Now that Microsoft Corporation (NASDAQ:MSFT) has agreed to acquire Nokia Corporation (ADR) (NYSE:NOK)‘s device business, the company can’t dance around the fact that it makes devices that compete directly with the customers it’s trying to sell Windows 8 to. Mobile versions of Windows 8 are used by Acer, ASUS, and Dell Inc. (NASDAQ:DELL) in tablets and SAMSUNG ELECT LTD(F) (OTCMKTS:SSNLF) and HTC in smartphones, creating a conflict of interest for Microsoft following this Nokia acquisition.
It’s possible that buying Nokia Corporation (ADR) (NYSE:NOK)’s device business will be genius in the end for Microsoft Corporation (NASDAQ:MSFT), but it undoubtedly creates a balancing act for management.
Is Microsoft isolating itself?
Microsoft Corporation (NASDAQ:MSFT) hasn’t exactly had a welcome reception from device makers for mobile versions of Windows 8. Google Inc (NASDAQ:GOOG)‘s Android is still the operating system of choice, accounting for 79% of all smartphones and 62.6% of all tablets sold in the second quarter, according to IDC. What we may be able to read into Microsoft’s Nokia Corporation (ADR) (NYSE:NOK) acquisition is that it’s willing to eschew its normal partners in PCs and go it alone in developing smartphones and tablets. It’s a strategy that’s worked well for Apple Inc. (NASDAQ:AAPL), and Microsoft had to buy some of the expertise to catch up.
But Microsoft Corporation (NASDAQ:MSFT) runs the risk of isolating itself by competing directly with its customers, even though Nokia Corporation (ADR) (NYSE:NOK) was by far its largest smartphone customer, selling 80% of the phones running the Windows Phone OS. Will Samsung or HTC really put a lot of effort into the next Windows smartphone when Microsoft is putting all its efforts into Nokia? Will new partners even bother to come aboard if the deal takes off?