Why Microsoft Might Buy Nokia -- And Why Not

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The rumor mill is again working overtime about Microsoft buying Nokia, this time from a Finnish news organization which reports that Denmark's largest bank, Danske Bank, predicts that Microsoft will buy the phone maker in 2012. I don't think it's likely to happen, but it's certainly possible. Here are three reasons Nokia won't buy Nokia -- and three reasons it might.

I'll start off with three reasons Microsoft won't buy Nokia:

Microsoft gains nothing in the deal

The simplest reason Microsoft won't buy Nokia is this: Microsoft gets nothing out of the deal. Microsoft already has what it wants out of Nokia -- that the world's largest phone manufacturer settled on Windows Phone 7 as its smartphone operating system. Why spend billions for something you've already got?

Microsoft would be buying businesses it has no interest in

Nokia makes a lot more than just smartphones, notably inexpensive, low-end phones. That's a business Microsoft has absolutely no interest in, and would gain nothing from owning. Why buy something that would just be a drag on your business and offer no strategic value?

Combining corporate cultures could be nightmarish

Whenever one company buys another, there's inevitable conflict as the two firms try to merge corporate cultures and business practices. Microsoft is at a crossroads right now, facing multiple challenges, most notably in mobile, Internet search, and the cloud. The last thing it needs is that type of distraction.

Now here's three reasons Microsoft may take the plunge and buy Nokia:

Patents, patents, patents

As Microsoft knows better than any company, patents have become powerful assets. Microsoft has sued or threatened to sue makers of Android cell phones based on what it claims are patent infringements, and has gotten hundreds of millions of dollars in returns. Adding Nokia's considerable number of patents on mobile phones would make Microsoft even more formidable.

Nokia could be bought relatively cheaply

Paulo Santos of the Seeking Alpha investing Web site claims that because of Nokia's market woes, Microsoft could buy Nokia relatively cheaply. He figures that even paying a 50 percent premium, Microsoft would pay $21 billion. Given that Nokia is sitting on what Santos says is $6.6 billion in cash, and that Microsoft would likely sell off Nokia's telecom equipment division, that's not an outrageous amount for what Microsoft would get. Consider that Google is buying the smaller Motorola Mobility for $12.5 billion, Microsoft could almost be considered as getting a good deal.

Microsoft needs to follow Apple's and Google's lead

With Google buying Motorola, Microsoft will be the only major maker of smartphone operating systems that doesn't also manufacture hardware. Apple, RIM, and now Google all make phone hardware as well as smartphone operating systems. As Apple has long shown, if you make the hardware and the software, you can design the best possible user experience. So in buying Nokia, Microsoft would be more likely to do the same.

Preston Gralla is a contributing editor for Computerworld, and the author of more than 35 books, including "How the Internet Works," "Windows XP Hacks," and "Windows Vista in a Nutshell." He has written about technology for more than 20 years, and has published in numerous national magazines and newspapers, ranging from Computerworld to USA Today, the Los Angeles Times, the Dallas Morning News, and CIO Magazine. This is a weblog of Preston Gralla. The opinions expressed are those of Preston Gralla and may not represent those of Computerworld.

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This story, "Why Microsoft Might Buy Nokia -- And Why Not" was originally published by Computerworld.

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