Critics have derided Microsoft's US$7.5 billion acquisition of Nokia's Devices and Services business but the deal may be closing at the perfect moment — during a slowdown in smartphone innovation.
The acquisition closed Friday after an almost eight-month long approval process. The new subsidiary, dubbed the Microsoft Mobile and the Devices division and headed by former Nokia CEO Stephen Elop, has a tremendous amount of work to do to become a serious contender either at the high end or low end of the smartphone market.
However, this may be an opportune time for Microsoft and its thousands of new employees. Innovation has slowed down in the high-end segment of the mobile phone market. New products such as the Galaxy S5 from Samsung Electronics, HTC's One M8 and the Xperia Z2 from Sony are only small upgrades compared to their predecessors.
"This market isn't moving forward quite as quickly as it has in the past. While it is taking a breather, Microsoft and Nokia can up the game and try to close the gap," said Neil Mawston, executive director at Strategy Analytics.
Microsoft has recognized this chance to make up some lost ground.
"The pace of innovation we are delivering is, I'll argue, accelerating, while some of our leading competitors appear to be slowing down. If you're behind you have to go faster than the guy in front of you to catch up and that's exactly what we are trying to do," said Greg Sullivan, director of Windows Phone at Microsoft.
The company is making progress on both hardware and software. For example, the upcoming Lumia 930 has the same screen resolution, RAM and GPU as the Galaxy S5. Previous flagship models from Nokia haven't compared as well to the competition.
Moving forward, Microsoft has to make sure it gets access to upcoming processors especially from Qualcomm — including the Snapdragon 805, and then the 64-bit ARM-based Snapdragon 808 and 810 — quicker than it has in the past, according to Mawston.
Some of what Microsoft's competitors are trying to do to differentiate their products plays on Nokia's strengths. When HTC, Samsung and Sony launched their new top-of-the-line smartphones they all bragged about camera upgrades, which is what Nokia is best at.
"We'll continue to focus on that as a core area of differentiation for us," Sullivan said.
The recent announcement of Windows Phone 8.1 is another sign that Microsoft is on the right track. With the upgrade, the OS finally is getting a drop-down menu called the Action Center, with quick access to notifications and settings for things like Wi-Fi, Flight Mode and Bluetooth. But the headline feature is Cortana, a voice-controlled digital assistant that's powered by Microsoft's Bing search engine.
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