Nadella's Microsoft Plays It Smart with Smartphone Outsourcing

Jacob Harper  |

On Feb. 11, Microsoft Corp. (MSFT) announced that the first company in charge of powering their debut smartphone will be their ostensible rival, Google, Inc. (GOOG) . While the move highlights the fact that their own mobile OS falls short of Google‘s Android, it does indicate that Microsoft is willing to swallow their pride in exchange for a superior product, which should bode well for them in the long run.

The phone, which will be manufactured by Microsoft’s forthcoming hardware subsidiary it acquired from Nokia Corp. (NOK) , is expected to be targeted at emerging markets and young domestic users, akin to the Apple, Inc. (AAPL) iPhone 5c. While a name for the Android smartphone has not been officially released, rumors peg the new product as being named the Nokia X or the Normandy.

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Microsoft still plans on utilizing their OS for a forthcoming higher-end phone. However, in a push to get the most out of their Nokia acquisition, Microsoft is willing to eat crow and use the well-established Android on the lower-end Nokia X/Normandy.

Microsoft’s purchase of Nokia’s hardware division is expected to close sometime early this year.    

The move certainly admits that Microsoft is spread a little too thin, and highlights how divergent the tech giant has become. While enterprise software makes up the bulk of Microsoft’s revenue, the company now can claim interests in search (Bing), gaming (Xbox), and smartphone manufacturing.  

It’s also the first big announcement made under the tenure of new Microsoft CEO Satya Nadella, who two days prior officially replaced the much-maligned Steve Ballmer. Nadella has already come under pressure from activist investors to spin off divisions like Xbox and Bing to focus on enterprise. At the same time, internal politics make the prospect of shipping off Ballmer’s babies (Ballmer is still on the board) highly unlikely.

The Nokia decision, while certainly primarily engineered before Nadella took the helm, shows the company is willing to find a compromise between shuttling the less developed divisions and sinking too much money into R&D to push products that aren’t market ready.

By midday trading Microsoft had notched a 1.09 percent gain to hit $37.20 a share.

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