Several analysts said the agreement announced late Monday to buy most of Nokia makes sense for the Redmond, Wash., corporation. Given time and Microsoft's enormous financial reserves, they said, the deal could pose a serious threat to other gadget makers, especially Apple, which has seen its sales slow and reputation for innovation questioned.
"The idea that Nokia is going to have reserves that eclipse Apple's would certainly concern me if I were Tim Cook," said tech analyst Rob Enderle, referring to the Cupertino company's CEO.
Microsoft will be diving into a hardware business dominated by Apple and phone makers using Google's Android operating system. Together, they control more than 90 percent of the smartphone market. But Microsoft is a tech titan in its own right, with nearly $80 billion in annual sales, the widely popular Internet communications service Skype, and software that runs millions of personal computers.
Under the deal, which is expected to be completed in the first quarter of next year pending approval by Nokia's shareholders, Microsoft will buy the Finnish company's phone business and license its patents. That should be a good fit for Microsoft, some analysts believe, because Nokia's phones already use Windows. Moreover, they said, it will allow Microsoft to control the production of those phones from beginning to end, emulating how Apple makes its mobile gadgets.
Still, experts said it could take years for Microsoft to significantly boost Nokia's sales. Moreover, some cautioned that the deal could worsen Microsoft's relationship with companies like Hewlett-Packard (HPQ), because it would pit Microsoft's devices against those from HP and other firms that use Microsoft's Windows software in their products.
"Although HP and Dell don't have much presence in mobility today, they both have ambitions in tablets, which is exactly where we expect Microsoft to get much more aggressive in the future," concluded Deutsche Bank's analysts in a note to their clients. "This only serves to cloud the prospects of both HP and Dell in the all-important mobility area."
Al Hilwa, an analyst with research firm IDC, also voiced doubts.
Although "any competitors in this space should be worried" about the Nokia deal, Microsoft "is not particularly scary right now," he said. That's because developers can easily make apps that work with tablets and smartphones from Apple and Android-based companies, but have a harder time doing that with Microsoft's software.
In a company statement, Microsoft CEO Steve Ballmer -- who last month stunned the industry by declaring he'll retire within a year -- said the deal "will accelerate Microsoft's share and profit in phones."
Tony Cripps, an analyst at research firm Ovum, sounded enthusiastic.
"It will take mega bucks to take on Apple and Android head-cheerleader Samsung for marketing volume and volume shipments," he concluded in an emailed statement. "What is almost certain is that beyond Apple and Google, Microsoft is the best equipped of today's consumer tech giants to be able to put all the requisite pieces in place to succeed long term."
Wall Street's immediate reaction to the leviathan's deal with Nokia was mixed. Although Nokia's shares soared by more than 31 percent, to close at $5.12, Microsoft's stock price tumbled by $1.52 -- nearly 5 percent -- to $31.88.
Some of that skittishness stems from the dramatic decline Nokia's business has suffered in recent years.
Its share of the global phone market has slid from nearly 35 percent in 2003 to 14.4 percent through the first half of this year, according to research firm Gartner. And in the crucial smartphone segment, Nokia's slice of the business has shriveled from more than 48 percent in 2006 to just 3 percent this year.
Despite its relative lack of experience making gadgets, if Microsoft can succeed producing phones with better quality and lower cost than those from Apple and its Android competitors, the Nokia deal "will look brilliant," said S&P Capital IQ analyst Barbara Coffey.
Tech analyst Jack Gold added that "Apple is probably more susceptible" to losing sales to Microsoft than the Android-based phone makers because the Cupertino company's "market share has been slipping and I think for good reason. There hasn't been a lot of innovation coming out of them in a recent months."
Nonetheless, Gold said he was skeptical the Nokia deal would prove worth the money.
Another doubter is Global Equities Research analyst Trip Chowdhry, who said Microsoft is just too late to the smartphone game to make much of a difference.
"Ninety-five percent of the market is going to remain with Google Android and Apple," he concluded. "Had Microsoft acquired Nokia in 2005, we would have thought that to be groundbreaking, not in 2013, when the smartphone industry is already well defined."
Contact Steve Johnson at 408-920-5043. Follow him at Twitter.com/steveatmercnews.