Microsoft Simply Cannot Afford to Lose This Battle

How much lower will Nokia (NYSE: NOK  ) go? Or has it already hit rock bottom? That's the question that seems to be on every investor's mind as we read about the latest round of drastic job cuts and closing down of manufacturing facilities by the once-mighty Finnish cell-phone giant.

The recent gloomy scenario should make at least one other company sit up and take notice, since its efforts to break into the fiercely competitive mobile sector depends in part on Nokia's fortunes in the days ahead. Step right up, Microsoft (Nasdaq: MSFT  ) .

With Nokia's fortunes spiraling downward, Microsoft -- whose operating system is active on just 2.2% of smartphones worldwide, compared with 23% for Apple's (Nasdaq: AAPL  ) iOS and 59% for Google's (Nasdaq: GOOG  ) Android -- has every right to feel upset. It hasn't gotten a very good return in exchange for paying up $1 billion to Nokia annually for having its Windows operating system feature on the Lumia line of phones.

From Nokia's point of view, the job cuts and resizing efforts are more than necessary. Its shares have lost a staggering 92% since the iPhone was launched back in 2007. Since then, all it's done is sit back and watch as Apple and Google developed a stranglehold on the market. Most analysts remain skeptical about its future, and when I hear that the latest round of layoffs includes parts of Nokia's research and development team, the very source of its innovation, it makes me wonder whether the company has given up already. With the present state of its smartphone strategy, Mr. Softy can't afford to see Nokia go down and, as some suggest, may actually pump in more cash to save its beleaguered partner.

Not that Nokia is completely devoid of potential bright spots on the horizon. CEO Stephen Elop's strategy of extending the Lumia's reach to more than 30 countries -- which includes emerging markets such as Mexico and Brazil -- reveals the seriousness of his efforts, as do Nokia's collaborations with providers such as China Telecom and AT&T. How well any of this will work, of course, is anybody's guess. For now, Microsoft seems to have few other options but to hope for the best.

To find out what happens in this race for survival, add Microsoft to your very own free Watchlist.

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Fool contributor Subhadeep Ghose doesn't own shares in any of the companies mentioned above. The Motley Fool owns shares of Microsoft, Google, and Apple. Motley Fool newsletter services have recommended buying shares of Apple, Microsoft, and Google. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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  • Report this Comment On June 21, 2012, at 12:11 AM, DoctorLewis4 wrote:

    I was in a mall that had an Apple Store and a brand new Microsoft Store. The Microsoft Store was a bizarre and freakish imitation of the Apple Store. The only other difference was that the Apple Store was packed with customers and the Microsoft Store was packed with dozens of employees and two, count 'em, two customers. Draw your own conclusions.

  • Report this Comment On June 21, 2012, at 2:14 AM, Pimust wrote:

    What is your conclusion? Are you thinking that because current much inferior MS products are not selling like hot cakes will implicate that future much improved MS products will not either sell well? The new MS products will be techically two years ahead of new Apple products and they form a much larger ecosystem than Apple has and that will without a doubt help MS win this battle of ecosystems.

  • Report this Comment On June 21, 2012, at 3:36 AM, xmmj wrote:

    Your headline is indeed correct. In fact, I think a lot will depend on the Surface.

    If that goes off very well, then MS will pick up. Otherwise its future will be a slow slide. Much much longer than Nokia and RIMM's - but a slide none the less.

    The key thing with the Surface will be how well the OS actually works, since they do seem to have a nice product with some innovative ideas. The question remains as to whether or not it will be a solid system. If it is another Vista - R.I.P.

    Price point will be another factor, although here I do not think they will be able to beat the iPad unless they subsidize it. If they are significantly higher, they will have trouble.

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