Microsoft Simply Cannot Afford to Lose This Battle

How much lower will Nokia (NYS: NOK) go? Or has it already hit rock bottom? That's the question that seems to be on every investor's mind as we read about the latest round of drastic job cuts and closing down of manufacturing facilities by the once-mighty Finnish cell-phone giant.

The recent gloomy scenario should make at least one other company sit up and take notice, since its efforts to break into the fiercely competitive mobile sector depends in part on Nokia's fortunes in the days ahead. Step right up, Microsoft (NAS: MSFT) .

With Nokia's fortunes spiraling downward, Microsoft -- whose operating system is active on just 2.2% of smartphones worldwide, compared with 23% for Apple's (NAS: AAPL) iOS and 59% for Google's (NAS: GOOG) Android -- has every right to feel upset. It hasn't gotten a very good return in exchange for paying up $1 billion to Nokia annually for having its Windows operating system feature on the Lumia line of phones.

From Nokia's point of view, the job cuts and resizing efforts are more than necessary. Its shares have lost a staggering 92% since the iPhone was launched back in 2007. Since then, all it's done is sit back and watch as Apple and Google developed a stranglehold on the market. Most analysts remain skeptical about its future, and when I hear that the latest round of layoffs includes parts of Nokia's research and development team, the very source of its innovation, it makes me wonder whether the company has given up already. With the present state of its smartphone strategy, Mr. Softy can't afford to see Nokia go down and, as some suggest, may actually pump in more cash to save its beleaguered partner.

Not that Nokia is completely devoid of potential bright spots on the horizon. CEO Stephen Elop's strategy of extending the Lumia's reach to more than 30 countries -- which includes emerging markets such as Mexico and Brazil -- reveals the seriousness of his efforts, as do Nokia's collaborations with providers such as China Telecom and AT&T. How well any of this will work, of course, is anybody's guess. For now, Microsoft seems to have few other options but to hope for the best.

To find out what happens in this race for survival, add Microsoft to your very own free Watchlist.

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