You May Not Want to Hear It, but the Microsoft-Nokia Deal IS Working

Microsoft  (NASDAQ: MSFT  )  is the company everyone loves to hate. And it's not just Apple  (NASDAQ: AAPL  )  iFans that bemoan all things Microsoft; that goes back decades and isn't likely to change anytime soon. It seemed analysts and disgruntled investors alike blamed Microsoft when Windows 8 was rolled out for not single-handedly re-energizing the PC industry; as if that's even possible.

So it's not surprising the Microsoft naysayers were out in force expressing their displeasure when it teamed up with struggling Nokia (NYSE: NOK  ) to dive into the high-end smartphone market. Take on Apple? Samsung? Insanity. Thing is, with each passing quarter, the news for both Nokia and Microsoft keeps getting better, in spite of what some would have you believe.

A few highlights
Though Microsoft didn't quite go all-in with Nokia when it came to which manufacturer's smartphone would run Windows phone OS, it's working out that way, regardless. According to a report by AdDuplex, as of April, 80% of all Windows phones sold globally are made by Nokia, led by its flagship Lumia 920 device.

Google's (NASDAQ: GOOGL  ) Android and Apple's iOS still rule the domestic smartphone OS marketplace of course, owning 51.7% and 41.4% through Q1 of this year, respectively. But interestingly, according to Kantar Worldpanel ComTech, iOS and Windows phone OS both grew faster than Android compared to the first quarter of 2012, with iOS leading the way up 2.3 percentage points, followed by Windows Phone's 1.8 percentage point gain.

Here's where it really gets good
The success Verizon had in Q1 of this year selling Lumia smartphones, particularly compared to the first quarter of last year, is a significant win for both Nokia and Microsoft. Sprint is also reaping the benefits of upgrading its smartphone offerings; enjoying a nice jump in sales thanks to Apple's iPhone.

Analyst Mary-Ann Parlato of Kantar said, "For Verizon, Windows' share rose from 0.2% in the three months ending April 2012 to 6.8% by the period ending April 2013. At Sprint, they continued to reap share increases thanks to their iOS offering- iOS sales share on Sprint grew from 33.4% to 38.4% over the last year."

The much-anticipated shift from feature phones to smartphones is complete after smartphones took over the No. 1 spot in sales compared to feature phones last quarter. And that's good news for Microsoft and Nokia. Of all the Windows phone OS sales in the past year, the majority of which are Nokia devices, 42% were feature phone users upgrading to smartphones, 25% swapped Windows devices, and 23% came from an Android smartphone. No word from Kantar on the remaining 10% of Windows OS sales.

The shift from feature to smartphones makes the number of users upgrading to Windows phone OS especially intriguing for Microsoft and Nokia fans. To put it in perspective, only 31% of Apple's iOS phone sales in the past year were from feature phone users stepping up to a smartphone. It's also worth noting that Microsoft is making inroads with younger smartphone buyers, "gaining share among those aged 25-34," according to Kantar's Parlato.

There's huge potential in the mobile phone upgrade market, and the data indicates Microsoft and Nokia are poised to take advantage of the shift. And with Apple reeling from a lack of new devices and questions regarding innovation, Microsoft and Nokia are primed to continue growing market share. Like it or not, the Microsoft and Nokia partnership appears to be working.

With the release of its own tablet, along with the widely anticipated Windows 8 operating system, Microsoft is making inroads in the booming mobile computing market. In a new premium report on Microsoft, a Motley Fool analyst explains that while the opportunity is huge, so are the challenges. The report includes regular updates as key events occur, so make sure to claim a copy of this report now by clicking here.


Read/Post Comments (16) | Recommend This Article (10)

Comments from our Foolish Readers

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 June 05, 2013, at 11:24 PM, lee654 wrote:

    Thanks for telling the truth and documenting the facts. Nokia was number one throughout the world with cell phones and mobile devices for a number of years. Now my money is on Nokia for smart phones, tablets and other mobile devices. I think they shall return as the world leader by 2017.The best to all and take it, one day at a time. LS

  • Report this Comment On June 06, 2013, at 12:24 AM, pelumini wrote:

    How do you mean - 'you may not want to hear it'? Of course, I want to hear it, that the best phone O/S is doing fine, no surprise about that, actually.

