Danish Bank Believes Nokia Will Sell To Microsoft

Danske Bank in Denmark is making a bold forecast. It says that Nokia will lop off its cell phone manufacturing business and sell it to none other than Microsoft before the close of the first half of 2012. There are plenty of reasons for why this wouldn't work, but at least one why it might.

Nokia and Microsoft's relationship kicked off about 10 months ago when Nokia announced plans to drop Symbian for Microsoft's Windows Phone software in its smartphones. Nokia has spent the better part of the last year retooling its business to match that of Microsoft's, especially with respect to how its phone business is being run.

The first set of results--the Lumia 800 and Lumia 710 Mango smartphones--are just hitting store shelves. The Lumia 800 launched across Europe in late November, and the Lumia 710 was just announced for T-Mobile USA and will launch in January for $49.

Both phones are solid efforts on behalf of both companies. The hardware is excellent, and Microsoft's platform really shines on the Lumia 800. But the success of these products if far, far, far from certain.

Microsoft is making mobile moves. Read Microsoft Shakes Up Windows Phone Management. ]

Nokia says it is pleased with initial sales of the Lumia 800, though it hasn't shared specific numbers. Microsoft itself hasn't said how many Windows Phone 7 handsets have been sold in the year they've been in the market.

Windows Phone and Nokia both have a long way to go before either can call their joint efforts a turnaround for their respective businesses.

Combining the two isn't the answer, but that's what Taloussanomat (Finnish news organization) is reporting on Wednesday.

First, Nokia has multiple businesses. The biggest is its handset division. It makes Windows Phones, sure, but it is also the world's foremost provider of entry-level handsets in emerging markets. While the margins in this business aren't great, the volumes make up the difference and represent a significant investment on Nokia's part. What would Microsoft want to do with low-end feature phones that run Series 40?

On the other side of the coin, why would Nokia want to give up the biggest and most well-known part of its business. What's it going to do, turn the clock back 100 years and start selling tires and boots again?

Looking at the issue from Microsoft's perspective, it just makes no sense. Microsoft is a software company, not a hardware company. It doesn't have the chops to run a hardware business, least of all one based on the other side of the planet. Adding a "Microsoftian" level of management above and beyond what already exists in Espoo would be disastrous to the product cycle, and lead to delays and, most likely, failed product launches.

There is one way this idea might make sense: patents. The battle over intellectual property has become heated around the planet, with nearly every smartphone and tablet maker embroiled in lawsuits around the globe. Though Microsoft holds plenty of patents, Nokia has an incredible trove of valuable patents for cell phones. Buying Nokia's cell phone business--even if just on paper--would give Microsoft access to those patents and a stronger line of defense should lawsuits ever be aimed at Redmond.

While I believe the chances of Nokia selling out to Microsoft are slim, crazier things have happened. After all, no one could have predicted that one day Nokia would be using Microsoft's software on its phones.

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