On the other hand, Microsoft doesn't want to acquire Nokia. Buying a large European company such as Nokia could be a huge nightmare. Thousands of people may need to be fired, unions would have to be negotiated, the government of Finland could declare war on the city of Seattle, or worse. The whole thing could be a mess dominated with endless EU bureaucrats, lawyers and strife. This is why Microsoft has never denied the suggestion that it will make its own smartphone. One year ago, Microsoft stunned the world when it announced it was building its own PC -- the Surface. If you don't believe Microsoft is hard at work engineering its own phone, you're most likely naive. Think about it from Microsoft's perspective: Everyone but Nokia has effectively abandoned Windows Phone. If Nokia shifts direction to Android or something else, or if Nokia gets acquired by someone with similar thoughts, Windows Phone is over. Good-night! That is, unless you as Microsoft do what Apple and BlackBerry do -- and for that matter Google ( GOOG) now too, effectively -- and go vertical: make your own line of phones. Surface PCs; Surface smartphones -- who cares? Microsoft's other option: BlackBerry Windows Phone and BlackBerry now each have around 3% to 5% of the smartphone market, far behind Android (70%) and Apple's iOS (21%). It's almost inevitable that these two forces -- BlackBerry and Windows Phone -- must merge in order to have a viable Number 3 player in the portable computing market. In other words, BlackBerry must join either of two camps: Microsoft or Nokia. Alternatively, there would have to be a friendly "let's join together all three of us" event, which seems almost impossibly difficult to work out given valuations, politics, unions and worse.
I have no idea what will actually happen here. But something MUST happen. The current situation, where Nokia is 80% (and rising) of Microsoft's Windows Phone sales, is not sustainable. Each party is in a prisoner's dilemma, looking to turn the other party in. And both parties combined, even in a happy scenario, is a 3% to 5% market share player with an unsustainable position against Google and Apple ( AAPL).