  • Report this Comment On June 06, 2013, at 12:30 AM, sasasa9999 wrote:

    Hog wash, Windows phone is just too slow and ugly. Too late Microsoft. The numbers just do not add up.

  • Report this Comment On June 06, 2013, at 1:41 AM, pcundiff wrote:

    Microsoft makes more on Android licensing royalties than they ever will on windows powered smartphones. Because of that they'll always be a distant third in the market (by choice).

  • Report this Comment On June 06, 2013, at 2:29 AM, prv8eye wrote:

    No mention of the COST of a MS phone vs iPhone.

    Could the PRICE be a factor?

  • Report this Comment On June 06, 2013, at 2:38 AM, saabhubby wrote:

    Scoff if you want, however, the Nokia with Windows OS is just exactly what someone like me is looking for. I am leaving the feature phone and going to the smart phone and after borrowing friends phones and trying them out, I prefer the Windows OS. Why? Easier to use, more logically laid out and has always been the case when it comes to computing, cheaper to use. The writers here are right. It may not knock out Apple or Android phones, but it will keep a good market share to make it profitable. As long as Microsoft keeps it logically laid out and and easy to use.

  • Report this Comment On June 06, 2013, at 3:47 AM, bayharborbutcher wrote:

    IF NOKIA HAS THE GOOGLE PLAYSTORE AND TEAM UP WITH ANDROID WITH AN INTERFACE LIKE MICROSOFT... THAT WOULD BE COOL!!! I LOVE NOKIA PHONES... THEY ARE VERY DURABLE AND FRIENDLY... I HOPE THEY CAN MAKE AN ANDROID-LIKE DL STORES AND OS. XD

  • Report this Comment On June 06, 2013, at 4:34 AM, UpDStakes wrote:

    NOKIA has been too lax on their lead of mobile phone shares for the last 3-4 years or so. Even their last phone market launch will not cover it slate "jump" in the smartpone bandwagon. Unless they really come up with a very user friendly and fast software + other techy features eg higher camera resolution, dual cameras, higher screen resolution, longer battery life added Microsofts "No Virus" attacks capability (as Apple)...ONLY then will I believe they can capture more market shares! I was a NOKIA user for a long time before I shifted to using SAMSUNG. And NOKIA has not come up with any strong selling point for me to even consider coming back. NOKIA Asha and Lumina was a total disappointment!!! Price of being so laid back all those years they were leading the mobile phone business. They have better come up with a brilliant product breaking all expectations!!!Otherwise its just another miss call for them...

  • Report this Comment On June 06, 2013, at 4:35 AM, symbolset wrote:

    The top five smartphone vendors worldwide in order of unit sales as of 2013 Q1 are: Samsung, Apple, Huawei, LG, Lenovo, ZTE, Sony, Coolpad/Yulong, !!!NOKIA!!!, Blackberry.

    Nokia is grouped now ninth in the top ten, barely squeaking by Blackberry. When they announced their deal with Microsoft in 2010 Nokia had 29% of the smartphone market, a solid number one. They sold 103 million smartphones in 2010 before the announcement could have its full effect. Only two years later they sold 35 million - barely over a third as many - and all at a loss. They have converted something like 3% of their famously fanatically loyal Symbian customers to Nokia Windows Phones, and the rest to Android and iOS products from other makers.

    Nokia IS selling things: their factories, their patents, their infrastructure business, their HEADQUARTERS. Reminds me of the old tale: I became a salesman: I sold my furniture, my car, my house, my clothes...

    If this is working, what is not working? Setting the entire thing on fire?

  • Report this Comment On June 06, 2013, at 7:51 AM, vanfruniken wrote:

    Excellent news for those in iOS denial.

