Spring 2012 is Microsoft s (NASDAQ: MSFT ) big coming-out party in the
smartphone industry. Its new flagship phones in a much-ballyhooed partnership
with Nokia (NYSE: NOK ) the Lumia 800 and Lumia 710 will release in the
broader international market and the U.S. after their late 2011 debuts in India,
Hong Kong and the U.K., among other territories. Its a make-or-break moment for
both companies. For Nokia, the Lumia represents a chance for redemption, a stab
at regaining relevance since the companys share of the world mobile market has
crumbled with the rise of smartphone technology. Meanwhile, Microsoft dropped a
cool $1 billion in February 2011 to get Nokia to help establish Windows as a
phone brand capable of competing with Apple (NASDAQ: AAPL ) and Google (NASDAQ:
GOOG ) Android-powered products. Lets not kid ourselves, though. Weve heard this
song and dance from Microsoft before. In fact, its was just in October 2010 that
Microsoft was claiming Windows Phone 7 was set to take over where Google Android
started as the go-to operating system for phone makers. The failure of Windows
Phone 7 last year was what spurred Microsoft to make its deal with Nokia in the
first place. This time around might indeed be different Lumia phones have been
warmly received by critics and consumers alike but if Microsoft really wants to
be one of the big boys in mobile, its going to have to go further. If Windows
Phone is going to earn for Microsoft in the way that its Office business does ,
its time for Microsoft to get into the manufacturing game. It can do it, but
only by spending steady and spending big. Heres the game plan: First, Microsoft
buys Nokia outright. It appeared in June that this was going to happen. Industry
insider Eldar Murtazin said on Twitter that Microsoft was close to buying up the
Finnish phone maker for $19 billion , giving Microsoft an instant and massive
share of the global mobile phone market in one fell swoop. That deal didnt pan
out, and eventually the Lumia was announced, but the logic of the purchase still
holds. As All Things Digital s Ina Fried pointed out in a Thursday editorial, a
purchase of Nokia would allow Microsoft to start making phones that are built
around its Windows platform rather than building Windows for multiple handsets.
Phones with fully integrated operating systems are good business: Just look at
the iPhone. Integrating Nokia into Microsofts business would be difficult given
the geographic distance between their corporate headquarters, but it might be
worth it. Microsoft then could seize even more of the mobile market by making a
splash and acquiring Research in Motion (NASDAQ: RIMM ), too. The beleaguered
house of BlackBerry represents a chance for Microsoft to gain control of a trove
of mobile technology patents for a song. RIMs market cap has shriveled over
recent months, sinking from $12 billion in September to $8.6 billion as of this
writing. If Microsoft waits until 2013 to buy RIM (which it would have to after
making such a steep investment in Nokia), and RIMs decline continues apace, it
could have a bargain on its hands. Microsoft has nearly $56 billion in cash at
the moment. Given the near-constant shareholder dissatisfaction with the
company, it probably wouldnt be wise to spend on these companies too quickly. It
would, however, be the quickest way for Microsoft to make Windows a real mobile
presence. The company is no stranger to entering a technology segment it had no
presence in previously. Microsoft was laughed at when it announced the original
Xbox game console at the beginning of last decade. Today, the Xbox franchise has
transformed the companys Entertainment and Devices operating segment into an $8
billion-per-year business a segment whose operating income grew 529% last year.
Can Microsoft compete with Apple in the mobile market? Maybe. But its got to
spend big to find out. As of this writing, Anthony John Agnello did not own a
position in any of the stocks named here. Follow him on Twitter at
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