In an alternate reality, Microsoft Corporation (NASDAQ:MSFT) is making its own Surface phones without Nokia Corporation (ADR) (NYSE:NOK), and the Finnish company has left the Windows Phone operating system in favor of the ever-present Android.
They’re two scenarios that never came about — and Microsoft Corporation (NASDAQ:MSFT) and its investors should be glad they didn’t.
The Surface phone that never was
The Verge reported last October — and again a few days ago — that Microsoft Corporation (NASDAQ:MSFT) had been working on its own Surface phone. Microsoft needed a back-up plan in case Nokia Corporation (ADR) (NYSE:NOK) Windows Phones didn’t pan out. After all, Nokia accounts for more than 80% of all Windows Phone sales. For Microsoft to keep all of its eggs in the Nokia basket would be unwise at best.
The Redmond-based company’s announcement that it’s buying up Nokia Corporation (ADR) (NYSE:NOK)’s devices and services division for $7.2 billion means the option of building a Surface phone completely from scratch may no longer be on the table. Once the deal goes through, Microsoft Corporation (NASDAQ:MSFT) may just incorporate the Lumia line — or pieces if it — to make a Surface-branded device.
Considering Microsoft’s current Surface tablet predicament, it may be a good thing the company never ventured out on its own. Microsoft had a $900 million inventory adjustment for the Surface RT tablets back in July and previously dropped the price of both the RT and Pro over the summer to combat lackluster sales.
Imagine Microsoft Corporation (NASDAQ:MSFT) trying to convince consumers to buy a Surface phone when users have already decided Surface tablets aren’t worth it.
Yep, an Android Lumia almost happened
A Surface phone competing with Nokia’s Lumia would have been difficult enough for Microsoft. But Nokia Corporation (ADR) (NYSE:NOK) was also working on an Android version of the Lumia, which could have spelled big problems for Microsoft.
When the two companies teamed up in 2011, it was with the understanding that Nokia Corporation (ADR) (NYSE:NOK) had the option to end the agreement in 2014. With Android making up about 80% of smartphone operating systems worldwide, ditching Windows Phone for Android would have crippled Microsoft Corporation (NASDAQ:MSFT)’s small — and slowing growing –– place in the smartphone world. The Windows Phone OS claims just 3.9% of the smartphone market right now.
Nokia Corporation (ADR) (NYSE:NOK)’s Android plan was in response to the idea that if Microsoft launched its own phone, it may not need the Finnish company anymore. In its 20-F SEC filing back in 2012, Nokia said:
Microsoft may make strategic decisions or changes that may be detrimental to us. For example, in addition to the Surface tablet, Microsoft may broaden its strategy to sell other mobile devices under its own brand, including smartphones. This could lead Microsoft to focus more on their own devices and less on mobile devices of other manufacturers that operate on the Windows Phone platform, including Nokia.