Nokia Corporation (NYSE:NOK) is in the midst of a huge crisis in its business as it struggles to compete in the fast paced smart phone market and its feature phone’s sales continue to drop. The firm’s debt is now rated junk at some of the biggest ratings agencies and things don’t seem to be improving even with the release of its new line of Lumia smart phones based on the Windows Phone 7.5 operating system. The company needs support from somewhere and rumours circulating today suggest Microsoft Corporation (NASDAQ:MSFT) may be expected to pony up the cash to save the ailing handset manufacturer.
Microsoft already gives Nokia $1 billion each year for the privilege of offering its mobile OS on Nokia’s devices. The company may be forced to give Nokia more in order to ensure it stays in operation. Microsoft’s mobile operating system is so entwined with Nokia’s business at this stage that the company may not have an option but to invest and hope in the future of the platform. Initial sales of the Lumia series, the hoped breakout mobile devices for the OS, have not been as high as had been expected.
The question is now whether or not Microsoft should continue to put its eggs in the Nokia basket or whether it should look elsewhere for other partners. The break in continuity will hurt the company’s efforts to establish a presence in the market but with the release of Windows Phone 8 coming this may be the perfect time for the firm to get out from under what appears to be a failing enterprise and tack onto something better.
Nokia has been under performing for years, since its initial dominance of the mobile handset market in the 90s. The company failed to catch up with the smart phone business when it took off offering its own underwhelming operating system with Symbian. The company has darted from failure to failure in the last decade. Why does Microsoft expect this to change?
Nokia is trying to catch up but it is still not learning quickly enough. It continues to hold a largely irrelevant feature phone business that many have been calling on it to sell for years. Rather than double or tripled the amount of support it Gives Nokia Microsoft should watch out for itself and try to align with a company that has shown more success in recent years.