Huawei May Want Nokia but It Won't Happen

NEW YORK ( TheStreet) -- Huawei has said that it is open to merging with Nokia ( NOK).

The news caused the stock to jump Tuesday as high as $4.12 before closing at $3.86. It's the first time the stock has been above $4 since February.

The reasons why Huawei would be interested in Nokia are numerous.

Nokia has global relationships with over 600 carriers who push its phones. Those relationships were particularly helpful to Nokia before the market for feature phones died and these carriers could push the Nokia candy bars to the emerging markets. Nokia quickly sopped up all this cheap global market share.

I'm sure Huawei would love to immediately have 600 carrier relationships through which it could start pushing their low-cost Android phones.

When the world shifted from feature phones to smart phones, Nokia was caught flat-footed and they had to shift to betting its company's future on Microsoft's ( MSFT) Windows Phones. Now Nokia is selling about seven million smart phones each quarter and struggling to maintain its market share.

In a Financial Times article Tuesday, where Huawei chose to publicly muse about the idea of merging with Nokia, the company said it would be open to it only if Nokia stopped being reliant on Windows Phone. In other words, Nokia has to become an Android shop.

It's unlikely there's going to be a Nokia-Huawei merger anytime soon.

Why would Nokia suddenly decide to throw in the towel on Microsoft now? Huawei says that it hasn't been a success yet. Nokia is likely to want to give it more time.

If Huawei wants to "merge" with Nokia, it's going to have to offer a premium to buy Nokia. That's not going to happen. Nokia trades for a $14 billion market capitalization currently. That's over $15 billion with a premium attached to it.

Microsoft can finance that kind of acquisition but not Huawei.

And maybe that's the goal here. Maybe Huawei is really trying to push Microsoft into buying Nokia. Maybe it believes this will distract Microsoft for the next 12 to 24 months by having to integrate Nokia and that this will give them a big opening in the emerging markets to grab a stronger foothold against Nokia.

It's not clear.

The market seems to be believing that this public musing is the first step to starting a bidding war for Nokia, or at least forcing Microsoft into reacting by buying Nokia. I doubt that Steve Ballmer will be suckered into that though. He'd be effectively bidding against himself for the company.

It's odd the way these Chinese companies -- Lenovo and now Huawei -- seem to think the best way to buy or merge with a Western company is by negotiating through the media. This certainly seem to be the wisest move to buy a company at the lowest price.

However, today is another reminder that the smartphone market is still a big, important and growing market. As much as the media like to conclude that it's a two-horse race between Apple ( AAPL) and Google ( GOOG), there are many other players like Huawei, Lenovo, and others (think HP ( HPQ) and Cisco ( CSCO)) that still are likely to be very interested in the space.

That's good for BlackBerry ( BBRY) and Nokia.

At the time of publication the author was long BBRY and AAPL.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Eric Jackson is founder and Managing Member of Ironfire Capital and the general partner and investment manager of Ironfire Capital US Fund LP and Ironfire Capital International Fund, Ltd. In January 2007, Jackson started the world's first Internet-based campaign to increase shareholder value at Yahoo!, leading to a change in CEOs in 2007. He also spoke out in favor of Yahoo!'s accepting Microsoft's buyout offer in 2008. Global Proxy Watch named Jackson as one of its 10 "Stars" who positively influenced international corporate governance and shareowner value in 2007.

Prior to founding Ironfire Capital, Jackson was President and CEO of Jackson Leadership Systems, Inc., a leadership, strategy, and governance consulting firm. He completed his Ph.D. in the Management Department at the Columbia University Graduate School of Business in New York, with a specialization in Strategic Management and Corporate Governance, and holds a B.A. from McGill University.

He was previously Vice President of Strategy and Business Development at VoiceGenie Technologies, a software firm now owned by Alcatel-Lucent. In 2004, Jackson founded the Young Patrons' Circle at the Royal Ontario Museum in Toronto, which is now the second-largest social and philanthropic group of its kind in North America, raising $500,000 annually for the museum. You can follow Jackson on Twitter at www.twitter.com/ericjackson or @ericjackson.

You can contact Eric by emailing him at eric.jackson@thestreet.com.

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