What Do We Do With A Problem Like Nokia?
(Yes, the title is a Sound of Music reference. :) Microsoft (NASDAQ:MSFT) and Nokia (NYSE:NOK) have announced that Microsoft is buying out Nokia's phone business and patents. Nokia shares have skyrocketed as a result, and I am now kicking myself for not snapping up shares since a couple of months ago I was seriously considering an investment in Nokia as a cheap play on emerging markets.
This decision has been both heralded and maligned, praised and shredded. It just so happens that those who are dancing in the streets about this seem to mainly be MSFT/NOK investors, while those who are vehemently against or skeptical of this proposal are MSFT/NOK shorts or Apple (NASDAQ:AAPL) or Google (NASDAQ:GOOG) fanboys. Hmm. There must be a good reason why this is so. This article will attempt to put forth my initial thoughts about this buyout and ask for some thoughts from the general investment community.
To me, it seems that Microsoft should have done this years ago in order to try to make a dent in the smartphone wars. By taking Nokia's platform and making it Microsoft's platform, Microsoft could have more easily promoted its mobile platform. But instead, Microsoft has been absolutely annihilated by Apple and Google due to the simple fact that consumers like Apple and Google phones much better. If Microsoft had the rights to develop its own phones, then they could have responded better to the needs of consumers. Instead, now I view this move as Microsoft desperately playing "catchup" work from the mistakes of CEO Steve Ballmer.
Although Microsoft might be playing catchup, that's better than simply ignoring what's been going on like Ballmer and crew have seemingly done so for the past couple of years, watching Apple and Google leave them in the dust. So, this buyout could benefit Microsoft in a way. I am more concerned about what this move does to Nokia. Nokia no longer can benefit from a Microsoft partnership because it signed the rights away on its work to Microsoft. Therefore, Nokia has lost a potential way to impact emerging markets, because although Microsoft phones are getting slaughtered in the more developed world, they seem to be doing fairly well in developing countries like India and Poland. True, it could be said that Nokia might now have the time and resources necessary to develop other product lines. But will they be able to deliver now that investors have sky-high expectations about Nokia (reflected in Nokia's stock price jump)?
So, what do you guys think? Am I completely off on this, or do you think I'm spot-on? I look forward to the discussion. :)