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Soon, Nokia's (NYSE: NOK ) hardware business will officially become part of Microsoft (NASDAQ: MSFT ) , giving the Windows-maker a variety of handsets. When judging Microsoft's phones, investors might be drawn to the flagship Lumia 1020, or the budget 521. More important than either is the upcoming Lumia 1320 -- its low-cost phablet.
Phablets (oversized smartphones popularized by Google's (NASDAQ: GOOGL ) hardware partners) have become immensely popular in emerging markets, particularly in Asia. As Microsoft prepares to focus on these markets, the Lumia 1320 will be crucial.
Can Windows Phone survive?
There's a lot of reason to doubt Microsoft's Windows Phone. Although its market share has been increasing, it remains in a distant third place behind both Google's Android and Apple's iOS, and I wouldn't expect that to change for the foreseeable future: Microsoft's mobile platform has been slowly adding major apps, but it still lacks Apple's robust ecosystem; Nokia may give its users more choice than Apple when it comes to hardware, but it still doesn't compare to the hundreds of different handsets powered by Google's Android.
Nevertheless, if Microsoft's mobile platform is going to emerge as a major player, it's going to come down to countries such as Indonesia, India, and China. After announcing the deal to acquire Nokia, Microsoft's management said it will spend the next year targeting emerging markets.
Right now, Google's Android dominates these countries, but that could change. As the developers of Firefox OS are quick to point out, newer versions of Google's operating system aren't optimized for low-cost hardware; older versions of Android are still being shipped on brand-new handsets. The market is Google's to lose.
Phablets are the key to emerging markets
If Microsoft is going to build a bigger presence in these markets, it's going to be with Lumia's new phablet. Although these oversized phones may remain a novelty in the U.S., they've taken emerging markets by storm.
Last month, IDC reported that, in Asia (excluding Japan), phablets are now more popular than both tablets and portable PCs combined. This is hardly surprising -- if you can only afford to spend a few hundred dollars on technology, the phablet is the most economical choice. Originally, Samsung dominated this market, but other low-cost manufacturers have moved in, offering cheaper alternatives powered by Google's Android.
Soon, buyers in these markets will have the opportunity to purchase a phablet running Windows Phone. Microsoft and Nokia plan to launch the Lumia 1320 in China and Vietnam early next year, followed followed by India, the rest of Asia, and Europe. With a 6-inch screen and $340 price tag, it could be highly attractive to buyers in emerging markets.
Keep an eye on the Lumia 1320
Despite remaining far behind both Apple and Google in terms of market share, Microsoft isn't giving up on Windows Phone -- by acquiring Nokia, it's doubling down, and looking to emerging markets for growth.
For now, Google's Android dominates these markets, but if Microsoft offers higher-quality Windows Phones, it may be able to take some share. Given the exploding popularity of phablets, the Lumia 1320 is the single most important handset in Microsoft's arsenal.
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