Tidbits: Cuts at Nokia, Rumored Cuts at Avaya

Nokia

Nokia says it will shed about 10,000 employees globally by the end of 2013 in a bid to reduce costs and streamline operations.

The company will close research-and-development centers, including one in Burnaby, British Columbia, and another in Ulm, Germany. Nokia will maintain its R&D operation in Salo, Finland, but it will close its manufacturing plant there.

Meanwhile, in an updated outlook, Nokia reported that “competitive industry dynamics” in the second quarter would hurt its smartphone sales more than originally anticipated. The company does not expect a performance improvement in the third quarter, and that dour forecast caused analysts and markets to react adversely.

Selling its bling-phone Vertu business to Swedish private-equity group EQT will help generate some cash, but, Nokia will retain a 10-percent minority stake in Vertu. Nokia probably should have said a wholesale goodbye to its bygone symbol of imperial ostentation.

Nokia might be saying goodbye to other businesses, too.  We shall see about Nokia-Siemens Networks, which I believe neither of the eponymous parties wants to own and would eagerly sell if somebody offering more than a bag of beans and fast-food discount coupons would step forward.

There’s no question that Nokia is bidding farewell to three vice presidents. Stepping down are Mary McDowell (mobile phones), Jerri DeVard (marketing), and Niklas Savander (EVP markets).

But Nokia is buying, too, shelling out an undisclosed sum for imaging company Scalado, looking to leverage that company’s technology to enhance the mobile-imaging and visualization capabilities of its Nokia Lumia smartphones.

Avaya

Meanwhile, staff reductions are rumored to be in the works at increasingly beleaguered Avaya.  Sources says a “large-scale” jobs cut is possible, with news perhaps surfacing later today, just two weeks before the end of the company’s third quarter.

Avaya’s financial results for its last quarter, as well as its limited growth profile and substantial long-term debt, suggested that hard choices were inevitable.

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Nokia Channels Kris Kristofferson

In reporting that Nokia would discontinue North American sales of its Symbian smartphones and its low-end feature phones to focus exclusively on its forthcoming crop of smartphones based on Windows Phone, Ina Fried of All Things Digital broke some news that didn’t qualify as a surprise.

If Kris Kristofferson was right when he said that “freedom is just another word for nothing left to lose,” then Nokia has a lot of freedom in the North American smartphone market.

The Finnish handset vendor, which began its corporate life as a paper manufacturer, wasn’t going anywhere with its Symbian-based smartphones in the USA or Canada. What’s more, North Americans have been turning away from feature phones for a while now.  Accordingly, Nokia has chosen to clear the decks, eliminate distractions, and put all its resources behind its bet-the-company commitment to Windows Phone.

Nothing to Lose

It’ll keep Symbian and the feature phones around for a while longer in other international markets, but not in North America. And, you know, it makes sense.

If Nokia wins even a modicum of business with its Microsoft-powered smarphones, it will gain share in North America. From that standpoint, it has something to gain, and very little to lose, as it debuts its Windows Phone handsets in the North American market. Nokia doesn’t need to hit a home run to spin its Windows Phone as a success here. All it needs to do is show market momentum on which can build in other markets, including those where it truly does have more to lose.

Obviously, Nokia’s success should not be taken for granted. The company has a long, potholed road ahead of it, and there’s no guarantee that it will survive the journey.

Battle for Hearts and Minds

While some observers are saying the carriers will be crucial to Nokia’s smartphone success — the Finnish handset vendor will make its phones available through operators rather than selling them unlocked at retail — I disagree.

Once upon a time, mobile subscribers took the handsets that carriers pushed at them, but that hasn’t been the norm since Apple radically rearranged the smartphone landscape with the iPhone. Now, consumer demand determines which handsets wireless operators carry, and Nokia doubtless recognizes that reality, which is why it intends to launch a massive advertising and marketing campaign to persuade consumers that its smartphones are desirable, must-have items.

Low Expectations

Will it work? Hey, ask Nostradamus if you can reach him with a medium and a Ouija board. All I can tell you is that Nokia will have to nail its advertising campaign, hit the bull’s eye with its marketing programs, and work diligently in conjunction with Microsoft to attract the attention and support of mobile developers. Great phone designs, slick marketing, a credible mobile operating system (which Microsoft might finally have), and quality and quantity of application support will be essential if Nokia is to resuscitate its reputation as a serious smartphone player.

A lot can go wrong, and some of it probably will.

It’s not going to be easy, but the one thing Nokia has going for it in North America is low expectations. That’s why I think Nokia picked the continent as a potential springboard for its Windows Phone onslaught worldwide.

Why RIM Takeover Palaver is Premature

Whether it is experiencing good times or bad times, Research in Motion (RIM) always seems to be perceived as an acquisition target.

When its fortunes were bright, RIM was rumored to be on the acquisitive radar of a number of vendors, including Nokia, Cisco, Microsoft, and Dell. Notwithstanding that some of those vendors also have seen their stars dim, RIM faces a particularly daunting set of challenges.

Difficult Circumstances

Its difficult circumstances are reflected in its current market capitalization. Prior to trading today, RIM had a market capitalization of $11.87 billion; at the end of August last year, it was valued at $23.27 billion. While some analysts argue that RIM’s stock has been oversold and that the company now is undervalued, others contend that RIM’s valuation might have further to fall. In the long run, unless it can arrest its relative decline in smartphones and mobile computing, RIM appears destined for continued hardship.

