Can Microsoft Play Nokia’s Hardware into its Stronger Hands?
Jay is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Are some software developers also getting their hands on hardware making? It appears to be that way, at least when it comes to deploying the mobile operating systems. Apple (NASDAQ: AAPL) has always had the full control over the device that runs its iOS. How? By simply producing all the hardware itself, including the rather complex personal computer. Google (NASDAQ: GOOG) recently has also become an official hardware maker after acquiring Motorola Mobility, with the intention of manufacturing its own Android phone. Microsoft (NASDAQ: MSFT), on the other hand, has traditionally licensed its software to hardware makers. But today, facing a mobile computing market in which how a handheld device is designed and made can easily affect the intended functionality of the running software, Microsoft has too chosen to forge close alliances with handset manufacturers, most notably with Nokia (NYSE: NOK), which now makes exclusively Windows phone to directly compete with makers of Android phones.
In the old, personal-computer-only era, and even in the early days of the mobile handsets with mostly feature phones, consumers identify a device more by the name of the hardware maker, concerning less about what software powers the device. In the case of personal computer, since Microsoft’s Windows dominated the operating-system uses, with Apple’s iOS and other obscure operating systems only in the balance, consumers would only care if a computer was made by Dell, H-P or another computer maker. As to the first generations of mobile phones, because the feature-phone software hardly presented any significant differences among different versions, consumers also had their focus on choosing the hardware maker--was it Motorola, Samsung or Nokia that made the phone?
With the current smartphones, people want to know, first and foremost, about the software platform that a phone is built on, even though the device still bears its hardware maker’s name. People distinguish one phone from the other mostly in terms of a phone’s mobile operating system. Unlike the near monopoly of the operating system in personal computer. there are major competing mobile operating platforms in the mobile computing market today, As a result, different software providers offer consumers with drastically different user-interface experiences. You can’t go out to buy, for example, a Samsung smartphone without first knowing whether it runs on Google’s Android or Microsoft’s Windows, as Samsung makes both types of phones.
In today’s mobile computing market, the success of a handheld device has become more dependent on how the hardware can leverage the potential and intended software usage, which in turn will determine the success and popularity of the software itself. Consequently, software developers of today’s mobile operating systems can no longer ignore how their programming is put in use and must exert certain control over the hardware making. This is especially applicable for Google and Microsoft, as Apple has always been a company that develops and makes its own software and hardware. While Google has made its hard choice by purchasing Motorola Mobility, setting the stage for the future debut of a Google/Motorola phone, now it’s up to Microsoft to also play hard and have a strong control over the making of its Windows phone.
The current Microsoft-Nokia alliance could be only the first step toward a more solid union between the two in the future. Microsoft is hardly without any hardware-making experience, given its past success with the popular gaming device Xbox. Thus, it’s not inconceivable for Microsoft to purchase a stake in Nokia or even take over the company at some point, if Nokia continues to struggle as a handset maker. The company was recently overtaken by Samsung as the world’s largest handset maker. Nokia stock is currently trading in the $2 range of below its book value, having lost about half its market value this year.
In terms of shareholders’ equity, Microsoft is more than five times as big as Nokia. A quick examining of the two companies’ balance sheets shows that Microsoft has cash holdings of $9.61 billion, almost as much as the $11.873 billion for Nokia’s entire equity. This can make Microsoft a powerful suitor, in case Nokia shareholders has grown tired of their management’s unsuccessful turnaround plans, and wish to get a better merger deal, instead of holding a stock whose value is on a persistent decline.
JJtheArdent has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Google, and Microsoft. Motley Fool newsletter services recommend Apple, Google, Microsoft, and Nokia. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.