Steps to Take Before Choosing a Business Continuity Partner

Analysis Rumours of a Microsoft buyout of fallen phone champ Nokia have re-emerged, prompted by nothing more, it seems, than Nokia's sickly share price.

Nokia shares recently hit a 15-year low, dropping 40 per cent in the past three months alone*. But well-placed sources tell us that Microsoft was given access to Nokia's books late last year in an attempt to evaluate which parts, if any, were worth acquiring.

Then in January came the rumour, sparked by blogger Eldar Murtazin, that Microsoft would snap up Nokia's smartphone division and brand while the low-margin volume feature phones would be flogged off to private equity or a Chinese buyer. This wasn't just premature, it was fictional - but the rumour gained legs because, it sounded probable: should there be a sale, Microsoft would be a likely buyer, and a buyer for the smartphone wouldn't want the volume feature phone business.

The reason for Microsoft not already owning Nokia is twofold: Nokia didn't want to sell, and Microsoft didn't want to buy. Both are entirely rational positions to hold. Nokia still has time and cash with which to mount a fightback. Microsoft has time to generate an "ecosystem", the clunky technology buzzword for what the rest of the world calls "markets".

Let's wind forward 18 months and imagine that Nokia has made some impact, but is still bobbing along with RIM as an also-ran. The shareholders thank Elop for his important work for stablising Nokia (the demand for Symbian in the past 12 months speaks for itself) and look to maximise return for shareholders from the remaining assets.

Microsoft would almost certainly appear at that point: the IP portfolio is the obvious asset, and the brand and engineering know-how, given almost three years working closely as Microsoft's flagship OEM, is also incredibly valuable. Should Microsoft wish to acquire a crack Windows Phone engineering team, it'll be cheaper in 18 months time when Nokia runs out of cash, than it is today. It suited both parties to remain independent partners.

The only reason Microsoft would have paid a premium for Nokia last year was to keep it out of the hands of a rival. But it's hard to see which buyer would have valued Nokia as highly as Microsoft does, and would have paid a premium.

How far will Redmond go to win the tablet war?

Microsoft's determination to create a popular mobile platform for phones and tablets is in no doubt, we can see it in the Charge of the Metro Brigade (as we call it). This is the apparently suicidal insistence on melding Metro into Windows 8, even at the cost of skipping an enterprise Windows upgrade cycle: Redmond is prepared to forego billions in revenue to establish Metro as a platform.

For years, Microsoft sustained huge losses on its Xbox adventure, before finally turning a profit. But it regarded Xbox as a generous financier - leaving the division to make its own way. Xbox decisions didn't have to enmesh with some grand Windows strategy, the usual Redmond way, crippling both. Establishing Metro in the marketplace might be much more costly and take as long. At least it knows where it's going: the roadmap to WP8 and Apollo is very clear.

Yet the logic remains: it's cheaper for Microsoft to wait until this valuable asset becomes cheaper.

Such acquisition rumours must be infuriating for Nokia, which is still in its first cycle of products based on Windows. The Lumias are all essentially the same in different packaging.

Nokia's comeback can't be fairly judged until we're into the second cycle of products later this year based on Tango - and perhaps even the third, based on Apollo. Elop has already halved the time it takes for Nokia to make a smartphone, simply by shifting to Windows.

The nightmare scenario for Nokia is that the one I described here back in January: that there really isn't room, in reality, for a "third ecosystem". In this scenario there's Apple and Android, leaving RIM and Nokia fighting for crumbs. Today, the health of WP as an "ecosystem" isn't obvious: Samsung, Dell, LG and HTC all seem to have given up. Only Nokia makes a noise.

If this carries on, it makes sense for Nokia to be an independent division of Microsoft - like Xbox is today. What do you think? ®

Bootnote

* On Friday, Nokia shares jumped 6 per cent as rumours of a Samsung buyout did the rounds, which analysts described to Reuters as an attack of "Friday madness".

Magic Quadrant for Enterprise Backup/Recovery