"One can warm up to the possibility of greater share going forward, but it is hard to get over taking on this cost structure, including hiring an estimated 32,000 Nokia employees relative to Microsoft's existing 99,000," Sherlund wrote. "Adding to the cost structure when shareholders may be looking for steps in the other direction is not likely to be well received."
Yet part of what Microsoft gets with the employees coming over is valuable knowledge -- knowledge of the consumer and mobile markets, relationships with carriers, and strategies for reaching customers in emerging markets, said Carolina Milanesi, an analyst with research firm Gartner.
"There are a lot of people who say: 'It hasn't worked in the past 21/2 years of being partners. Why is this going to be different now?'?" Milanesi said of the partnership, begun in February 2011, between Microsoft and Nokia in which the Finnish company committed to using primarily Windows Phone for its smartphones.
"I think it is going to be different," she said. "Nokia had been limited in how many products it could take to market at a given time. Some of those challenges are going away with Microsoft's resources. And the relationship that comes from being in the same company changes things."
Ballmer said in a conference call Tuesday morning that it was vital for the company to succeed with mobile devices.
"The device opportunity is perhaps the best opportunity for pursuing users in very, very large numbers," he said.
And, he continued, being successful with users is "absolutely vital" to the company succeeding in the workplace and in the home.
Melding Nokia and Microsoft would allow the marketing of Windows Phone to be more focused, with one brand and one unified voice in the market, Ballmer said.
Will Stofega, an analyst with research firm IDC, said the deal shows how important it is these days to have an integrated platform, with hardware that works well with and shows off the capabilities of the software.
Combining the two companies into one should theoretically also make it easier for Microsoft to be more agile in making changes since it now will own manufacturing facilities and have supply-chain relationships that have been established.
"Minor changes in operating systems, in chipsets -- tiny little things that go into these devices -- can have broad impact on how the devices are formed," Stofega said.
So if Microsoft changes something in its operating system, it should be easier to make subsequent hardware changes in its own manufacturing plants, rather than having to go through another company.
Microsoft also recognizes that Nokia has been successful in competing at the lower end in some emerging markets -- something vital to future growth as the markets in the U.S. and Europe become saturated.
"Asia Pacific and the countries there are key to growth," Stofega said. "If you don't have a presence and capabilities there, you're not going to go far."
Still, huge challenges remain -- among them how Nokia's handset business will be integrated into a Microsoft that is itself in the midst of a massive reorganization.
"This is not going to be a sort of sudden 'snap your fingers and everything works.' It's going to take some time and some investment," Stofega said. "I think the thing investors don't realize is that if Microsoft doesn't do this, it's going to be a tough future ahead because mobility -- mobile computing -- is critical."
Janet I. Tu: 206-464-2272 or firstname.lastname@example.org. On Twitter @janettu.
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