A Microsoft Smartphone

The media is filled with rumors that Microsoft Corp. (NASDAQ: MSFT) has tested its own smartphone. The move has many disadvantages, but Microsoft should ignore those. There are many advantages if Redmond takes this own course.

The argument for Microsoft to stay out of hardware is simple. It would compete with many of its customers. Nokia Corp. (NYSE: NOK) tops that list. Nokia's turnaround is based on its relationship with Microsoft, which supplies it with the Windows mobile OS. And Microsoft has supported the partnership financially.

Microsoft also has a tablet e-reader partnership with Barnes & Noble Inc. (NYSE: BKS). The book company's e-reader business is so far behind leader Amazon.com Inc. (NASDAQ: AMZN) that there is no catching up.

Microsoft has no strong partners in the new world of hardware beyond the personal computer. Once Windows 8 has lost its momentum, and hundreds of millions computers are upgraded, Microsoft will be left with the oft-commented on trouble of whether its has life in the new world of gadgets.

Microsoft already has moved into tablets on its own with the Surface. Some analysts are concerned this will drive a wedge between Redmond and its big PC partners like Dell Inc. (NASDAQ: DELL) and Lenovo. Those companies need Microsoft because they themselves have no tablet or smartphone businesses. There may be strains because of Surface, but the relationships will not be broken.

Microsoft cannot rely entirely on Nokia, which has an endless list of failures. Nokia cannot stand up to Apple Inc. (NASDAQ: AAPL), Samsung and the second-tier smartphone makers that want a tiny bite at the apple of the rapidly growing market. Microsoft may be able to attack the market on its own, at least to the extent that it can get the industry's attention for its mobile OS. That may even make it easier to find partners who want to use Microsoft's leverage in smartphones, even if it is modest.

Microsoft continues to have more money than almost any other public company on the planet. It can afford to gamble. The gamble in smartphone hardware industry is fairly small. And the benefits of getting a foothold are powerful ones.

Douglas A. McIntyre

Filed under: 24/7 Wall St. Wire, Hardware, Wireless Tagged: AAPL, AMZN, BKS, DELL, MSFT, NOK