Seeking Alpha
Long/short equity, contrarian, independent research, tech
Profile| Send Message|
( followers)

Despite rumors that Nokia (NYSE:NOK) had cancelled its Windows RT tablet in favor of a Windows 8 based device, it now seems that the company is preparing to launch a Windows RT based device. While Microsoft (NASDAQ:MSFT) is most likely giving Nokia "incentive" to help it push an operating system that almost every OEM has abandoned, I believe that Nokia is making a huge mistake, and not only will the company likely see negligible sales of its alleged Windows RT device, but it will likely come with a fairly substantial write-off, as every other Windows RT tablet vendor has experienced.

Why This Is A Mistake

There is a notion that the tablet is going to "kill" the traditional PC, and it is one that I agree with - sort of. Microsoft's whole strategy around Windows 8 is to allow users who purchase Windows 8 based devices to have both the best of the tablet experience, as well as the best of the traditional desktop/notebook. When a user is on the go, or simply wants to consume content, then the tablet can be used in the "Modern UI". When the user wants to sit down and do some serious work, then it's a simple matter of attaching the appropriate peripherals, attaching a monitor, and then presto - a full PC!

Now, I think Microsoft was on the right track with Windows 8, although perhaps a clearer separation of the more tablet-oriented "Modern UI" interface and the desktop interface may have been less off-putting on the PC side of things. At the end of the day, iOS and Android have been adding functionality on top of what have been excellent mobile OSes, and Microsoft is starting with a highly functional PC OS and attempting to make it at the same time mobile-friendly.

But, of course, Microsoft realizes that Google's (NASDAQ:GOOG) model of giving the OS away for free but then earning a cut from app sales as well as search revenue is detrimental to its core Windows OS licensing business. While many business users are largely locked into the Windows ecosystem, and as a result will pay the "Microsoft tax" for PCs running Windows, Microsoft has no such luxury in the tablet space, where consumers are perfectly fine with Android and iOS. This is why Microsoft is so keen on pushing its "Modern UI" interface, under which it can shift its revenues from the upfront OS fee to taking a cut from the applications themselves.

This is why, I suspect, Microsoft is so keen on pushing Windows RT, as the ARM (NASDAQ:ARMH) SoCs cannot run the traditional Windows 8 desktop applications. If this platform is a success, then each and every application purchase that a user makes will generate revenue for Microsoft. The problem, however, is that the only real selling point to buy a Windows 8 tablet is the fact that it can also double as a traditional PC when needed, and run traditional PC applications. This is why the sales numbers have shown that Intel (NASDAQ:INTC) Atom based Windows 8 tablets have substantially outsold Windows RT devices.

The approach that Microsoft really needs to consider if it really wants to push the modern UI is to promote devices that are truly the "best of both worlds". Get people onboard with well-made Windows 8 devices with the lure of being able to also run traditional applications, while at the same time continuing to feverishly improve the application ecosystem for the touch-only Modern UI. That way, instead of a Windows tablet purchaser feeling that he/she just got a worse deal than what she/he could have gotten with an Android tablet, the Windows tablet purchaser is thrilled with the fact that this sleek, portable, and high battery life device can serve as both the productivity machine and as the consumption machine.

ASUS, Samsung, Acer, Lenovo, and many others realize that this is the best way to drive sales of Windows-based devices, and as a result have completely killed support for Windows RT and will focus exclusively on Windows 8 devices. Dell (NASDAQ:DELL) is apparently still going to do both Windows 8 and Windows RT devices going forward, and even Microsoft itself is probably going to try to focus more on Windows RT devices rather than full Windows 8 ones despite the huge writedown that it took on Surface RT (hey, it's only your money, shareholders), as per the most recent Nvidia (NASDAQ:NVDA) conference call.

So, does it make strategic sense for Nokia to be build a Windows RT device, in light of the fact that all other credible tablet vendors have given up and jumped ship? No, probably not. If Nokia wants to do Windows tablets, then Windows 8 is really the way to go, particularly as almost every competing Windows device will have full Windows 8.

Conclusion

All of Nokia's tablet competitors have their bets well hedged - they're doing Android tablets and full Windows 8 devices. Nokia, on the other hand, is apparently set to enter the ring with the most crippled version of Windows 8. If Microsoft is "subsidizing" this little venture, then little harm will come to Nokia's shareholders. If Nokia actually had a choice to use the full Windows 8 platform with an X86 processor and still chose to go with Windows RT, then maybe it's time for shareholders to ask some very tough questions.

Disclosure: I am long INTC, NVDA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Nokia Gets Ready To Board The Windows RT Pain Train