Microsoft reportedly gives up on buying Nokia’s phone biz — a wise decision

After being close partners for the past two years on Windows Phone, Microsoft was reportedly in deep talks with Nokia to acquire its phone business. But now, those discussions have fallen apart, the Wall Street Journal reports.

The big issue? According to the WSJ‘s sources, Microsoft backed off from the deal due to Nokia’s asking price as well as its weak position in the mobile industry. Given Nokia’s performance over the past few years, I can’t blame Microsoft for backing away.

Nokia was once the world’s top phone maker, but Samsung ended up snatching its throne a year ago. After failing to come up with its own iPhone competitor, Nokia joined up with Microsoft to become its key Windows Phone hardware partner. That led to Nokia’s Lumia phones, which have typically been critically loved but ignored by consumers.

Microsoft reportedly paid Nokia more than $1 billion to move to Windows Phone, a cost which likely factored heavily into the acquisition talks. Given Nokia’s current $14 billion market cap, snapping up its phone business would have cost Microsoft a pretty penny.

With the Surface tablets, Microsoft proved it could make high-quality hardware on its own. The company is also reportedly working on a Surface Phone, which would be a bold way to compete with the iPhone but would also severely diminish Nokia’s standing as the Windows Phone golden child.

At this point, Microsoft may just be better off trying to build a phone of its own rather than taking on all of Nokia’s history and corporate drama.

I’m honestly surprised I feel this way — I remember defending the Nokia/Windows Phone deal to hordes of Symbian fanboys. But even though Lumia sales are finally beginning to creep up, Microsoft needs more than just an incremental upgrade to take on the iPhone and Android. It needs a killer device that makes people instantly want to dump their current smartphone. And despite its tremendous legacy, I’m becoming less and less confident in Nokia’s capability to deliver that miracle device.

Steve Ballmer photo: Devindra Hardawar/VentureBeat