Certainly, at least through the end of this year — and until we see whether its QNX-based smartphones represent compelling alternatives to Apple’s next crop of iPhones and the succeeding wave of Android-based devices from Google licensees — RIM does not seem to have the wherewithal to reverse its market slide.

All of which brings us to the current rumors about RIM and potential suitors.

Dell’s Priorities Elsewhere

Dell has been mentioned, yet again, but Dell is preoccupied with other business. In an era of IT consumerization, in which consumers increasingly are determining which devices they’ll use professionally and personally, Dell neither sees itself nor RIM as having the requisite consumer cache to win hearts and minds, especially when arrayed against some well-entrenched industry incumbents. Besides, as noted above, Dell has other priorities, most of which are in the data center, which Dell sees not only as an enterprise play but also — as cloud computing gains traction — as a destination for the applications and services of many of its current SMB customers.

In my view, Dell doesn’t feel that it needs to own a mobile operating system. On the mobile front, it will follow the zeitgeist of IT consumerization and support the operating systems and device types that its customers want. It will sell Android or Windows Phone devices to the extent that its customers want them (and want to buy them from Dell), but I also expect the company to provide heterogeneous mobile-management solutions.

Google Theory

Google also has been rumored to be a potential acquirer of RIM. Notable on this front has been former Needham & Company and ThinkEquity analyst Anton Wahlman, who wrote extensively on why he sees Google as a RIM suitor. His argument essentially comes down to three drivers: platform convergence, with Google’s Android 4.0 and RIM’s QNX both running on the same Texas Instruments OMAP 4400 series platform; Google’s need for better security to facilitate its success in mobile-retail applications featuring Near-Field Communications (NFC); and Google’s increasing need to stock up on mobile patents and intellectual property as it comes under mounting litigious attack.

They are interesting data points, but they don’t add up to a Google acquisition of RIM.

Convergence of hardware platforms doesn’t lead inexorably to Google wanting to buy RIM. It’s a big leap of logic — and a significant leap of faith for stock speculators — to suppose that Google would see value in taking out RIM just because they’re both running the same mobile chipset. On security, meanwhile, Google could address any real or perceived NFC issues without having to complete a relatively costly and complex acquisition of a mobile-OS competitor. Finally, again, Google could address its mobile-IT deficit organically, inorganically, and legally in ways that would be neither as complicated nor as costly as having to buy RIM, a deal that would almost certainly draw antitrust scrutiny from the Department of Justice (DoJ), the Securities and Exchange Commission (SEC), and probably the European Union (EU).

Google doesn’t need those sorts of distractions, not when it’s trying to keep a stable of handset licensees happy while also attempting to portray itself as the well-intentioned victim in the mobile-IP wars.

Microsoft’s Wait

Finally, back again as a rumored acquirer of RIM, we find Microsoft. At one time, a deal between the companies might have made sense, and it might make sense again. Now, though, the timing is inauspicious.

Microsoft has invested significant resources in a relationship with Nokia, and it will wait to see whether that bet pays off before it resorts to a Plan B. Microsoft has done the math, and it figures as long as Nokia’s Symbian installed base doesn’t hemorrhage extravagantly, it should be well placed to finally have a competitive entry in the mobile-OS derby with Windows Phone. Now, though, as Nokia comes under attack from above (Apple and high-end Android smartphones) and from below (inexpensive feature phones and lower-end Android smartphones), there’s some question as to whether Nokia can deliver the market pull that Microsoft anticipated. Nonetheless, Microsoft isn’t ready to hit the panic button.

Not Going Anywhere . . . This Year

Besides, as we’ve already deduced, RIM isn’t going anywhere. That’s not just because the other rumored players aren’t sufficiently interested in making the buy, but also because RIM’s executive team and its board of directors aren’t ready to sell.  Despite the pessimism of outside observers, RIM remains relatively sanguine about its prospects. The feeling on campus is that the QNX platform will get RIM back on track in 2012. Until that supposition is validated or refuted, RIM will not seek strategic alternatives.

This narrative will play out in due course.  Much will depend on the market share and revenue Microsoft and Windows Phone derive from Nokia. If that relationship runs aground, Microsoft — which really feels it must succeed in mobile and cloud to ensure a bright future — will look for alternatives. At the same time, RIM will be determining whether QNX is the software tonic for its corporate regeneration. If  the cure takes, RIM won’t be in need of external assistance. If QNX is no panacea, and RIM loses further ground to Apple and the Google Android camp, then it will be more receptive to outside interests.

Those answers will come not this year, but in 2012.

Set-Top Box Logic Doesn’t Hold

I’m not that close to the cable market — though, once upon a DOCSIS moon, I worked for a company that sold transceivers to cable-device vendors — so perhaps I am missing a nuance or subtlety that might have tempered the opinion I am about the express.

Still, I feel relatively confident asserting that Cisco’s acquisition of Scientific Atlanta ranks among the worst buys the networking giant has ever done.