  • Report this Comment On June 06, 2013, at 7:58 AM, st0815 wrote:

    Ok, first of all: the naysayers clearly were proven right. Once Nokia switched to Windows their market share collapsed, their profits turned into losses. The switch resulted in a complete disaster, regardless whether (hypothetically) Nokia were to recover from this or not.

    In Q1 the market share was 2.9% down from Q4 2012. That's not a good trend. The market data presented here is sliced into weirdly chosen segments. What's so special about slight growth in the 25-34 year section as opposed to 14-25? What's the value of a gain in Verizon market share when at the same time market share overall contracts?

    It doesn't make sense to look at these slices unless you derive a strategy from it, or you are desperate to spin the overall negative data into something looking like growth.

  • Report this Comment On June 06, 2013, at 8:15 AM, webguy76 wrote:

    Why wold I NOT want to hear this?!? Because its not a pro-Apple story? Oh Boo-Hoo another phone company is doing something that people actually want to use that isn't called iPhone. Let me tell you something, if half of the phones out there were called "iPhone" you would love them. Stop pushing your bias and give us solid financial advice. If it works and we can make money fine, regardless of the brand.

  • Report this Comment On June 06, 2013, at 10:22 AM, ctyank99 wrote:

    Nokia is starting to sell phones, period! For all practical purposes they just started selling the Lumia line and it is catching on. People like it, its priced right, it is finally being marketed, and it will continue to sell. Nokia is great buy right now.

  • Report this Comment On June 06, 2013, at 10:28 AM, havoc007 wrote:

    Nokia's last quarter saw its Lumia smartphone sales increase 27% quarter over quarter.

    During the last Quarters conference call, Nokia said they will do MORE than 27% for QOQ growth. That's a lot of confidence to say that so early in the quarter!

    Also, Nokia now officially has a HOT seller. Its the Lumia 521. Full smartphone, off contract pricing is $129 at Walmart.

  • Report this Comment On June 06, 2013, at 12:40 PM, n9n9n9 wrote:

    It is indeed working, but only for Microsoft. Windows Phone is such a piece of crap that without Nokia it would already have vanished from the market. For Nokia, the deal is a disaster. You may not want to hear this (if you are Windows fan boy or believe all the astroturfing) While Lumia sales increased slightly it is much lower (5.6 million 2013 Q1) in absolute numbers than what the sold before the deal (almost 30 million 2010 Q4). If you give up your old OS and witch to a - supposedly - better one, aren't you supposed to sell more? And I am only talking about units sold, in that time the market doubled (or so) so they should sell at least 60 million smartphones per quarter now instead of less than 6 million. Of course, one can and pretend that a 27% increase in sales somehow means that everything is finally good. But a 27% change at such ridiculously low numbers is basically meaningless noise. One also has to point out that 1/3 of all Lumia sold are old discounted running WP 7 which does not help to build up the new platform and - even more importantly - that Nokia smart devices is loss-making (while it was profitable before the switch).

  • Report this Comment On June 06, 2013, at 4:26 PM, AcuraT wrote:

    The numbers don't seem too surprising. Microsoft is canbalizing more Android sales because - they are the biggest player in the market! What a shock. "Of all the Windows phone OS sales in the past year, the majority of which are Nokia devices," and of course, Nokia is really the only vendor besides HTC which has any phones to sell. Again, another big shock! The big surprise in this article is that Apple, with its enormous base of users, is growing FASTER than Microsoft. That cannot be good news for Microsoft, no matter how you look at it.

    Overall, this article just reaffirms what I thought what was going on. Microsoft is definately doing a little better than before, but not doing so well that as of yet will make a difference in the market. I think it is here to stay and Blackberry will kick the bucket if things don't change in the USA in the near future - but to tell me that things are looking great for Windows 8 phones, that is not shown at all by the "selected" numbers shared in this story. I would be scared if Noika was not dominating Windows sales - then the phone would be a complete flop!

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