Should Microsoft buy Nokia? Bad idea, say analysts

As Nokia restructures, cutting 10,000 jobs in the process, Microsoft should sit tight as a partner on Windows Phone, but not as a buyer

Nokia's announcement Thursday that it plans to cut 10,000 jobs in coming months resurrected speculation that Microsoft should buy the cell phone maker in order to prop up its struggling Windows Phone platform.

Several industry analysts said even with a likely lower purchase price for Nokia, as its stock price has declined over the past year, it would be a bad idea to buy the Espoo, Finland-based phone maker.

"Microsoft would be foolish to buy Nokia, plain and simple," said Jack Gold, an analyst at J. Gold Associates. "This idea of Microsoft buying Nokia comes up each time Nokia has a bad quarter, and some financial analysts think it's a good idea -- no doubt to pump up the Nokia stock a bit."

Gold added, "There really is no advantage to Microsoft owning a device hardware company."

"A software company running a hardware company almost never works out," because of cultural differences between the two work groups, added Rob Enderle, an analyst at Enderle Group.

Analysts also noted that Microsoft needs to work with several hardware vendors to build Windows Phones, and wouldn't want to be seen as exclusive to Nokia by purchasing it, especially with the Windows Phone 8 operating system on the way.

Google recently acquired Motorola Mobility, which makes Android phones, but analysts are watching that purchase closely to see how Google manages its relationships with other Android hardware makers, especially Samsung, the global Android leader.

"We'll see how the purchase goes with Google and Motorola, but I'm doubting that will work out," Enderle said.

The biggest reason it is difficult for software and hardware companies to work together is because of cultural differences and work styles of hardware engineers compared to software engineers, Enderle said. Microsoft bought both WebTV and Danger, maker of the Sidekick, and both ventures failed, he said.

"If you add the size of Nokia, the physical distance from Redmond [home of Microsoft in Washington state], and the cultural differences, it would be incredibly difficult to do this and not destroy Nokia in the process," Enderle said.

Instead of buying Nokia, analysts agree that Microsoft needs to continue to work closely with the cell phone maker. "Microsoft and Nokia need to drive the Windows Phone OS forward as fast as possible, and Microsoft needs to believe that the phone is a crucial element to the success of their ecosystem going forward," said Carolina Milanesi, an analyst at Gartner.

"We know you can be successful by not manufacturing your on phones. Look at Apple," she added.

Gold added: "Microsoft needs to support Nokia as much as it can, but it should not buy it."

Nokia on Thursday said it is critical for Windows Phone to attain 10% market share over time, well above its current level of less than 3%. But getting there is still an unclear goal, given that Microsoft and Nokia haven't produced phones intended from inception to have hardware working with Windows Phone software, analysts said.

"The overall issue with Nokia is that they haven't yet fully executed their Microsoft strategy," Enderle noted. Nokia's recent Lumia phone line was designed before the Windows Phone partnership with Microsoft was announced last year, he said.

"We have yet to see hardware that was designed for the Windows Phone software, or for Nokia to use their special rights to create a unique Windows Phone experience," Enderle added.

Microsoft would do well to boost its marketing funds for Windows Phone if it wants to help Nokia, analysts said. "Microsoft has virtually eliminated Windows Phone marketing funding inside the company, and that was the budget they used to fund Nokia," Enderle said. "The Windows Phone platform marketing is massively underfunded."

Were Microsoft to buy Nokia, marketing for Windows Phone would probably be slowed further due as resources are stretched, and Microsoft wouldn't be able to improve Nokia revenues soon enough to have an impact, Enderle said. "If Microsoft bought Nokia, they'd likely end up killing it more quickly."

Matt Hamblen covers mobile and wireless, smartphones and other handhelds, and wireless networking for Computerworld. Follow Matt on Twitter at @matthamblen or subscribe to Matt's RSS feed. His email address is mhamblen@computerworld.com.

See more by Matt Hamblen on Computerworld.com.

Read more about mobile and wireless in Computerworld's Mobile and Wireless Topic Center.

Join the Computerworld Australia group on Linkedin. The group is open to IT Directors, IT Managers, Infrastructure Managers, Network Managers, Security Managers, Communications Managers.

More about: Apple, Gartner, Google, Microsoft, Motorola, Nokia, Samsung, Topic, Vertu, WebTV
Comments are now closed.
Related Whitepapers
Latest Stories
Community Comments
Whitepapers
All whitepapers

UPDATED: 4G in Australia: The state of the nation

READ THIS ARTICLE
DO NOT SHOW THIS BOX AGAIN [ x ]
Sign up now to get free exclusive access to reports, research and invitation only events.

Computerworld newsletter

Join the most dedicated community for IT managers, leaders and professionals in Australia