Misstep Followed by Tumble

Yes, the acquisition of Pure Digital Technologies and its Flip video camcorders must rate at the top (or is that bottom?) of the charts. Whereas Cisco paid $6.9 billion for Scientific Atlanta and only $590 million in stock — plus about $15 million in retention-based compensation — for Pure Digital, the former is still lumbering along a wayward path while the latter has been shuttered outright. When an acquired company is shut down with prejudice, as opposed to sold to a third party, a little more than two years after the purchase was announced, well, you have to count it as a misstep — perhaps followed by a severe tumble down a long staircase.

That said, Scientific Atlanta also has fallen well short of the winning mark for Cisco, and its future as a going concern is murky. While Cisco yesterday announced that it has sold a Scientific Atlanta manufacturing facility in Juarez, Mexico, to Foxconn Technology Group, Cisco apparently will remain in the consumer-facing cable set-top business, at least for now.

Puzzling Decision

That’s a puzzler for at least a couple reasons. First, commercial prospects for the cable set-top box in developed markets are uncertain at best, as the devices increasingly are rendered less valuable — and potentially obsolete — by the proliferation of Internet-connected televisions and mobile devices such as smartphones and tablets, all of which detract from the consumer-controlling power of the cable box. In developing markets, moreover, other vendors, including a number of Chinese and Asian players, are getting more than their share of the cable set-top market in jurisdictions where it’s still a growing business.

Even Cisco itself has voiced ambivalence about the future of the set-top box.

Oh, there’s no question cable MSOs want to keep the boxes in subscribers’ homes for as long as possible. There’s also no doubt that vendors, such as Cisco, will try to adapt the boxes for new purposes and applications. Still, consumers ultimately will call the tune, and many MSOs seem to acknowledge that reality, looking to jack up the price of bandwidth to compensate for any loss of control as media-content gatekeepers.

Zeus Kerravala, an analyst with Yankee Group Research Inc., has put forth the following argument in favor of Cisco keeping Scientific Atlanta:

 “Everybody looks at set-top boxes and says Cisco should cut the set-top box. But that’s often part of a bigger sale to a cable company, with switches and routers. It would be detrimental to their relationships.”

Questioning the Logic

I question that line of reasoning. Several years ago, it might have had some merit, but circumstances have changed. I don’t think Cisco needs to be in the consumer-facing part of the cable business to succeed as a vendor of switches and routers to MSOs.

An appropriate analogy, though somewhat inverted, is to Nokia and its Nokia Siemens telecommunications-equipment joint venture. Once upon a time, Nokia realized value, through mutual reinforcement, in selling both networking gear and handsets to its carrier customers. Now, well, not so much. Ever since the advent of the iPhone, consumers rather than carriers drive handset selection. Tossing a bunch of handsets that nobody wants into a telecommunications-equipment deal isn’t going to seal the bargain.

Sell . . . Before It’s Too Late

I would argue that the same separation will occur, if it already hasn’t, in the cable world. Increasingly, as consumers resist set-top boxes and choose to consume their content through other devices, it won’t matter that Cisco can offer both network infrastructure and set-top boxes. The value propositions will have to stand on their own.

So, I will offer Cisco some admittedly unsolicited but free advice: Get out of the cable set-top box business. It’s more pain that it’s worth, it’s not your forte, and you need to focus your efforts and resources on bolstering other parts of your business.

Besides, Huawei might take the business off your hands for a pretty penny. You just have to persuade the US government to let them have it.

At NSN, Nokia and Siemens Still Grope for Exit

Let’s say two companies are involved in a joint venture that’s been an unhappy marriage. The relationship isn’t as toxic as the former partnership between Mel Gibson and Oksana Grigorieva, but it hasn’t been a day at the beach, either. Neither partner wants to remain in the business alliance; they’re both looking for a dignified exit.

With logic and reason as your guides, what would you expect their next moves to be?

Yes, one partner might approach the other, looking to sell its interest in full. It’s also possible that one company might sell its interest to an approved third party, offering a right of first refusal to its JV partner. It’s also conceivable that both partners would put the joint venture on the block, hiring an agent to discreet present it to private-equity shops and strategic buyers. They might even consider putting some lipstick on the pig and trying an IPO, hoping to benefit from auspicious timing and favorable lighting.

Okay, now throw logic and reason to the wind. What would you do now?

Maybe, as Nokia and Siemens have done at Nokia Siemens Networks (NSN), you’d compound the unhappy union by acquiring a floundering telecommunications-equipment business from a vendor eager to unload it. Misery loves company, after all, so why not plunge headlong into the pit of despair? If you put on your absurdist bifocals, the move just might make sense on a surreal existential level. But we’re talking business, not Dadaism.

Just when I think there’s nothing in this crazy industry that can surprise me, something does just that. I admit, I’ve been puzzling over why NSN would buy Motorola’s networks business, which retains some wireless-operator customers, especially in North America, but also carries hefty baggage in the form of a product portfolio predicated on technologies (a large portion of its 3G gear, and its WiMAX 4G offerings) that have gone out of fashion. NSN will pay $1.2 billion for the Motorola unit, and — other than some modest scale and a minor ostensible market-share gain — I don’t see how it derives much benefit from the transaction.

Squeezed from all angles, from traditional competitors Ericsson and Alcatel-Lucent and from hard-charging Huawei — when it’s not fighting an intellectual-property lawsuit launched by, of all vendors, Motorola — NSN isn’t a thriving business. As I have mentioned previously, its joint-venture partners have taken massive goodwill writedowns since forming the business back in 2007.

