Danske Bank has re-ignited speculation that Microsoft will buy Nokia, or more precisely Nokia’s mobile phone operations. It isn’t out of the question, but I don’t buy the “where there’s smoke there’s fire” argument that some are making. Back in the 90s a rumor would hit every few months that Microsoft was going to buy Sybase. Not only weren’t we in talks to do so, but we weren’t even discussing the idea internally (ok, we did discuss it once but that was not one of the times that rumors surfaced). So I personally know that people invent these things, either to manipulate a company’s stock or in hopes that their total guess becomes reality and they can be “analyst of the year” or win a Pulitzer Prize, or some similar motivation.
Microsoft will acquire Nokia if, and only if, (a) it determines that the rest of the ODMs are beyond hope of ever sufficiently backing Windows Phone and (b) Nokia has proven that it can produce phones that will beat the combined Apple + Android ecosystem. Add Google’s purchase of Motorola to the mix, so that Microsoft won’t be the company that is introducing the notion of being both partner and competitor into the mix, and you have a formula that might appeal to Steve Ballmer.
The dynamics have indeed changed enough so that, unlike previous postings, I’m no longer a total skeptic of the acquisition. Acquisitions are messy and often unsuccessful affairs. Even in the best case Microsoft would have to worry that attempting the acquisition would stall Nokia’s progress for a year or more. And that would be fatal. So some skepticism remains.
I’ve recently commented about how neither Samsung nor HTC are showing leadership on Windows Phones (i.e., best features introduced first on Android phones, Windows Phones are warmed over Android designs). This was true for both the generation introduced with Windows Phone 7 (pre-Nokia/Microsoft relationship) and the one recently introduced with Windows Phone 7.5 (post-Nokia/Microsoft relationship), so we know this isn’t simply because of Microsoft’s relationship with Nokia. Combine that with how little Samsung and HTC seem to be doing to market their Windows Phones (something that Microsoft reportedly gave them a lot of money to do) and I imagine Microsoft could once again be questioning their reliance on third-parties.
Next, look at the success Nokia is having with the Lumia family. Even at this early stage it is clear that Nokia can build devices that stand up to Apple (and the Android cartel). As Nokia’s momentum around Windows Phone builds I have little doubt that the results will be spectacular.
In other words, it may be that the conditions wherein Microsoft would seriously consider acquiring Nokia’s mobile phone operations have been met. Microsoft could do the acquisition and continue to offer Windows Phone software to other manufacturers. But now instead of Microsoft counting on them to make Windows Phone a success it would fully take its fate into its own hands. If Microsoft is able to achieve success than other manufacturers will ride its coattails. If not, well what other manufacturers do really doesn’t matter. For those who think the scenario of being both competitor and partner (or at least supplier) is far-fetched consider this: If Apple were to license IOS don’t you think that Samsung, HTC, and a dozen others would very quickly produce IOS devices despite having to compete with Apple’s iPhone?
On a closing note, if Microsoft is going to acquire Nokia then the recent changes around Windows Phone leadership make even more sense. It could be that Andy Lees is prepping to lead the acquisition and integration of Nokia. But that is entirely speculation on my part.
Hal's (Im)Perfect Vision 
But if Nokia is already committed to WP and is showing that committement via Lumia etc then why buy them? I mean, yeah, the idea was a really interesting one earlier this year but I don’t know what the overall advantage to MSFT would be. To me it only makes sense if there is a risk the existing partnership will not deliver on the potential and there is nothing to suggest that it won’t at this point.
Unlike the PC business, in the phone business most of the revenue AND profit goes to the carriers and phone manufacturers. Microsoft gets very little revenue on a per unit basis with Windows Phone. So little in fact that it is likely impossible they can ever make money on software alone. Acquiring Nokia would quickly be accretive to earnings!
It’s not a great option and MS’s record with acquisitions is particularly bad. But they’re increasingly running out of options. Unless another significant OEM (at least) can be secured or Android hits a legal wall of some sort (pending Oracle legal outcome or EU regulatory one, perhaps), buying Nokia might be the last chance to have any credible presence at all. Also, as you said, MS’s licensing model for WP, like Windows, is predicated on high volume which requires multiple dedicated OEMs, With just a single committed OEM, even one with Nokia’s potential, that model probably isn’t viable. Of course that Nokia division would have to run completely separately, like MS said they were going to do with Skype but haven’t so far. I think the MS brand in this area, at least at this time, isn’t particularly helpful.
Ballmer may have finally made one mistake too many. I’m quite concerned for the company’s future.
Forgot to add that your last post and assessment of Lees successes and failures over the last three years was the most accurate and honest one I’ve seen, and that included ones from all the major news outlets. Very well done.
IMHO, RIM would be a better buy than Nokia
I don’t see how RIM would fit into Microsoft’s strategy. RIM brings absolutely nothing to the table in the Consumer smartphone market, which is where Microsoft needs help. In fact the reason RIM itself is in so much trouble is that it is squeezed between its own inability to compete in the consumer smartphone market and that costs for its servers is rediculous when most enterprises already have Exchange installed. Every Smartphone out there, except for RIM, already supports Exchange’s Activesync. Indeed the latter is Microsoft’s real problem in the Enterprise market. Because it (and specifically Terry Myerson in his pre-Windows Phone role as CVP of the Exchange team) licensed Activesync so broadly the bar on making a Windows Phone more suitable for Enterprise use than another phone, such as the iPhone, is extremely high.
RIM would help Microsoft regain position in the Enterprise smartphone market, something it intentionally allowed to languish (so it could focus on the consumer side) at a point where it had pulled even with RIM in marketshare. But everything RIM brings to the table is so orthogonal to Microsoft’s own strategy (competing OS that Microsoft doesn’t want and a server infrastructure that competes with Microsoft’s own) that integrating the two is bound to fail.
Buying RIM would simply add a major distraction. Kind of like Kin on steroids.