Don't Buy Nokia, Microsoft

I'm sorry, DealBook. I'm not buying it.

The New York Times' popular deal blog is going over the calamitous situation at Nokia (NYSE: NOK  ) and the buyout opportunities it may birth.

"We poured gasoline on our own burning platform," CEO Stephen Elop writes in a self-scorching company memo that was leaked this week. "Nokia, our platform is burning."

DealBook goes over a few possible acquisition possibilities for the Finnish handset maker to regain its mojo, as well as a few assets it could unload to either extend its shopping spree or simply prop up shareholder value.

Then we get to Microsoft (Nasdaq: MSFT  ) .

"There is also the prospect that -- at some point -- Microsoft could try to acquire Nokia," DealBook's Evelyn Rusli writes.

She alludes to buyout talks that the two meandering giants had last year, according to someone "close" to Nokia. I believe that the two companies may have had exploratory talks last year, but there's no way that they're hooking up now.

What would this accomplish exactly?

Elop's memo concedes that Apple (Nasdaq: AAPL  ) owns the high end of the smartphone market and that Android is a "gravitational force" for the masses and innovative developers. There are no voids for Nokia's Symbian or even Microsoft's Windows Phone 7 to fill. What's the point of shacking up?

Nokia still commands 32% of the global handset market, but that's largely the old-school phones for folks around the world who can't afford smartphones. Nokia and likely Microsoft are too late for the next wave.

Microsoft is a software company. What would it want in a manufacturing intensive Nokia?

Research In Motion (Nasdaq: RIMM  ) would be more up Mr. Softy's alley, but that rumor never exactly panned out.

"I'm fairly certain they have a standing offer to buy them at $50 (a share)," Canaccord Adams analyst Peter Misek told Reuters about Microsoft snapping up RIM three years ago. The BlackBerry maker went on to dip well below the $50 mark, but a prudish Microsoft never whipped out an engagement ring.

Why would Microsoft buy Nokia when it never proposed to RIM?

RIM has 55 million active BlackBerry owners on its rolls, and growing. RIM's revenue climbed 40% in its latest quarter. Nokia's top inched a mere 6% higher. RIM's net margins are four times greater than what Nokia's low-margin endeavors produce. Both RIM and Nokia command enterprise values in the $31 billion to $35 billion range. If you're Microsoft, why would you take Nokia over the more logical fit in RIM?  A software partnership -- as Bloomberg is reporting may be in the works this morning -- makes sense. A complete combination would be a head-scratching travesty.

It doesn't make sense, and I'm not even arguing for Mr. Softy to shack up with RIM. I'm just bringing it up because Microsoft and Nokia go together about as well as Mel Gibson and Lindsay Lohan. They may be out of favor these days, but it's no reason to force them into a loveless marriage.

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Microsoft is a Motley Fool Inside Value choice. Apple is a Motley Fool Stock Advisor selection. The Fool has written puts on Apple. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Apple and Microsoft. 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.

Longtime Fool contributor Rick Munarriz admits to being one of Microsoft's vocal critics, though he was impressed with the company's quarter. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


Read/Post Comments (7) | Recommend This Article (3)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 10, 2011, at 8:35 PM, AngelTread wrote:

    Did Microsoft really have talks to acquire Nokia?

    If that's so, then all the Windows Phone 7 OEMs (manufacturers) would get shafted, just like Microsoft's previous PlaysForSure (music player) OEMs got shafted.

    Nokia's position is not "calamitous". If Nokia chose, it could churn out high-end Android handsets and do as well as Samsung. But Nokia is worried about joining a race to become the cheapest commodity handset OEM.

    Microsoft's position is truly calamitous. Windows Phone 7 sales have been declining, not increasing. Even the failed Windows Mobile 6.5 is selling better than Windows Phone 7. What rabbit is Microsoft going to pull out of its hat to turn things around? Then we get back to the "buy Nokia" scenario.

  • Report this Comment On February 10, 2011, at 8:36 PM, TMFBent wrote:

    Agree on the shotgun wedding Rick, but there plenty of void in the phone market, some of it that's filled very nicely by WP 7.