Digressing for a moment, I want to note that I am not a proponent of joint ventures. Many European companies seem favorably disposed to them, and I understand the underlying reasoning behind them: pool resources, share and mitigate risk, eliminate distraction to one’s core business. Unfortunately, they’re usually unworkable in practice. It’s hard enough getting people from the same company to agree on strategy and to execute successfully. When you have the political machinations inherent in a joint venture, well, the job becomes nearly impossible.

Getting back on track after that brief digressive detour, NSN is in a tough spot.

How tough became clear to me after I read an article in the Wall Street Journal yesterday. Neither Nokia nor Siemens wants to continue participating in the joint venture, but they can’t find a way out. It’s as if Jean-Paul Sartre has rewritten No Exit and staged it in a boardroom. Hell is having to deal with other people in a joint venture.

Why Microsoft Might Finally Acquire RIM

In the past, I have argued that a Microsoft acquisition of Research in Motion (RIM) was unlikely and unwise. Still, stuff happens in the space-time continuum — circumstances change, new dynamics come into play — that cause one to revisit earlier assumptions and to reconsider possible outcomes.

Such is the case for my thoughts about a union between Microsoft and RIM. I no longer view it as an unlikely scenario. Considering what has been happening in the industry, and in light of the daunting challenges Microsoft and RIM face in the mobile marketplace, a marriage of convenience, if not one of amorous intent, could be in the cards.

Let’s first consider Microsoft’s circumstances. The company has failed utterly and repeatedly in its bid to establish a dominant mobile platform. Its smartphone licensees are defecting in droves, running into the welcoming arms of Google’s Android proselytizers.

Microsoft’s share of the smartphone operating-system market is plummeting like sales of The Knack’s follow-up albums. Microsoft’s latest silver bullet in this market is called Windows Phone 7, but a technical preview of that software, now undergoing lab testing at wireless operators, suggests Microsoft hasn’t cracked the code. A consensus is building that Windows Phone 7 is several years too late and several hundred-hundred million dollars short of where it needs to be.

At the same time, Microsoft might be coming to the grim realization that it isn’t the consumer-electronics behemoth it sees when it looks into the Redmond funhouse mirror. Microsoft’s perception of itself, as a company that actually understands and intuitively anticipates the desires of consumers, has been unmasked as abject delusion.

Fortunately, Microsoft might be gradually coming around to reality, recognizing that it must play to its strengths, not to its weaknesses. Its strengths are in enterprise markets, from SMBs upward. That  has been increasingly obvious to many people, except to certain denizens of Microsoft’s boardroom and to a few habitues of its executive suites.

Regrettably, though, Microsoft’s mobile offerings for the enterprise, even in terms of integration with its own server-based products, are sorely lacking in nearly every respect. Microsoft has failed at mobile, and it has disregarded one of its key constituencies in the process.

Meanwhile, we have RIM. Despite not having quite the corporate breadth of, let’s say, Nokia, RIM has the benefit of market focus and an established enterprise franchise that won’t vanish overnight. RIM could remain independent and stay the course. It could retain a solid core of its enterprise customer base — especially in certain vertical markets that require the centralized control, compliance, security, and back-end integration that BlackBerry products and technologies provide — but it will see some market-share erosion at the hands of Google’s Android and even Apple’s iPhone.  If RIM had more resources at its disposal, it might be able mitigate that erosion, if not stop it.

RIM might not want to entertain a union with Microsoft — scuttlebutt suggests it has resisted Microsoft’s entreaties before — but it might be more amenable to considering a compelling proposal now. Watching what’s happening to Nokia — a death of a thousand cuts amid a river of piranha, after losing its strategic bearings in a predatory jungle — cannot be edifying viewing for the chieftains at RIM. At one time, Nokia had acquisitive interest in RIM, and now Nokia is fighting, apparently without success, to remain relevant.

To be sure, RIM would not accept just any Microsoft offer. Maybe now, though, it  would not slam the door on the right offer. What might that be, though, and would Microsoft be willing to entertain it?

With more than $37 billion (and counting) in cash reserves, Microsoft has the means at tis disposal to pull off a RIM purchase involving a combination of cash and stock. RIM now has a market capitalization of $29.58 billion. Microsoft would have to pay a premium of at least 30 percent, probably more, to complete a deal. A $40-billion offer, with the right inducements, might suffice.

Clearly, that’s a lot of coin. We’re not talking about a simple, low-cost tuck-in acquisition with a modest risk profile. This would be a big deal, larger than any acquisition Microsoft has done. Until now, Microsoft’s biggest deal involved aQuantive, an online-marketing concern it bought for more than $6 billion in 2007. If Microsoft were to buy RIM, it would involve a transaction orders of magnitude greater than its purchase of aQuantive.

Indeed, the acquisition of RIM would be a scary proposition for the potentates in Redmond. It would be an off-the-scale move, a sharp deviation from Microsoft’s past practices and strategic playbook. But, as the saying goes, desperate times call for desperate measures. Microsoft, I believe, is very desperate. It could immediately realize revenue and profitability from RIM’s product portfolio and business model, which are more lucrative by far than anything Microsoft could offer in the mobile realm. Synergies with complementary Microsoft products and services also ought to be taken into account.

