Microsoft's Nokia deal could benefit other Windows partners, analysts say

Microsoft’s plan to buy Nokia’s phone business and have a larger presence in hardware devices has so far brought little response from PC and smartphone vendors in Asia. But the deal could end up bringing dividends to Microsoft’s long-time partners in the region by revitalizing the Windows ecosystem, according to analysts.

Windows Phone licensee HTC is still assessing the impact of Microsoft’s $7 billion acquisition of Nokia’s mobile phone business, a spokeswoman said Tuesday.

Huawei Technologies, another licensee, said the acquisition deal would not affect its cooperation with Microsoft, while smartphone maker ZTE also said it would continue developing Windows Phone devices while there was demand for them—and as long as the OS remained fair and open, as with Google’s approach to buying Motorola Mobility, which makes phones running the Android OS that Google develops.

Other Windows Phone licensees such as Samsung Electronics declined to comment.

The U.S. software giant’s previous moves at competing in the hardware space have not always been welcomed by its partners.

Following last year’s unveiling of Microsoft’s Windows Surface tablet, Taiwanese PC maker Acer was vocal in its opposition to the product, stating that it would disrupt the PC ecosystem. Lenovo, while less worried about the Surface product, was also opposed to Microsoft supplying hardware.

The Suface's future will probably not be affected by Nokia's mobile business.

Although shipments of the Surface tablet have been weak, Microsoft’s plan to buy Nokia’s phone business signals the company doesn’t plan to let up in hardware. The deal, which is expected to close in next year’s first quarter, will give Microsoft access to Nokia’s design and sales teams, along with its manufacturing facilities across the world.

“The PC vendors are definitely concerned about Microsoft’s approach,” said Nicole Peng, an analyst with research firm Canalys. “Since Microsoft launched its Surface, PC vendors have been preparing for when Microsoft will have its own hardware team.”

But Microsoft’s acquisition of Nokia’s phone business may not necessarily clash with the direction of its partners, analysts said.

Outside of Nokia, smartphone vendors including HTC, Samsung, and Huawei have all been gradually moving away from Microsoft’s Windows Phone OS in favor of Android, said Melissa Chau, an analyst with research firm IDC. In Asia, over 90 percent of the Windows Phone devices on the market come from Nokia, she added.

“All the shipments we’ve seen have been very small,” Chau said. “I don’t think we are going to see any huge outrage on the smartphone side.”

Microsoft will likely steer clear of the PC space with its Nokia acquisition, mainly because the handset vendor has no history of building tablets or laptops.

The biggest fear PC vendors may have, however, is that Microsoft’s acquisition of Nokia will bring more Surface tablets to the market, intensifying the competition with partners. Many vendors including Acer, Asustek Computer and Lenovo are releasing new tablets and convertible PCs running Windows 8.

But analysts argue that Microsoft will likely steer clear of the PC space with its Nokia acquisition, mainly because the handset vendor has no history of building tablets or laptops.

“I don’t think this will have an impact on PC vendors, because they are still selling PCs, and Nokia does phones,” said Tracy Tsai, an analyst with research firm Gartner. Instead, any tablet that Nokia developed would probably use the ARM-based Windows RT platform, and not the traditional Windows 8 OS, she added.

Already, PC vendors appear to be backing away from Windows RT. Acer has dropped plans to release a product using the OS, and Asus has called the platform “not very promising.”

“I don’t know if there will be a lot of competitors really upset about this,” Chau said. “Almost all of the PC players don’t seem to be upset about Windows RT nowadays.”

Microsoft’s new Windows 8 OS, however, has yet to take off. PC sales are instead partly declining due to the rise of tablets and smartphones. As a result, many PC vendors are releasing more mobile products using the rival Android OS as a way to continue growing.

It’s still too early to say how Microsoft’s plan to buy Nokia’s handset business will shake out in the end, analysts added. But Microsoft has said the acquisition will help build momentum for the Windows Phone OS, in an effort to expand the operating system’s presence. By 2018, Microsoft wants its Windows Phone OS to have a 15 percent market share, the company said in presentation slides posted on Tuesday.

A stronger Windows Phone OS, with better apps and developer support, could help make it a better alternative to Google’s Android OS, analysts said. At the same time, it may help convince consumers to stick with Windows PCs and tablets.

“If you bring on board more users to Windows Phones, they will want to have a similar experience on their tablet and PC,” Gartner’s Tracy Tsai said. “This will be very helpful. Once you increase the install base, you will have more developers and more apps, and have a rich eco-system.”

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