Affordable Hotels In New Orleans - Deal Is Easy Part For Microsoft And Nokia

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Microsoft Corp. MSFT -4.55% struck a $7 billion bargain with Nokia Corp. NOK1V.HE +33.94% to bolster a mobile future for the software giant. But the odds are long that a deal can reverse the fortunes of two laggards in a cutthroat market.

Microsoft is wagering a purchase of Nokia's phone business will help the companies crack a problem they couldn't as partners: attain the dominant smartphone positions of Apple Inc. AAPL +0.28% and Google Inc. GOOG +1.59% 

After nearly three years of working with Nokia, Microsoft is a distant No. 3 in smartphones world-wide, with its mobile software accounting for about 4% of the market compared with a combined 90% share for Apple and Google software. Nokia's smartphones make up a negligible share after commanding nearly half of the market before Apple's iPhone arrived.

For Microsoft to make any headway, it must now create mobile devices that attract both consumers and business buyers, find its footing in hardware manufacturing and win over skeptical shareholders and app developers, all the while successfully integrating 32,000 Nokia employees with Microsoft's 100,000.

Microsoft investors didn't exactly show their faith on Tuesday, sending the company's shares down 4.6% to $31.88. The decline erased the stock bump that came after Chief Executive Steve Ballmer recently announced his retirement.

Mr. Ballmer argued Tuesday that Google and Apple don't have a permanent lock in the mobile business. Microsoft also is working from a position of financial strength. The company generates more than $70 billion of annual revenue, and the Nokia acquisition will barely dent Microsoft's $77 billion cash stockpile.

Mr. Ballmer said on a conference call with analysts that he believes Microsoft needs to become a hardware maker rather than making other companies responsible for computers, phones and other gear that run Microsoft software. 

"For us to really fulfill the vision of what we can do for our customers, we have evolved our thinking," Mr. Ballmer said.

Accomplishing a complete transformation into a hardware maker will require a very different kind of company than Microsoft is today.

"Historically, I've always seen Microsoft as the place where mobile technology goes to die," said Michael Morgan, a mobile-industry analyst with ABI Research Inc. "I'm just not entirely sure if this closer owner relationship will allow them to make better phones than under their previous alliance."

Microsoft risks shrinking to a shell of itself if it doesn't figure out mobile devices, which are supplanting PCs as people's computing gateways. But while Mr. Ballmer called the Nokia deal a "bold" move to undo its lowly mobile position, there are land mines everywhere for his agenda.

The Nokia deal appeared to do little on Tuesday to stoke more interest among app developers, who are critical to helping Microsoft close a large gap in the offerings on its Windows smartphones. "We simply can't devote any resources to support the platform. It's too small," said Patrick Geuder, the head of business development for videogame maker Minecraft. The popular game is available for iPhone and Android smartphones, and for Microsoft's Xbox.

Mr. Ballmer reiterated Tuesday the belief inside Microsoft that the best way to lure app developers is to sell many more Windows Phone devices. 

Microsoft has scant experience in making gadgets beyond its Xbox game console. Mr. Ballmer's successor must branch beyond sales of high-margin software that generates all of Microsoft's profit, while finding footing in the fiercely competitive and low-margin hardware business. Microsoft's first stab at a homegrown computer, the Surface tablet, failed to spark a sales rush after it launched last year. Microsoft took a $900 million charge last quarter for unsold Surface inventory.

Microsoft may get less help now from other major handset companies, most of whom kept quiet about the deal on Tuesday. Nokia has been the dominant maker of Windows smartphones, while other major phone makers, including Samsung Electronics Ltd. 005930.SE +0.22% and HTC Corp., have devoted their attentions to market-leader Android. Microsoft's purchase of a rival handset maker makes it even less appealing for Samsung and others to treat Microsoft as anything other than a mobile afterthought. 

Mr. Ballmer said Microsoft will remain committed to its hardware partners. 

The union of Nokia and Microsoft also means Mr. Ballmer's successor will have to carve out a middle ground in the market between cheap and cool.