Critics might scoff, perhaps justifiably, citing two factors that argue against a deal (aside from the prohibitive price tag, which we’ve already discussed). First, they would point to technology-integration issues, arguing that Microsoft would struggle to convert RIM’s BlackBerry platform to Windows.

My response: Who says that needs to happen? RIM already integrates well with Microsoft applications and back-end systems. and Microsoft has been rewriting its mobile operating systems, practically from scratch, recently. It’s starting all over again with Windows Phone 7, which is receiving mixed reviews.

What risk would Microsoft incur by replacing Windows Phone 7, which doesn’t have an installed base, with RIM’s BlackBerry OS? I don’t see powerful arguments against the move. The cost of the transaction is a bigger impediment.
But, one might argue, what about Microsoft’s hardware licensees? What would Microsoft do about them?

Perhaps you’ve noticed, but Microsoft is losing their formerly loyal patronage. HP has bought Palm, and will begin using webOS in its mobile devices, while HTC, Motorola, and scores of others increasingly are adopting Google’s Android as their smartphone operating system. I don’t see many smartphone vendors anxiously awaiting the release of Windows Phone 7. They’ve moved on, and Microsoft knows it. What’s more, Google is giving away Android to licensees, making it all the more difficult for Microsoft to sell its smartphone operating system to handset manufacturers. Google changed the business dynamics of the OS-licensing game.

More than at any time I can recall, Microsoft is considering the merits of an integrated platform, one that involves a tight fusing of device hardware, operating-system software, uniform user experience (including a sleek, universal browser), a focused developer program, and a unified means of delivering and monetizing applications and content.

I am not saying Microsoft will buy RIM. The price alone is enough to dissuade it from doing so, and there are valid concerns about corporate integration and assimilation, about being able to get everybody moving in the same direction, about precluding needless and distracting internecine warfare and turf battles. There are good reasons, in fact, not to do such a deal, only a few of which I’ve touched on here.

But there’s desperation in Redmond. It’s palpable. Microsoft views mobile success as absolutely integral to its continued growth and prosperity. But Microsoft is no longer confident of its golden touch, especially in mobile computing, and it is more inclined to look beyond its doors for answers. RIM already has the sort of business Microsoft would like to own, with the potential for further synergies stemming from integration with Microsoft’s enterprise product portfolio and its cloud-computing strategy.

Consequently, I must revise my earlier opinion. I can no longer dismiss the possibility of Microsoft acquiring RIM.

Microsoft Hasn’t Earned Benefit of Doubt in Smartphones

At PC World, Tony Bradley strongly counsels his readers to wait and see Windows Phones 7 before they adopt Apple’s latest iteration of the iPhone or Android-based smartphones. He also says it might be prudent to include RIM and its BlackBerry in their assessments, too, but he dismisses that thought by brushing off the BlackBerry as “not really in the same league as the next-generation iPhone and Android devices, or what it seems Microsoft will bring to the table based on what we know so far.”

It is a curious statement that practically begs for a challenge. I will oblige.

First, let’s consider Bradley’s generous optimism toward Microsoft. How many kicks at the mobile can has Microsoft had? And how many times has its foot made solid contact with said can?

Even the most indulgent of observers would have to say Microsoft’s aim has been anything but true. What, then, persuades Bradley to believe Microsoft will do the deed this time? Is it because the company’s mobile group, like a faltering restaurant whose best chefs have decamped, is under new management?

I don’t know whether that’s enough to persuade me. Microsoft has had many chances to get it right with mobile operating systems and smartphones, and I’m at the point now where it must prove that it has the chops to play the game. Until then, I’m a resolute skeptic, and I wouldn’t defer an enterprise buying decision just because Microsoft might deliver a new smartphone operating system later this year. It’s been a long time since Microsoft had the intimidating force to suspend a market in that manner.

Let’s also consider Bradley’s summary dismissal of RIM. Earlier in this commentary, he cites smartphone market numbers, derived from comScore data, that suggest RIM tops the charts in market share. The company actually gained share in the last quarter on record, according to the comScore figures.

Like Microsoft, RIM will release a refreshed smartphone operating system later this year. Unlike Microsoft, RIM has enjoyed considerable market success with its smartphones. Like Microsoft, RIM has more affinity with enterprise users than with consumers. Unlike Microsoft, RIM has given its enterprise customers and service providers mobile-enterprise technologies and handsets that actually integrated smoothly with messaging and application infrastructure. That’s all the more impressive when one considers that, in most instances, RIM’s customers also were Microsoft customers. Even with that leverage, Microsoft failed to capitalize.

I don’t understand how anybody could extol Microsoft as a mobile-enterprise savant while dismissing RIM as a court jester. I fail to see the logic that says, of the two vendors, Microsoft is more likely than RIM to deliver an elegant, seamless mobile-enterprise solutions. How does one reach that conclusion based on what we’ve seen historically? Microsoft’s track record isn’t good, and we shouldn’t give it the benefit of the doubt just because it’s gearing up for another run.

Agreed, RIM’s Blackberry Operating System has fallen behind advances brought to market by Apple, Google, and even Palm, which is preparing for mastication by HP. Like Microsoft — and Nokia, for that matter — RIM will have to make up lost  technological ground on Apple and Google. But like Microsoft, RIM is making an effort to get back into the game, with its BlackBerry OS 6.0 slated for release later this year. Earlier indications suggest that it will close, if not eliminate, RIM’s innovation deficit. Nonetheless, it is not likely to change the fundamental perception of RIM as functional stalwart as opposed to trailblazing innovator.

