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Microsoft's Nokia acquisition is 'a necessary gamble,' analysts say

Mikael Ricknäs | Sept. 4, 2013
But the challenge Microsoft faces in integrating Nokia shouldn't be underestimated.

The biggest change for Microsoft is that it will become a smartphone vendor, but the company also has to take advantage of Nokia's know-how across the company to make sure that mobility pervades the whole organization, she said.

The future success of any smartphone vendor, including Microsoft, will also depend on its ability to offer competitive, low-cost devices for emerging markets from where most of the growth will come.

"Emerging markets will be crucial for the next phase of computing, and the phones will be the first step," said Milanesi.

Nokia has been addressing this segment of the market with its Asha phones. But just like the Lumia family, those products are under heavy pressure from low-cost Android-based products, and as a result their sales have suffered. Microsoft must address this by continuing to push smartphones to lower price points, and should quickly develop a lightweight variant of Windows Phone to address this, according to Wood.

To make Windows Phone run on sub-$100 devices, there is a lot Microsoft could learn from the work Nokia has done on the Asha family, according to Milanesi. That is especially true for the Asha 501, for which Nokia developed a new touch user interface, she said.

The deal between Microsoft and Nokia also highlights how competitive the smartphone market has become, according to Francisco Jeronimo, research director for European mobile devices at IDC.

"I think it's very clear that Nokia was struggling. This is the kind of decision that isn't taken lightly, and I am sure there was a lot of discussion within the company. But Nokia must have understood that it didn't have enough financial resources to compete, particularly with Apple and Samsung," Jeronimo said.

The big question is what it means to the industry as a whole, which is going through some major changes. Microsoft's acquisition comes just three weeks after BlackBerry announced it had formed a committee to explore strategic alternatives for the future of the company that could include joint ventures or a sale of the company, as it struggles to turn its new BlackBerry 10 operating system into a success.

"This isn't just about developing a mobile phone. This is a very mature market, so you need financial muscle to compete and if you don't have that you will struggle. That is what has happened to Nokia and what has happened to BlackBerry and HTC," Jeronimo said.

A vendor like HTC risks being squeezed between Apple, Google, Microsoft and others while continuing to come under extreme pressure from emerging Chinese vendors. So more industry consolidation will happen, according to Wood.

 

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