Will Microsoft Be Forced to Buy Nokia?

We can now say that the Microsoft-Nokia partnership isn't working for either company. Nokia's woes are well documented: more job cuts, more losses, more deterioration in the core business. Lumia sales are weak on a global basis, especially in North America where Nokia was plotting its comeback. The company is in an accelerating state of decline, much like RIM now. 

For Microsoft, which gave Nokia preferential treatment and established a special relationship, Nokia's fall has to be particularly disconcerting. Redmond is already providing billions to Nokia in support and marketing help. Just like the struggling economies of Europe, Nokia needs a bailout. The company is now a takeover target

That raises the question: Will Microsoft be forced to buy Nokia, defensively? Most of the Asian handset makers have favored Android over Windows Phones. Indeed, Nokia should consider adding Android phones to its lineup -- unless precluded by its agreement with Microsoft. And that's probably the case. 

Right now Nokia has about $12 billion in cash in the bank. Absent a takeover, that cash will prevent the company from disappearing any time soon. But it can't continue to operate in the current manner. Its exclusive relationship with Windows/Microsoft simply hasn't worked. Enough time has passed to make that statement. 

There's almost no chance, given the current state of things, that Windows Phones will become the number two smartphone OS, as predicted by Gartner and IDC. Those forecasts were largely based on the reach and perceived brand strength of Nokia. That brand strength doesn't exist in North American and it's declining in other markets.

The chances are growing that someone will bid for Nokia. Rumors are circulating that it could be Samsung (denied by the company) or China's ZTE. However Microsoft will probably be forced to buy Nokia if it comes to that. By default the company would then be following the advice of several tech bloggers who suggested the same to compete with Apple with a more holistically integrated device. 

Microsoft's Bing Maps also rely increasingly on Nokia's data and backend, another reason Microsoft may want to acquire the company. Nokia also holds valuable patents that enhance the takeover value of the Finnish company (and Android licensing value for Microsoft). 

There will likely be some radical change to Nokia (sale or replacement of CEO Elop) by Q4 of this year if sales don't dramatically improve -- and they're not likely to with the iPhone 5 and Galaxy S III coming.