So be it.  RIM probably doesn’t need to lead in flash and dash to maintain its enterprise clout. RIM understands the needs of enterprises — from application and systems integration all the way through to security and compliance — and it does not figure to be  easily displaced in large numbers of those accounts. Many enterprise users might try bringing their iPhones and Android-based handsets to the office, but that won’t always work, for reasons that vary depending on the specific industries and circumstances in which their employers operate.

Many years ago, when RIM began feathering its young nest among Microsoft’s installed base, I was among those who thought Microsoft might solve mobile email and repel RIM’s incursion with prejudice. Well, that never happened. Microsoft never did get its mobile house in order. Why do some of us think it will be any different this time?

Apple Vaults Past Microsoft in Market Cap, but Markets Never Sleep

There was considerable discussion last night, continuing through this morning, about Apple supplanting Microsoft as the technology company with the largest market capitalization.

The discussion is warranted. When a changing of the guard occurs at the top of the heap — even if it’s a heap built on ever-shifting market valuation  — people will notice and try to invest great meaning in the event.

At a basic and literal level, of course, it means that the market ascribes greater value to Apple than to Microsoft. In terms of mindshare and brand, Apple has been outgunning Microsoft for some time, and the market now believes that, based on where the two companies stand today, Apple is a more valuable company that Microsoft.

What you need to remember about markets, however, is that they’re dynamic. Every day, they rise and fall, twist and turn. They never stop. They aren’t like the World Cup, for example, where a tournament is played, teams are gradually eliminated and one eventually claims the title, all its own until the next World Cup in four years.

On the market, nothing is ever fully settled. There’s no time to celebrate a milestone, because any milestone achieved is arbitrary and fleeting.

So, while I think it’s interesting that Apple has surpassed Microsoft in market capitalization — and while I agree that it says much about both realities and perceptions of both companies in the recent past and in the here and now — I also realize that the market is not finished taking its snapshots and making its sometimes capricious determinations.

Today is another day, and tomorrow will be another. Considering all the ferment and volatility we’ve witnessed in the technology sphere during the last couple months, one arguably could make the case that neither Apple nor Microsoft will necessarily accrue more relative strength during the next several years.

Obviously, Microsoft’s past-performance chart, as well as its current struggles, looks worse. It’s by no means certain that Microsoft can remake itself as its core franchises — Windows and Office — are threatened by a broad-based transition to cloud computing.

Similarly, though, the snapshot the market took yesterday might have captured Apple at its peak.  Apple is under attack for its App Store policies and practices, and its ascendant iPhone is likely to meet stiffer competition in the smartphone market from Google Android-based handsets, RIM’s BlackBerry (still a force in enterprise accounts, despite what you might have heard), HP’s Palm, Nokia (though that’s less certain), and even Microsoft, which is in the process of reanimating its moribund mobile business yet again.

Let’s not forget, too, about the Chinese handset players, who are likely to be major forces in their home markets and might not be content to play the comparatively passive role of software licensees.

Clearly news of Apple usurping Microsoft as market-capitalization king was deserving of notice and commentary. We need to remember, though, that it’s only a snapshot in time, and that markets — the public markets in which stocks are traded and those in which products and services are bought and sold — never sleep.

Palm Tries to Bluff, but It’s Too Late

In the latest rumor du jour, Lenovo is cited by Reuters as a potential acquirer of Palm. It really does seen the menu changes daily, and if you’re having trouble keeping up with the Palm-takeover speculation, feel free to join the bemused club.

Palm’s sales agents, Goldman Sachs and Frank Quatrrone’s Qatalyst Partners, have conducted themselves with all the discretion and subtlety of carnival barkers. It’s clear that their contrived, heavy-handed tactics — including a seemingly endless succession of leaks to the business press — have failed. If anything, Palm is in a worse situation today than when the investment bankers set up their medicine-show sales tent on the M&A midway.

One after another, like too-obvious suspects in a creaking murder-mystery potboiler, Palm’s rumored acquirers have removed themselves from suspicion, apparently miffed and a little mortified at having been used as plot decoys.

So now it’s down to Lenovo. Before that, companies suggested to have an acquisitive interest in Palm included Dell, Microsoft, Nokia, Google, RIM, Apple, HP, and Motorola. Then, the focus shifted to China and Taiwan, where Huawei and HTC were drafted into the action. Nobody went for the bait — not seriously enough, anyway.

I thought ZTE might be tempted to take a look, but its chairman told Reuters it was not approached by Palm or its agents. Maybe Palm and its agents that ZTE would step from the shadows and declare its interest.

Nonetheless, Palm, distressed and capsizing, is asking too high a price. The company’s advisers (investment bankers) were said to be seeking $1.2 billion for the company. It’s difficult to envision any of the dwindling prospective buyers paying anywhere near that price.

As a result of tepid buyer interest, Palm now is making sounds about staying the course as an independent entity. The company says it could get out of hardware and license its WebOS platform to handset vendors, along the lines of Google with Android and Microsoft with Windows Phone 7 Series or whatever else it decides to sell.

Palm isn’t serious, though. That move wouldn’t make much business sense, not with licensing as its exclusive business model, and not against two well-heeled players who utilize their mobile platforms as vehicles for bigger business ambitions.