    The iPhone is not the endall of phones -- the interface is dated, fussy, and doesn't accomplish quickly and easily the things some of us want to accomplish quickly and easily. When's your next appointment? What's my latest FB status? How many emails and tweets and SMSs are waiting for me? Oh, and what's the weather?

    WP7 answer: I know with a single glance.

    iPhone answer: let me sort through several screens of chicklets, open up half a dozen separate apps, and get back to you.

    WP7, with its excellent integration of various aps and services into "hubs" is, to my mind, a lot more useful, and a lot better looking.

    The pictures hub, for instance, brings together the phone camera's "roll," along with your facebook friends photo feeds, your own facebook photo galleries, as well as your skydrive photo galleries (not as popular, but much higher quality than FB). Grouping services in this way makes for a much more enjoyable experience than pecking at stagnant chicklets to access separate services.

    WP7 is also strong early with the "cloud" based aps so beloved by the jargon slingers. The OS has built-in support for top-notch notetaking in OneNote (with your notebook synced to the web, where you can mess with it in free MS office online aps, or with the more robust, desktop versions). They need to integrate word and excel a bit better with the same online space (you need to resort to the web browser to get those docs right now) but I suspect that will come.

    Android, of course, is just the low-rent iOS, aping Apple's look and feel while strapping developers with a wild-west hardware and software frontier where there's too little that's standardized. Its got some live widgets that solve some of the dead chicklet problem on the iPhone, but I'm a geek, and even I couldn't stand trying to figure out which Android skin I wanted to deal with... Sense? Motoblur? Please.

    Symbian is still a huge force, but it doesn't have much street cred here. If Nokia wants to play in the smartphone space on this continent, its best bet would be to build Android and WP7 hardware.

    Sj

  • Report this Comment On February 10, 2011, at 8:40 PM, ajaykc wrote:

    This article is quite a garbage and it should be read for humor purposes only...Should everyone become an idiot and own BMW and pay fortune for their repairs when they break? I think that would be a wishful thinking that everyone will buy an iPhone just because they are bit better than others. A phone is a phone and it will be that way once people get over this app craze. Ask people who own them, after a year how often they download an application and does that trend go down the hill.

    Nokia is a leader and it will lead. People who are against Nokia will be proven wrong in time. Lets say in a year or two. There is about 5 billion population which will need just a basic or mid range phone and they will not pay a hefty price like $600 when they earn less than $100 a month. Get real people...

  • Report this Comment On February 10, 2011, at 8:41 PM, Henry3Dogg wrote:

    "If Nokia chose, it could churn out high-end Android handsets and do as well as Samsung."

    Untrue. If Nokia joint the Android pool, neither Nokia nor Samsung would do as well as Samsung is doing now.

  • Report this Comment On February 10, 2011, at 8:44 PM, techy46 wrote:

    No way Microsoft wants to buy a hardware manufacturing company and alienate the others that would distribute their software. Hardware assembly manufacturing is eventually a very low margin busniess. Look at Cisco's situation. Once it becomes a commodity, stereos, TVs, ect. then it's not worth it. Apple's going to find that out when they lose the touchscreen uniqueness they'll be nothing left but iphone clones. No, Microsoft ought to cut Nokia a sweet deal on using WP7 + W7 enterprise architecture and Wx8 followons, ala what HP demo'd yesterday, so they can come up with a complete stratetgy which Apple lacks because of their lack of enterprise components.

  • Report this Comment On February 10, 2011, at 8:52 PM, techy46 wrote:

    Microsoft really wanted to buy SAP but knew the EU would've blocked it. Same with Nokia. Everyone forgets, that evil Larry and socialist Stevie made sure that Microsoft spent 10 years dealing with the DOJ an EU because if the trumped up monopoly BS while they both proceed to build thier little piles of pasted together waste. Microsoft now needs to do Wx8 right in 12 months and wait for Intel to get Medfield right by June while cutting a real deal on all of it to Nokia. Solves Nokia's sw r&d and gains Microsoft 15% market share in smart phones.

  • Report this Comment On February 10, 2011, at 11:01 PM, srd2123 wrote:

    I think its great move by nokia. Most of nokia's market is in emerging economies where I phone has not much of impact. I foresee a big boost in Nokia sales with this move. Its still the middle class smart phone of choice.

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