Nokia (NYSE: NOK ) may be smack-dab in the middle of having its devices and services division being bought up by Microsoft (NASDAQ: MSFT ) , but that hasn't stopped rumors that the company may launch a smart watch later this month.
Though it's unclear why the device would be introduced so close to Nokia's sale of its devices to Microsoft, the fact that it exists may be a boost for Microsoft's mobile ambitions.
Samsung launched its Galaxy Gear watch just last month, and Apple (NASDAQ: AAPL ) is widely expected to launch a watch sometime in 2014. While Samsung is one of the first companies with a smart watch for the mobile era, reviews of the device have been less than stellar. As David Pogue from The New York Times said, "Nobody will buy this watch, and nobody should." One of Samsung's own executives said "it lacks something special." But the smart watch segment is in its infancy and not every player has emerged yet.
An analyst note from Piper Jaffray's Gene Munster said that if Apple releases an iWatch, it could only expect to sell 5 million to 10 million units in the first year. That's in stark contrast to Morgan Stanley's Katy Huberty, who estimated last February that an iWatch could sell between 50 million to 150 million units a year. Obviously, neither one of them knows for sure how many iWatches Apple could sell, but what investors should take note of is how many tech companies are moving into this space, and that Microsoft can't afford to miss out on this.
A Nokia smart watch may not make a whole lot of sense considering the company's current position, but that doesn't mean Microsoft can't benefit from it. If Nokia has been working on such a device, then it would be included in Microsoft's purchase and help the company move into the wearable-tech space. Over the summer, rumors surfaced that the Redmond-based company was working on its own watch, but using some existing ideas from Nokia could help speed up that entry.
In order for Microsoft to make inroads into wearables, it'll need to launch such a device with the Windows Phone operating system. If Nokia uses something other than Windows Phone for its smart watch, Microsoft will need to retool it with its own OS. The company needs to create a cohesive experience with its mobile devices, and a Nokia watch will eventually need the same Microsoft feel. For now, investors will have to wait and see if Nokia launches the product later this month, if at all. If it does, Microsoft investors should be cautiously optimistic some iteration of the device would eventually come through the Microsoft pipeline.
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