Alas, Palm is bluffing when it says ti could just walk away from the M&A table. The problem is, it’s too late to bluff when all your cards are on the table, their faces fully exposed.

Palm’s Acquisition Prospects Bleak

Apparently the handicapping on Palm’s fate has begun, though I have no idea whether bookies are taking bets, online or in the physical world.

My view is that Palm is beyond saving, that it will continue its downward spiral until it eventually ceases to exist. Some see a money-bags acquirer somehow paying more for Palm than it’s worth, but why would anybody sane do that? The company had its run, Elevation Partners pumped it full of funds and brought in new management to effect a turnaround, but the resurrection proved quixotic and short-lived.

Still, there are those who hope an acquisition will happen. Some of them have vested interests, and others, for various reasons, just enjoy seeing deals done.

Some of the Palm acquisition scenarios envisioned by Colin Gibbs at GigaOM seem only remote possibilities. Gibbs, for example, lists Dell and HP as potential acquirers of Palm. In my view, Dell shouldn’t take that plunge, and HP definitely won’t do it.

HP might get back into the handset space, if it can figure out how to tie the effort to web-based photo services and printing, but it’s unlikely to want to want Palm. If you’ve been watching HP lately, you’ll see that it’s been making a concerted effort to get closer to Microsoft. HP and Microsoft have something in common: fear of and loathing toward Cisco.

If HP gets into the mobile-phone market, it will probably have an Asian contract design/manufacturer provide the hardware while using Microsoft’s Windows Phone as the software. At this point, HP needs Microsoft as an ally across a range of products and markets. I can’t see HP risking the relationship with a Palm acquisition, nor can I see HP wanting to take a speculative flyer on a mobile operating system. Mark Hurd’s philosophical approach to business involves risk mitigation and relentless cost controls. I just don’t see today’s HP rolling the dice on Palm.

Dell shouldn’t buy Palm. Dell just made a major acquisition of Perot, and it ought to be following an acquisition strategy that adds to and deepens the software-based value it can bring to enterprise customers and hosting providers. It isn’t exceptionally adept at consumer products or consumer marketing, so it’s difficult to understand what Dell could do with Palm that Palm’s current management hasn’t already done to make the company viable.

At Silicon Alley Insider, Pascal-Emmanuel Gobry mentions other potential acquirers of Palm: RIM, Nokia, Microsoft, and Google.

It would be shockingly out of character for RIM to buy Palm. If one examines RIM’s history and corporate culture, one sees that RIM prefers to develop products and key technologies organically. It’s made acquisitions, yes, but they’ve always involved very small companies and been highly targeted, aimed at capabilities they had tried and failed to deliver on their own.

I just cannot envision RIM scrapping its own mobile operating system for WebOS, nor can I imagine RIM believing the Palm brand is worth more than its own brand. Besides, RIM — at least for now — is more than holding its own in the smartphone market. It’s not desperate enough to roll the dice on a Palm acquisition.

Nokia could make a run at Palm — the company is a past master at poorly conceived and wretchedly executed acquisitions — but I think a sober sense of restraint now inhibits the company’s M&A adventurism. Nokia will try to go its own way on the operating-system front, and its brand is strong enough globally — though perhaps not so great in the U.S. — for the company to remain relevant on its own merits.

Microsoft? Not bloody likely. It’s buried Windows Mobile, and it’s spinning the wheel of fortune with Windows Phone Series 7. I’m skeptical as to whether Microsoft finally has gotten the formula right with its latest mobile operating system, but the software giant seems confident that it has discovered a belated homegrown edge. It will see where that leads.

As for Google, why on earth would they do such a thing? There have been some bumps in the road, but Google is off to a reasonably good start with Android. What it needs now is more commitment to and focus on the horse it already has in its barn, not an ambitious but misguided attempt to assimilate new technologies into the mix. Such a move would engender gratuitous technology-integration challenges and unnecessary brand-identity issues. Google does not need the distractions Palm would bring.

In the end, Palm’s unwinding will be an anticlimax. On that score, I agree with former Jean-Louis Gassee, former founder of Be Inc. and now a general partner at venture-capital firm Allegis Capital. He doesn’t see a white knight with a bag of money riding to Palm’s rescue, either.

Nortel Ponders Fate of LTE Patents

Not much remains of the once-proud Nortel Networks, but it retains a portfolio of 4,000 LTE and other wireless patents that have market value of as much as $1 billion, according to analyst estimates.

For a time, Nortel considered keeping the patents. Some within the disintegrating, insolvent company envisioned that it could be recast as a patent troll, staffed with more lawyers than engineers, punitively pursuing companies perceived to have encroached on its intellectual-property rights.

It still might choose that option, but other possibilities loom.

According to report in the Globe and Mail, Nortel is “exploring strategic alternatives to maximize the value” of the patents. The company has yet to decide how it will dispose of the patents, but alternatives apparently include an auction of the patents, a joint venture with a new partner, or long-term licensing agreements with wireless companies. That last option is a euphemism for becoming a patent troll.

What remains of the Nortel braintrust might be disinclined to auction the patents, but the Globe and Mail says the company faces mounting pressure from anxious creditors, suppliers, and pensioners who want all the assets divested.

