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Nokia Corporation (ADR) (NOK) & Microsoft Corporation (MSFT): You Can’t Lose on This Bet

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Handheld ecosystems have become a big thing in the technology sector.

Apple and Google control the two biggest ecosystems in the entire technology sector. They have created the concepts of ‘apps’ and OS-exclusive online service, building themselves a unique competitive advantage. This revolution has, to some extent, reduced the emphasis on the features and hardware of smartphone devices.

Google’s Android has allowed a number of device manufacturers to use their platform. Manufacturers such as Sony, Samsung etc. do not have to worry about OS or an ecosystem which is provided for free by Google. This not only reduces their development costs but also gives them access to loyal Android customers.

Nokia Corporation (ADR) (NYSE:NOK)

Nokia Corporation (ADR) (NYSE:NOK) and Microsoft Corporation (NASDAQ:MSFT) are trying to challenge the domination of Android and iOS. These partners are trying to bring customer focus back on OS quality and device capability. This is because Windows 8/WP8 platform is still quite young and does not have the depth its rivals can offer. The WP8 Lumia series is gaining traction solely based on quality of its devices and beauty of WP8. Nokia Corporation (ADR) (NYSE:NOK) is still one of the best manufacturers of handheld devices, and the company remains highly undervalued due to the reasons discussed below.

Acquisition prospects

Nokia acquisition rumors have been circling the Wall Street grapevine for months now. Just this week, there were rumors that the Chinese technology giant Huawei is interested in buying Nokia Corporation (ADR) (NYSE:NOK). The shares jumped above $4 but came under soon after Huawei denied any such plans. There have also been rumors that the Chinese PC giant Lenovo is negotiating to acquire Nokia. Lenovo is emerging as the largest PC manufacturer in the world and is flourishing in an industry many are calling dead.

With a market capitalization around $14 billion, Nokia Corporation (ADR) (NYSE:NOK) is a solid acquisition target. The real trouble is finding the best fit for a company that is struggling with feature phone sales and is still slowly developing a smartphone presence. Although Lenovo and Huawei are both good fits for Nokia and can certainly afford it, the best fit is none other than Microsoft Corporation (NASDAQ:MSFT).

Microsoft Corporation (NASDAQ:MSFT) is looking to establish itself in a handheld industry dominated by two companies operating under quite different models. Apple controls its own hardware and software while Google freely lends out its OS to a diverse range of manufacturers. The Android manufacturer has also dabbled a bit into hardware with its Nexus series, but Google partners handled manufacturing of these devices.

It is highly unlikely that Microsoft Corporation (NASDAQ:MSFT) can manufacture smartphones itself because the company lacks the patents or manufacturing capability to do so. The other option is partnering with companies like LG, Sony etc. on the same lines as Google Nexus. This strategy will not give Microsoft Corporation (NASDAQ:MSFT) the control it would want over the manufacturing of its first smartphone.

It can also go for any unknown Chinese smartphone manufacturer which it can totally control. This strategy would raise serious question marks on the quality of devices and the ability of these devices to compete with the likes of Apple and Samsung.

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