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Is Nokia About to Destroy Microsoft’s Hardware Ecosystem?

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Microsoft's (NASDAQ: MSFT  ) success in operating systems was based on a relatively straight-forward business model: Microsoft worked on the software, its partners built the hardware. By working with companies like Dell, Lenovo, and Hewlett-Packard (NYSE: HPQ  ) , Microsoft was able to achieve total dominance in the PC space.

Times have changed. Microsoft now competes with its hardware partners -- its Surface tablets go up against rival devices sold by traditional Windows OEMs. For now, Windows tablets remain relatively unpopular; more menacing is the threat of Microsoft building PCs in more traditional form factors.

That could happen -- and soon. Nokia's (NYSE: NOK  ) handset business, soon to be a part of Microsoft, will announce new products later this month, and not all of them could be phones.

Nokia's October 22 event
Nokia will hold an event in Abu Dhabi on Oct. 22. The company is expected to unveil six new devices, including a Lumia 1520 -- a 6-inch phablet running Microsoft's Windows Phone. Ahead of the event, Nokia has released a teaser image, showcasing what appears to be that phablet -- along with a tablet and a laptop.

A Lumia tablet wouldn't be too surprising; after all, most handset makers, including Apple, Samsung, Sony, and LG offer tablets as extensions of their mobile strategy. A laptop, however, would be fairly radical -- although Nokia has experimented with laptops before. Moreover, given Microsoft's philosophy when it comes to operating systems, it doesn't seem too far-fetched.

Rather than use one operating system for smartphones and tablets, as is the case with Google's Android and Apple's iOS, Microsoft has chosen to offer one operating system for handsets -- Windows Phone -- and one for everything else -- Windows 8. Presumably, a Lumia tablet would come equipped with Windows 8; a laptop, then, running the same Microsoft operating system, wouldn't be too much of a stretch.

Hewlett-Packard: Microsoft is now our competitor
But if Nokia does unveil a laptop, it's likely to strain the relationship Microsoft has with its hardware partners. In a recent discussion with analysts, Hewlett-Packard's CEO Meg Whitman labeled Microsoft a "competitor," and blamed the company for much of Hewlett-Packard's current struggles.

If a poorly selling Surface tablet is enough to upset Hewlett-Packard, imagine what a full-fledged laptop could do. Hewlett-Packard, still largely dependent on PC sales, has suffered as shipments of traditional PCs have declined. There's still a demand for PCs running Microsoft's operating system, to be sure, but it's a market that's slowly shrinking. Having to compete with Microsoft for a slice of that shrinking pie isn't good for Hewlett-Packard.

Instead of staying loyal to Microsoft, Hewlett-Packard is branching out, cozying up to Google. So far this year, Hewlett-Packard has released two laptops running Google's Chrome operating system, and two tablets running Google's Android. More of both are on the way.

Microsoft's biggest mistake
The biggest Microsoft made with Windows 8 might have been its decision to release its own hardware. By creating the Surface and Surface Pro, Microsoft has alienated its longtime hardware partners, including Hewlett-Packard. Microsoft could be about to take that a step further. Its soon-to-be subsidiary Nokia could be about to release both a tablet and a laptop. If that happens, it will only enrage Hewlett-Packard further.

And even if Nokia doesn't release a laptop right now, it only seems like a matter of time before Microsoft offers other form factors. The company's reorganization aims Microsoft around "devices and services" -- and I doubt the Surface is the only device it has in mind.

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Read/Post Comments (6) | Recommend This Article (1)

Comments from our Foolish Readers

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  • Report this Comment On October 17, 2013, at 10:24 PM, badgerzilla wrote:

    Elop has since 2012 provided an uptick to NOK stock. Two years down and now two years up. Maybe the right man for MSFT is Elop.

  • Report this Comment On October 18, 2013, at 12:52 AM, toraji40 wrote:

    another FOOL'isch article,

    when do you guys give ms a break?

    Owning Nokia will bring them where they need to be

    You guys are full of s*** and only LOVE apple

  • Report this Comment On October 18, 2013, at 12:54 AM, toraji40 wrote:

    Help us keep this a respectfully Foolish area!

    really? make your writers a little less biased then

  • Report this Comment On October 18, 2013, at 3:07 AM, wabartlett66 wrote:

    Sorry Fools but once again a 1 dimensional analysis of MSFT. HP and IBM have been competitors for years with their mid range platforms and frankly if HP wants to call MSFT out then the loser will be HP. HP needs friends more than enemies and with DELL heading into private hands the age old questions of HP will resurface, what is it today? and what does it want to become? Those two questions are a far bigger problem for Meg Whitman than MSFT building a few devices.

    The MSFT approach to this segment has been to drive innovation by the use of "fear" in the H/W manufacturers. Fear of missing a market segment where they themselves wouldnt innovate without MSFT's move.

    Nokia will help drive that "Fear" even further as the Vendors fear MSFT breaking their hold on another under developed segment.

    In the end, the MSFT approach is part of MSFT's plan to change the company and drive new segments.

    How about giving MSFT some credit for driving a true touch enabled O/S that works consistently across Laptops, Desktops and Tablets. Where my desktop Office license allows me to use it on multiple devices meaning I dont need to pay for multiple copies and potential give credit to the future of Win Phone and Windows 8 might come together down the road as the devices and market facilitate that next step.

    The big challenge here that you should be looking at is AAPL. AAPL had a multi year lead in tablets and Mobile phone but failed to drive adoption in the corporate market place. A big bank could buy 10,000 Tablets in one hit, multiple big corporates could change your share numbers in a quarter. The real lost opportunity is that, when AAPL had control of most peoples mindshare around innovation is that it didnt secure its Iphones to a corporate standard and it didnt drive touch to Latops and Desktops and finally it has a different OS on its phones to its tablets to its Laptop/Desktops. One cant pay for an application on one device and use it on mutliple devices and the user experience across phone, tablet, laptop is different.

    It really is time to stop the baa baa baa stuff and walk your own path, particularly when you are looking at a stocks performance in the long run.

  • Report this Comment On October 19, 2013, at 11:55 AM, flybywire54 wrote:

    Nokia is not becoming a subsidiary of Microsoft , only its D&S division is and only if the deal is approved , it will be probably .Nokia will retain ownership of all its patents and starting end 2015 can even manufacture phones again . Meanwhile at Nokia it's business as usual until the official transfer sometime first Q'14.

    Microsoft chooses the Apple approach instead of the Google one , we do everything ourselves ,and as result alienated their OEMs base that's a fact and is dangerous . Added to that Apple has only 14% market share , and Android has more then 75% so which approach would have been best ? Once upon a time Symbian was available to all and thus very popular f.e Samsung phones were using Symbian the problem started when Nokia bought over Symbian restricting other manufacturers access , and Symbian declined. Microsoft is doing something similar but on the hardware , not that am against as a Nokia shareholder . Now perhaps Microsoft will pull it out based on the Apple model , but if I were them I would have a plan B ,like take some clues from Google going strongly into service like adds , movie services like YouTube , Netflix , HBO , social networks , music services and so on if necessary by buying companies in that area .

    whichever time for them to get a new CEO .

  • Report this Comment On October 19, 2013, at 12:20 PM, flybywire54 wrote:

    It is undeniable that the touch screen capability of Windows8 has been downplayed by the media and even by Microsoft itself . Everyone choose to concentrate on Metro UI mostly to denigrate it . But touch screen brings a great advantage in productivity even in the traditional desktop environment . how fast can you scroll through a database or zoom on a page is key to many companies and private users as well .

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