While Nokia Corp. and Telefon AB LM Ericsson are said to have privately expressed interest in acquiring the patents, RIM bears watching in this context. Nortel’s LTE patents were and are of great interest to the BlackBerry purveyor.

Unlike the other potential acquirers, RIM can play the Canadian card to put pressure on the country’s federal government, arguing that such forward-looking intellectual property should remain in Canadian hands.

Just when we thought all the juice had been squeezed from the Nortel lemon, there might be one last lemonade sale.

Google Dismissive of Microsoft as Mobile Rival

When it comes to the world of smartphones, the mainstream business press likes to fixate on an imaginary zero-sum death match between Apple’s iPhone and Google Android-based handsets, including Google’s very own Nexus One.

On the surface, it seems a great story. You have Apple’s enormously successful iPhone serving as the protagonist, setting the benchmark as the “one to beat.” Journalists and market watchers have been searching tirelessly for an “iPhone killer,” somebody to take the fight to Apple and complete the narrative. The Apple antagonist they’ve found, it seems, is Google.

Never mind that the story doesn’t make sense, that it’s more hype than substance. That doesn’t matter. What matters is being able to trot out a hoary narrative mythology – hey, it’s Apollo Creed versus Rocky, Coke versus Pepsi — perspective and reality be damned. If the storyline puts bums in the seats or readers on the site, it will endure.

It’s sad, really, because there’s an even better smarphone story, one that’s just as compelling but anchored firmly in the real world. It involves Google on one side, yes, but its adversary isn’t Apple. No, across the smartphone ring from Google, girding for a battle to win the votes of the judges – represented, in this context, by handset OEMs – is none other than Microsoft.

Yes, Microsoft.

It isn’t that Google and Microsoft are fighting for mobile-market dominance. Microsoft fell out of that contest a long time ago. It’s well behind the likes of Apple, RIM, and Nokia, and it is rapidly losing ground to newcomer Google.

Still, Microsoft and Google are destined to fight fiercely against one another for the affections of the handset vendors who don’t have mobile-operating systems of their own. These vendors – Motorola, Samsung, HTC, Sony Ericsson and the like – license their mobile software, from Microsoft historically and now, increasingly, from Google.

All of which makes Google’s decision to release a handset of its own somewhat perplexing. Crusty marketing types like to say you can’t suck and blow at the same time. But Google – in licensing Android to handset vendors while effectively competing against most of them (HTC partially excepted) with an Android-based handset of its own – is doing just that.

Microsoft is drawing attention to Google’s contradictory approach. In a Bloomberg story, Robbie Bach, the president of Microsoft’s Entertainment and Devices Division, argued that Google will have difficulty attracting partners to its mobile platform after introducing its own Nexus One handset.

Bach reasoned that because Google now sells its own phone, handset makers are likely to be concerned that their software partner might favor its own handset over theirs. Such a scenario, he deduced, would drive Android licensees out of Google’s embrace, presumably into Microsoft’s welcoming arms.

Said Microsoft’s Bach of Google’s conflicted game plan:

“Doing both in the way they are trying to do both is actually very, very difficult. Google’s announcement sends a signal where they’re going to place their commitment. That will create some opportunities for us and we’ll pursue them.”

Microsoft needs all the help it can get. Its Windows Mobile operating system has been a nearly unmitigated disaster, serving to put out a welcome mat and open the door for Google’s Android-based appeals to Microsoft’s stable of handset-vendor licensees. If Microsoft had done its job, Google wouldn’t be enjoying the marketing opportunity it’s now exploiting with Android and Nexus One.

Google, for its part, tells us not to believe our lying eyes. Notwithstanding appearances, Google says all is peace and love around the Android campfire. Said Katie Watson, a Google spokeswoman:

“It’s not our objective to compete with our partners. Our expectation is that the Nexus One will push the entire mobile ecosystem forward, driving greater innovation and consumer choice. We look forward to working with other hardware manufacturers to bring more Google-branded devices to market.”

In other words, there’s nothing to see here.

But that probably will sound like marketing pabulum to Android’s licensees. It’s all well and good for Google to say that Nexus One “will push the entire mobile ecosystem forward,” but, as the legendary Alan Partridge once said to a Geordie, “that’s just noise.” Google can be in league with its partners or working against them. And, if it chooses the latter course, you wonder how long they’ll remain Google’s partners.

Michael Gartnernberg, an analyst with market-research firm Interpet LLC, explains Google’s mobile dilemma:

“No one has ever succeeded in selling their own device while trying to license to partners simultaneously. As much as Google can say it’s not a Google phone, the phone says Google on it. They’re going to have to convince their licensees they’re not in competition with them.”

Gartenberg would be right, of course, if the mobile universe were unfolding as it should. But it isn’t – and the problem is Microsoft.

My supposition is that Google is breaking with convention partly because it can. At least in the mobile space, Google doesn’t respect Microsoft. It looks at the sad state of Windows Mobile, and it figures that Microsoft doesn’t offer handset vendors a viable alternative to Android. It’s arrogant and cocky of Google – and it’s entirely dismissive of Microsoft – but that seems to be the position Google has taken.

Google thinks it can have its cake and eat it, too – serving handset OEMs slices of Android while putting some aside for the Nexus One – because it believes its licensees aren’t about to visit the cake shop in Redmond.

It’s too bad Microsoft doesn’t appear capable of proving Google wrong.