Microsoft Corporation (NASDAQ/MSFT) is finally doing something that I have been calling for over the past several years. With CEO Steve Ballmer set to leave the company (read “Why Microsoft May Finally be Set to Turn its Fortune Around”), the former Wall Street favorite is making plans to aggressively expand its presence in the growing mobility market. How? Through its proposed acquisition of the cell phone business Nokia Corporation (NYSE/NOK), a deal valued at up to $7.2 billion, in an effort to expand in a sector dominated by Apple Inc. (NASDAQ/AAPL) and Samsung Electronics Co. Ltd.
The deal that sees Microsoft buying the mobile unit, including the “Lumia” line running on a “Windows” platform, makes perfect sense for a company that is falling behind in the mobile race.
For Nokia, the deal also makes sense, as the company probably realized it was going to be a tough upward battle against Apple, Samsung, and a host of other Chinese smartphone makers. Essentially, Nokia made a conscious decision to exit before it was lights out.
As far as Microsoft, the purchase of Nokia’s mobile business also makes a lot of sense, as Microsoft struggles to advance its presence in the mobile space while facing declining demand for its Windows platform on personal computers (PCs) and laptops.
There was really no other choice for Microsoft, and given the company has $76.0 billion in cash, the price (or gamble) is worth it. But again, there’s absolutely no guarantee the strategy will pan out.
The Lumia smartphones had good reviews, but failed to crack the lock on the smartphone market placed by Apple in the United States and Samsung worldwide. Just look at BlackBerry Limited (NASDAQ/BBRY) and its recent decision to put out the “For Sale” sign.
Microsoft, unlike Nokia, has the financial clout to drive the Lumia Windows phone, but whether it can fare better is still debatable. The reality is that unless Microsoft comes out with a better smartphone than its rivals, it will likely be more of the same as it tries to expand its current three-percent market share.
My opinion is that while it will be very difficult for Microsoft to break into this market, it’s well worth the gamble, as the mobility sector is the place where the growth will continue to be on the horizon.