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  (Source: Bloomberg)
Let's examine two views on this controversial, provocative union

Microsoft Corp. (MSFT) late Monday announced its intention to purchase Nokia Oyj. (HEX:NOK1V) sending shockwaves through the OEM space.  Whether this is a match made in heaven or hell remains to be seen, but one thing's for sure -- these two companies were already closely tied so this relationship is not exactly new.

With that in mind, I'd like to present two schools of thought on the merger.

I. Windows Phone, the Winner

Key points:

Fiscal
Patents
Devices Let's assume for a minute that Nokia continues its current Windows Phone sales growth.  That seems reasonable given that its Q2 bump was before its most impressive Windows Phone to date -- the Lumia 1020 -- even landed.  With a Nokia-crafted "Surface Phone", sales could leap even faster.

Nokia Lumia 1020

The Surface and Nokia's Lumia devices mesh well together -- both share similar bright, colorful style cues and some common elements in terms of hardware.  A single branding -- either "Surface" or "Lumia" -- could reduce confusion and sell consumers on an ecosystem/look similar to Apple's iOS products.

Currently the only OEMs growing faster than Nokia are Lenovo Group, Ltd. (HKG:0992), Samsung Electronics Comp., Ltd. (KSC:005930), and LG Electronics, Inc. (KSC:066570).  Samsung is predicting a Q3 sales slump, so Nokia could soon find itself in the top three in market growth.

Google Inc. (GOOG) and its subsidiary Motorola have shown that a platform provider can use a hardware-making subsidiary to lead by example and encourage other OEMs to step up their game.  Likewise Nokia, if properly managed could actually encourage other prospective Windows Phone makers like Acer Inc. (TPE:2357) to push out high-end Windows Phones.

Windows Phone marketplace
Windows Phone is the fastest growing mobile platform. [Image Source: WinSource]

In a way the Nokia-Microsoft union is superior to the Motorola-Google union as Nokia has already independently undergone its own restructuring, so Microsoft won't have to alter the unit as drastically as Google had to with Motorola.

Finally, Stephen Elop could play a key role in Microsoft's leadership team.  The former Microsoft Canada executive has had his share of ups an downs as Nokia's chief, but he has ultimately revamped his company into a leaner, growing competitor.  That kind of reimagination seems like it could be a boon to Microsoft amidst its "devices and services" push.  With CEO Steve Ballmer departing, Mr. Elop provides the kind of veteran leadership Microsoft is short on.

II. Losers Flock Together

Key points:

OS
  • Microsoft's desktop companion to Windows Phone, Windows 8, has missed badly
  • Both companies have suffered recent declines in sales, relevance

Devices
  • Nokia has been slow to deliver on devices -- a major reason why Windows Phone failed to take off early
  • OEMs could run from the Windows Phone platform at the first hint of Nokia brand favoritism
  • What ifs -- Nokia could have done better sticking with Symbian or switching to being a premium Android OEM
A second perspective would be to look at this merger as a union of two failing firms.  While Nokia's Windows Phone sales are "growing", they still remain less than half of the Symbian smartphones it sold in 2011.  Likewise Microsoft is suffering the worst percentage drop in PC sales in history.

Ballmer fed up
Nokia and Microsoft have both struggled, seeing a net decline in sales from their peek levels.

The problem with Nokia, image-wise, from an investor's perspective is that it will never be able to lay to rest the "what ifs".  While 2011-era Symbian was losing sales and looked dated, if Nokia had opted to aggressively overall its own platform -- or opted to jump to a mature Android en masse, there's no telling how its sales might be different today.  BlackBerry Ltd. (TSE:BB) has certainly presented a cautionary tale regarding first party OS development by smaller firms, but perhaps Nokia could have found a way to deliver better with Symbian.

The Motorola-Google tieup, viewed in a different light, could offer some concerns for Microsoft-Nokia.  In the wake of its pairing with Motorola Mobility, Google has seen slow sales.  

Nokia Elop
Nokia might have suffered less of a fall, had it gone with Android.

Combine that with OEMs' vocal fears about Microsoft's Surface, and you could see Nokia's recovery slowing, while competitor OEMs to Nokia are driven away from the Windows Phone ship.


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By w8gaming on 9/4/2013 2:35:52 AM , Rating: 2
Exactly. For a late comer it is more important to ensure there is acceptance at the low end segment, so that the app ecosystem can improve. Keep focusing on the high end Microsoft will then end up with good devices that few people want to buy.


By YearOfTheDingo on 9/4/2013 2:54:27 AM , Rating: 2
Nokia also has the Asha OS, a smartphone platform for the developing world. Hopefully Microsoft isn't so stupid as to go and kill it.


By Belard on 9/4/2013 3:07:10 AM , Rating: 2
ASHA OS = R.I.P. 2013


By haukionkannel on 9/4/2013 3:28:45 PM , Rating: 3
Not nesessary. I expect that asha may become the "Celeron" of windows phones! Put cheap hardware, make it still well and so that it can run windows phone operation system and you have windows phone device to developing countries, without tarnishing Lumia brand with the basic mimimum specks. (Just like celerons are very tightly cut haswells or even atom based in the future...)
It is guite easy to see that midrange windows phones goes to 720p screen and "reasonable fast" dual core prosessors and highend to the four cores and 1080p screens, just because it is bigger. Asha could use the bare minimum that is reguired to run windows phone...


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