Microsoft's New Balancing Act

Now that Microsoft (NASDAQ: MSFT  ) has agreed to acquire Nokia's (NYSE: NOK  ) device business, the company can't dance around the fact that it makes devices that compete directly with the customers it's trying to sell Windows 8 to. Mobile versions of Windows 8 are used by Acer, ASUS, and Dell in tablets and Samsung and HTC in smartphones, creating a conflict of interest for Microsoft following this Nokia acquisition.

It's possible that buying Nokia's device business will be genius in the end for Microsoft, but it undoubtedly creates a balancing act for management.

Is Microsoft isolating itself?
Microsoft hasn't exactly had a welcome reception from device makers for mobile versions of Windows 8. Google's Android is still the operating system of choice, accounting for 79% of all smartphones and 62.6% of all tablets sold in the second quarter, according to IDC. What we may be able to read into Microsoft's Nokia acquisition is that it's willing to eschew its normal partners in PCs and go it alone in developing smartphones and tablets. It's a strategy that's worked well for Apple, and Microsoft had to buy some of the expertise to catch up.

But Microsoft runs the risk of isolating itself by competing directly with its customers, even though Nokia was by far its largest smartphone customer, selling 80% of the phones running the Windows Phone OS. Will Samsung or HTC really put a lot of effort into the next Windows smartphone when Microsoft is putting all its efforts into Nokia? Will new partners even bother to come aboard if the deal takes off? 

In smartphones, an isolated Microsoft may not be a bad thing. But when you begin talking about PCs and convertibles, there's real risk in Microsoft's strategy. Acer, ASUS, Dell, and Samsung all make PCs and convertible devices that run Windows 8, and having to deal with Microsoft itself as a competitor has to be a bit troubling. Investors will need to watch how Microsoft positions itself over the next year or two because expansion into tablets beyond a weak Surface could be seen as a threat and make device makers look to Google or elsewhere for an operating system.

The future of Microsoft
On his way out the door, Steve Ballmer definitely set up Microsoft to go hard after the hardware space to create a "devices and services" company. For a company that's always partnered with others to build the actual hardware, that's a risky proposition, especially this late in the mobile game. Only time will tell if Microsoft-Nokia is a genius move that can put Microsoft on par with Apple, or another disastrous acquisition for the tech giant.

The future of mobile
One thing Microsoft has going for it is that there are only a few companies with the scale and technology to play in the mobile space. To find out which of these giants is set to dominate the next decade, we've created a free report called "Who Will Win the War Between the 5 Biggest Tech Stocks?" Inside, you'll find out which companies are set to dominate, and we'll give in-the-know investors an edge. To grab a copy of this report, simply click here -- it's free!

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  • Report this Comment On September 05, 2013, at 12:35 AM, techy46 wrote:

    Gee Dell, HP and Lenovo are making Android devices and panned Windows Phone so screw them.

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