, Google is interested in patents. They are not interested in becoming a smartphone maker. But who knows? Yet, why would Microsoft want to produce smartphone? They have made enough margin for their software. I believe they would rather focusing on making a better OS, developing market needed new features than diverging their focus.
In my opinion Rick is right. Nokia is not big in smart phones right now. And Microsoft is not so strong in mobile OS. With two together, give reasons for Samsung and HTC to favor more towards Android. I don't see a reason for Microsoft to jump onto phone makers. Its not the hardware which is causing issue to Microsoft. Its their lag in providing rich features.
rick, i wouldn't be so sure. the vertical integration pays off for apple. apple is a hardware / software company that now plays cloud. google is a cloud company with nice hardware server experise and software (android). hp goes consumer with palm (and has cloud / hardware). with microsoft building up a stack like this, they would finally also be able to build an end to end experience (cloud, xbox, pc mobile). certainly this can fail (as seen with HP & ipaq, Microsoft and sidekick, et al.) but it can also work out. finally, the natural partner for RIM is dell. dell is weak when it comes to mobile and RIM is currently 70% enterprise oriented - as is dell. i see samsung buying more software & design companies to build up the bada stack, LG and SonyEricsson will fade away. HTC is the only loose end here.
I think this is a non-starter. If MS bought Nokia it would kill its biz with Samsung, potentially a stronger MS OEM than Nokia, as well as HTC and every other major MS partner. Google does NOT want a handset business. It's a slow growth, modest profit business comapred to software and servcies. It ONLY wanted patents to protect Android. Watch Google spin out Moto in a couple years. Ballmer knows better than to buy Nokia. He just wants to play Nokia.
If most of Microsoft's revenue come from the enterprise/commercial sector, buying Nokia makes sense only if Microsoft sees its future in consumer and telecommunications. Or, if Microsft plans to spin off its existing CE business into a separate company. My two cents
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