Long-Term Observations Nobody's Discussing On The Microsoft-Nokia Deal

| About: Nokia Corporation (NOK)

In the hours since news broke that Microsoft (NASDAQ:MSFT) is acquiring the Nokia (NYSE:NOK) cell phone business, one pundit after another has written about the short-term implications of the sale price and revenue financials. But little attention has been given to several long-term aspects of the deal. Below are some observations that haven't been discussed, along with speculation about staggering long-term implications for both companies.

First observation: Microsoft is choosing to not only buy the smartphone business, but to also buy the feature phone business.

Speculation: Microsoft is getting ready to release Windows Phone for feature phones.

Many articles have analyzed the financials of the acquisition, with an eye towards the profitability (or lack thereof) of the smartphone and feature phone businesses. But why should Microsoft buy the feature phone business in the first place? If, as most are saying, Microsoft wants full control of Nokia's line of Windows Phone devices, they could buy that without buying Nokia's feature phone business.

I speculate from this that Microsoft is aiming to scale down Windows Phone to run on feature phones. Opening up the huge market of Nokia feature phones to a subset of Microsoft apps and services will be a huge boon to the newcomer mobile OS. This is especially true of the latest generation of mapping and location services that use crowdsourcing, in which the services improve as the numbers of users rises.

This idea isn't new. In May, 2010, when Google (NASDAQ:GOOG) released Android 2.2, some analysts speculated that the benefits in efficiency might enable it to run on feature phones. Google has moved slightly in this direction, with cheaper smartphones running Android, but has still not crossed the divide to real feature phones.

Second observation: A small phrase in the announcement, overlooked by many, refers to Nokia using its brand name on "Nokia's own mobile devices" starting again in 2016.

Speculation: Nokia has some radical new technology in their research labs with the potential to revolutionize mobile devices, but it won't be ready until 2016, and it will require a lot of cash to complete the research.

There are really two possible scenarios for Nokia Research, once the crown jewels of forward-thinking research in the mobile industry. One is that Nokia will continue as an IP company, researching technologies and then licensing their technology to others to develop and market. But this small phrase in the announcement opens up the second, that Nokia has big plans for their research, a few years down the road.

One technology area that fits this scenario is nanotechnology. Nokia has spent years researching nanotechnology for mobile devices. Devices based on this technology might be flexible, transparent, water-resistant, shock-resistant, and more. They might be worn instead of carried, and sense and react to the world around them. They might be self-cleaning, literally repelling liquid and dirt. They might be solar-powered, or might absorb energy from ambient radio waves.

Nokia's Morph concept includes all this and more, and they spent years researching the core nanotechnology that can make it all happen. This research includes flexible electronics, flexible supercapacitor batteries, nano-wire sensors, tactile surfaces that change their shape, and more. But by most accounts this technology is still years from market, and will require more research to get there. Might this be one use Nokia has for the infusion of cash they're going to have from the Microsoft acquisition?

Of course, Nokia Research Center has dozens of research programs underway, and nanotechnology is only one of them. They certainly have the capacity to generate a lot of revenue from licensing. But mobile nanotechnology is one example of what Nokia may have in mind for new devices in 2016.

There's clearly a lot more to say about the long-term of Microsoft and Nokia, and the financials and short-term implications are sure to be foremost in everyone's mind. But it could well be the long-term implications that are motivating this deal.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.