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Microsoft and Nokia: Does Microsoft Control Nokia’s Destiny?

Microsoft and Nokia: When Nokia Corporation (NYSE:NOK) decided to rely on the Microsoft Corporation (NASDAQ:MSFT) Windows Phone operating system in 2011, it was taking a big risk. While this was a move the company had to make, as it looked to regain market share, they were well aware at the time that it could eventually blow up in their face.

Microsoft is one of the hedge fund industry’s most popular stock picks, and it’s always important to pay attention to the smart money (see just why here).

Microsoft Corporation (MSFT)This leads to many questions. For starters: what would happen if Microsoft Corporation (NASDAQ:MSFT) decided that it no longer wanted to work on its Windows Phone?

In the company’s most recently 20F, as reported by ZDNet, Nokia talked about its primary risk:

“That Microsoft cuts its investment in the OS, or completely pulls the plug on the operating system.”

Where would this leave Nokia? What would they do if unable to rely on the company’s operating system?

Here is some more information from the article, quoting the filing:

“Microsoft may act independently of us with respect to decisions and communications on that operating system which may have a negative effect on us. Moreover, if Microsoft reduces investment in that operating system or discontinues it, our smartphone strategy would be directly negatively affected by such acts.”

While this risk is clearly the biggest, there is another that Nokia is likely concerned about. What would happen if Microsoft Corporation (NASDAQ:MSFT) decided to launch its own smartphone?

Once again, Nokia would find themselves in a precarious situation. Here is what the filing 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.”

With all this in mind, it is easy to see that Nokia is relying quite heavily on Microsoft Corporation (NASDAQ:MSFT). What are your thoughts on this strategy? Share your opinion in the comment section below.

Check back here for more updates on Microsoft and Nokia.

DISCLOSURE: I have no positions in any stock mentioned.

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