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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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How this will play out.
By Belard on 9/4/2013 3:32:23 AM , Rating: 2
Since Microsoft is all over the place with an out-going rampaging gorilla... purchase of Nokia is more of desperation.

In the USA, Nokia is way at the bottom. Most Nokia sales are NOT Lumias. Most Lumina sales are bottom end $100 L520s using 2010 screen technology.

1 - Within 30 days, Samsung, HTC and Huwai will pull out of WP8. They are less than 20% combined anyway. This will weaken WP as a platform. HTC, SONY and LG are not making the profit from Android that Samsung is, they never the less are making phones that are equal to or better than Samsung.

2 - Early Sept. iPhone5C will be shipping all over the world. I bet 3-1 that Apple will sell more 5Cs in 10 days than Nokia has sold Lumias for all of 2013. I'm guessing these will be $150 off-contract phones, which would make a huge difference when its selling at MetoPCS. On-Contract, $50 or less.

3 - Continued hate for Windows 8.0 and 8.1 will effect consumer confidence and opinion on ALL microsoft products, especially those with the number "8" in it. I will admit, I was planning on getting the Lumia 920 or 820. I ran Metro UI on my Android 2.3 phone. What happened? Windows8... I hate Windows8. Android 4.x is quite good, have not bothered with Metro8 on it. - which is slicker than WP8.

4 - Lumia x50 series comes out with WP8.1 Sales will get a bump.

5 - 16 months from now, WP9 comes out... not compatible with WP8 hardware. Android 5.2 and iOS 6.2 will be out, along with iPhone 6 & 6c. Sure, MS may sell another 15m low budget phones, while Android pumps out 200m and Apple does another 50m split between the 6 & 6C. Blackberry will be dead. WP remains with about 5~7% global market.

6 - by the time Windows 10 / WP-RT10 comes around - people will be sick of Microsoft.




RE: How this will play out.
By YearOfTheDingo on 9/4/2013 3:38:52 PM , Rating: 3
A completely US-centric analysis. The American market smartphone market is pretty mature at this point. Gaining share from a weak position is darn well impossible in such an environment. Nokia's strategy is to go after virgin grounds, markets where consumers are just now warming to smartphones. For instance, I just read in a Polish newspaper that WP is now 20% of the market. This is starting from essentially zero nine months ago. I hear similar stories coming out of China and India. The Lumia 520 is catching fire in markets where consumers don't have money to throw around. The notion that players like Huawei and HTC, who have large presence in emerging markets, would abandon WP just as it's demonstrating that it can work well on cheapo hardware is kinda absurd.


RE: How this will play out.
By Reclaimer77 on 9/4/2013 6:10:06 PM , Rating: 2
quote:
would abandon WP just as it's demonstrating that it can work well on cheapo hardware is kinda absurd.


Ummm they're not going to have a choice. Now that Microsoft essentially owns Nokia, there won't BE any non-Nokia smartphones anymore.


By YearOfTheDingo on 9/4/2013 7:18:50 PM , Rating: 2
That's circular logic. So the other firms won't have a choice to continue making WP phones because they choose to stop making WP phones? Microsoft has no incentive at all to push the other makers out. The deal, in fact, makes it easier for them to compete. A serious challenge they were facing was they didn't have Nokia's excellent map applications. Now that Nokia no longer competes with them, it'll be more than happy to license the technology.


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