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Microsoft Acquiring Nokia's Handset Business?

Rumors are sweeping the wireless industry that Microsoft is buying Nokia's mobile phone business for $19 billion, although Nokia denied those reports.
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Rumors over the last few days have suggested that Microsoft is looking to purchase Nokia's mobile phone business. Those whispers intensified after a well-placed insider claimed the deal has already been struck. However, Nokia denied the report.

Eldar Murtazin, whose track record at predicting monumental changes over at Nokia is pretty good, reported early Wednesday that the deal is apparently sealed.

"One small software company decided last week that they could spent 19 bln USD to buy a part of small phone vendor," he tweeted. "That's it."

Murtazin was the first to accurately suggest that Nokia would abandon Symbian and shift to Microsoft's Windows Phone 7 platform for future smartphones. That news, first announced in February, has left the entire mobile industry--especially the part located in Finland--shaken, stirred, and still talking about the pros and cons.

Murtazin had suggested recently that the two companies were in talks about a purchase. A Nokia spokesperson at the time said, "Eldar's rumors are getting obviously less accurate with every passing moment."

Nokia originally declined to comment on the most recent statement by Murtazin, but later called it "100% baseless." A Microsoft spokesperson said to InformationWeek, "Microsoft does not comment on rumor or speculation."

It's hard to gauge the accuracy of Murtazin's comments. But would such a move even make sense?

Microsoft is a software company. Aside from the miserably failed Kin project, it has not directly built mobile phones. It could jump into that space by purchasing Nokia's know-how, but it's not clear that that strategy would have any sort of positive impact with respect to Windows Phone 7 and both firms' futures.

Microsoft launched Windows Phone 7 to luke-warm reviews in October 2010. Microsoft hasn't released official sales numbers for the platform, but they aren't anything close to the tens of millions of iPhones and Android devices sold since WP7 went on sale. Purchasing Nokia's handset business would give Microsoft ownership of one of the world's best hardware makers. Nokia's ability to design great-looking and great-working hardware has never been in question. Nokia's problem is software. The two companies already appear to have figured out a solution that works for both with Nokia's adoption of WP7 for its smartphone platform of the future.

If Microsoft purchased Nokia's handset business, it would immediately put a wedge between itself and its WP7 OEM partners--HTC, LG, Dell, and Samsung--all of which have taken a risk to make and distribute WP7 smartphones. How would Microsoft convince those partners to stick with it if the company were to start making its own phones? By putting itself in direct competition with its own partners, Microsoft could threaten those strong ties and in the long run hurt WP7's future.

Further, if Microsoft is determined to purchase a phone-maker, why go with Nokia and not a company with a proven enterprise track record such as Research In Motion? RIM may not be lighting the fires of consumer smartphone buyers, but its presence and strength in the enterprise can't be ignored. Enterprise customers are Microsoft's bread, butter, and beef. It could become the ultimate enteprise mobility provider with RIM's technology. Nokia's enterprise presence? Zero in the U.S., and probably not much more than that in Nokia's old strongholds of Europe and Asia.

There's no doubt that Nokia is in trouble. The company recently issued a profit warning, stating that demand for its smartphones has more or less evaporated. The company cut forecasts for the quarter and for the year, and investors panicked. Nokia's stock price is at its lowest point in years, putting the company in even more danger. Considering the amount of money Microsoft has invested in WP7 and its partnership with Nokia, it can't let the company die on the vine. If Nokia's fortunes continue to sink, buying the company may be the only way to save the investment Microsoft has already made.

But Microsoft's ability to successfully manage such an acquisition is far from proven. It bought Danger several years ago. Danger was the team behind T-Mobile's successful SideKick devices and service. After a few years of development, Microsoft released a line of Danger-designed, consumer-focused handsets in 2010. The two handsets sold so poorly that the project was killed off barely two months later.

What does that failure say about Nokia's chances if acquired by Microsoft? Well, nothing good, that's for sure.

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