A Nokia Phone With Android?

With the final touches of Microsoft's (NASDAQ: MSFT  ) $7.2 billion acquisition of Nokia's (NYSE: NOK  ) devices and services unit nearly complete, it seems outlandish that the Finnish device manufacturer would toy with the notion of an Android phone. Next to AppleGoogle (NASDAQ: GOOGL  ) is one of Microsoft's least favorite foes. A quick look at all of those "Scroogled" campaigns makes Microsoft's feelings toward Google abundantly clear.

So what is Nokia thinking as rumors surface of its next low-end phone, nicknamed Normandy, with a... dare we say it... Android operating system? Clearly, it's some last-ditch effort to pull a prank on Microsoft, right? Strange as it sounds, after digging a bit deeper into what the rumors, there may actually be some legit reasons for Microsoft to consider Nokia's move.

Rumor has it...
In Nokia's Q3 earnings report, much of the hoopla surrounded the profitability of its Nokia Solutions and Networks unit, as well as the jump in sales of its Lumia smartphone lineup to 8.8 million units. Both were certainly worthy of celebration. Somewhat lost in the reverie was the fact that Nokia sold nearly 56 million feature phones, many of which were attributed to its Asha lineup.

A problem for Nokia -- and Microsoft -- is that the functionality gap between Asha phones and smartphones is too wide, a disparity both would love to remedy. The lack of traditional smartphone apps, and the power needed to run them, is something Nokia thinks it can remedy using a tweaked version of open-sourced Android.

The notion of an Android OS phone from Nokia isn't new. There has been Android-related scuttlebutt for some time now, but the rumors really started flying late last month when evleaks posted a picture on Twitter of what appears to be an Asha phone, but with references to it using an Android OS. The rumors really started flying when, according to "multiple sources familiar with the company's [Nokia] plans," it was "confirmed" that Nokia wasn't just working on an Android OS phone -- it's close to rolling it out.

But why?
It's no secret that Microsoft's Windows Phone OS is picking up steam. Yes, it remains a distant third behind iOS and Android, but IDC and others are predicting big things in the coming years for the new kid on the OS block. So, what does Microsoft have to gain by Nokia releasing an Android phone? And, if Nokia is as close as some rumors suggest, would Microsoft choose to squash it immediately after taking over the devices and services unit? Microsoft may want to think twice before making a knee-jerk reaction.

Some still suggest that Google doesn't make a profit from Android, and it doesn't directly. But Google is an ad revenue generating machine, and the 81% (in Q3 of 2013) of all smartphones running its OS drive traffic to its sites, supporting its massive ad-related profits.

Unlike traditional Android phones that push users to all things Google, Nokia's rumored Android phone will be customized to, presumably, direct users to Microsoft's Bing for search, Skype, and other potential revenue-generating opportunities. The concept's working for Google; why not Microsoft?

And contrary to some reports, Microsoft isn't done with search. Bing's helping drive revenue growth in Microsoft's devices and consumer division. Microsoft's fiscal 2014 Q1 results highlighted a 47% jump in search-related advertising revenue, among other positive trends.

Final Foolish thoughts
Should Nokia roll out an Android OS Asha-like phone prior to Microsoft taking over, it wouldn't be surprising if it was killed off before the phone had a chance to catch on. But Microsoft would be wise to give the new phone some serious consideration. A low-end, smartphone-like device has some real possibilities; Nokia's Asha phones are a testament to that. And with the right tweaks, an Android OS phone could add to Microsoft's revenue growth. Then again, it is Google.

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