UPDATED: Microsoft And Nokia: Together, They Could Make The Worst Phone Ever
UPDATE 5-16-11: Microsoft might buy Nokia's phone business.
On the surface, you have two powerhouse companies coming together for the greater good: to beat Apple (NASDAQ: AAPL) and Google (NASDAQ: GOOG) into the ground. But there's a reason why the iPhone and Android platforms have become the world leaders in mobile growth – simply put, they provide consumers with everything they want.
Just a couple weeks ago, Sony (NYSE: SNE) announced that it would bring a new video game marketplace exclusively to Android. This week, Apple released the long-awaited Verizon (NYSE: VZ) version of the iPhone 4.
These are small but meaningful developments that come from companies that listen.
Microsoft, on the other hand, has the bad habit of not listening. While the company found magic within the simplicity of Xbox Live and surpassed Kinect sales expectations by three million, the Windows maker does not seem to be capable of delivering a compelling phone.
Remember Kin, the over-hyped, over-advertised tween and teen-targeted offering from Microsoft? According to PCWorld, that device could have cost the company as much as $1 billion over three years. The Kin, of course, was a major flop.
Similarly, Windows Phone 7 flopped upon arrival last year. While some stories have attempted to sugar-coat the low sales figures (1.5 million in six weeks versus three million iPhones in one day), the big picture is clear: Microsoft's latest attempt has not and will not be able to make a dent in the mobile market.
Though it would be great to view the new partnership as something that both companies need to turn things around, the reality is that Nokia is just as clueless as Microsoft.
In the fall of 2003, Nokia released the first video game-specific cell phone: the N-Gage. This awkward, poorly constructed device was often described as a “taco phone” because of the way it looked while being used. The D-pad was clunky, the screen size was laughable, the buttons were stiff and unresponsive, and the game selection was absolutely atrocious.
Since that time, Nokia has lost ground to Motorola Mobility Holdings, Inc. (NYSE: MMI), which achieved a degree of mainstream success in 2004 with the release of the RAZR. Once Apple and Google entered the scene, Nokia began to fade away.
From Microsoft's perspective, having a cell phone manufacturer at its side may be better than having no partner at all. Nokia may have similar feelings about Microsoft, even if it means working with Windows Phone 7. But while they may be more successful working as a team, the outlook for both corporations is still very grim.
Nokia's shares have been hit hard today, closing down today at 16.24%.
Tero Kuittinen, an analyst at MKM Partners, concurs with investors' reaction to the Microsoft announcement.
“I think today's announcement was a big disappointment,” Kuittinen said. “Basically, the big fear has been that it may turn out to be a Manchurian Candidate, that it will be a sweet deal for Microsoft and a tough deal for Nokia. After today's announcement, I do not think those fears have been alleviated.”
Quint Tatro, the Founder and President of Tatro Capital, has another view on the matter.
“We as a firm bought a little today,” he said. “I think this is a great value.”
Tatro wasn't surprised that Nokia went with Microsoft instead of Google since the company's chief executive, Stephen Elop, was previously the president of Microsoft's business division.
“This is a trade,” Tatro insists. “At these levels, in my opinion, this is a trade. I'm not saying they're going to be competitive in the next 20 years.”
Meanwhile, CNET wonders if this venture could be a prelude to a merger between the two entities.
Whatever the case, Microsoft can rest easy knowing that it has video games, computer operating systems, spreadsheets, word processing, and other venues for income.
Nokia, on the other hand, has nothing but phones.
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