Is Microsoft's $7.17 billion acquisition of Nokia's devices and services business too little, too late? Or could this transfusion of hardware, ideas, and people infuse the behemoth with just what it needs to combat Apple and Google more vigorously in the worlds of mobile and emerging technologies?
No doubt, Microsoft would have been better off today had it made yesterday's announcement back in 2005 rather than in 2013. But since even Google hasn't yet tried its hand at time travel, some analysts are lauding the bold move by departing CEO Steve Ballmer.
If approved by both companies' shareholders and government regulators, the deal is expected to include the following:
Nokia executives Stephen Elop, Jo Harlow, Juha Putkiranta, Timo Toikkanen, and Chris Weber are expected to move over to Microsoft once the deal closes in the first quarter of 2014
Microsoft will license Nokia patents
Microsoft will get Nokia's mapping services
Microsoft will gain access to Nokia's long-term licensing agreement with Qualcomm
About 32,000 employees will transfer to Microsoft, including 4,700 people in Finland and 18,300 who work in manufacturing, assembly and packaging of products worldwide
Operations to be transferred to Microsoft generated about 14.9 billion euros, or almost 50 percent of Nokia’s net sales in 2012
Microsoft will become a strategic licensee of HERE and will pay Nokia for a four-year license
Nokia will retain its patent portfolio and will give Microsoft a 10-year license to its patents
Microsoft will open new datacenter in Finland
Microsoft will give Nokia 1.5 billion euros in financing.
After Ballmer announced his pending retirement, Nokia CEO Elop was one much-touted name on the short list to replace Ballmer. Elop, who used to work for Ballmer as a senior executive at Microsoft, has been lauded, and criticized, for his disruptive style at Nokia -- a style that many analysts say Microsoft needs in order to become relevant again.
Stephen Elop will rejoin Microsoft after running Nokia.
Perhaps unsurprisingly, given the personal history of their top executives, Microsoft and Nokia have been partners since 2011, when Nokia agreed to focus its smartphone efforts on Windows. So far, that agreement has enabled the duo to pass Blackberry, but the platform lags far behind market leaders iOS and Android. But by bringing Nokia's devices and services in-house, Microsoft could be poised for more growth, wrote Canaccord Genuity analyst Michael Walkley.
With our global surveys indicating gradually improving Windows Phone 8 smartphone sales due to strong sales of the Lumia 520 and other mid/low-tier Lumia smartphones, we believe the timing makes sense for Microsoft to purchase Nokia's Devices & Services business in order to fund stronger long-term growth trends. We believe Microsoft with its strong balance sheet and increased focus on hardware devices can help accelerate the growing WP8 smartphone momentum. We estimate Lumia sales now constitute over 85% of WP8 smartphone sales. We believe Microsoft has recently worked more in concert with Nokia to drive sales, as evidenced by Microsoft's advertising campaign featuring Lumia features and by Nokia 1020's ranking as a top 3 selling smartphone at AT&T.
Not all pundits see the acquisition in the same rosy light.
Trip Chowdhry, managing director of equity research at Global Equities Research, likens Microsoft's acquisition of Nokia Devices and Services to its purchase of Yammer after Salesforce.com developed Chatter. "Nothing to get excited about… [T]his is another Yammer in the works," the firm wrote in an email. "Come August 2013, Salesforce.com continues to change the industry… [W]hat has happened to Yammer is anybody's guess. In the Internet era, imitation is not a strategy but a recipe for disaster."
Said Chowdhry: "Winners in smart phone market are already declared: 95 percent of the market is going to remain with Google Android and Apple. There is no third player. Microsoft, Blackberry, etc. will play in the "others" category, which is the remaining 5 percent of the smart phone market. Apple created the smart phone industry with iPhone. Apple created the tablet market with iPad. Microsoft acquisition would make sense if Microsoft by acquiring Nokia could create a completely new industry, which none of us have imagined, but we don't think Microsoft has demonstrated the capability to create new industries. We don't think investors should be excited by Stephen Elop re-joining Microsoft, as under his leadership Nokia continued to lose market share. Had Microsoft acquired Nokia in 2005, we would have thought that to be ground breaking, not in 2013, when the Smart Phone Industry is already well defined."
Was this the right move for Microsoft? For Nokia? Let us know what you think in the comments.
I like that imagery, @SachinEE. Who knows: now Apple's iOS 7 looks more like Android and Blackberry's laying off thousands of employees, perhaps those seeking something different may give more serious consideration to Windows. OTOH, with the upcoming availability of other alternatives like Jolla, Windows may not be different enough. Not sure which features or capabilities Microsoft/Nokia would have to offer in order to really drive adoption of their devices and mobile OS.
@ rwhidbee, Microsoft really seems to have lost its vision and is trying to like hitch hike toward some sort of success. I have been optimist about Microsoft as it has sizeable money and human capital in its coffers, but this move has somehow disappointed me. What good the CEO of a selling company could bring to Microsoft is incomprehensible to me.
Two hungry men can hardly help each other. That is what it seems like, the Microsoft's acquisition of Nokia. Smart phone market is really well defined and people think almost only of Apple iOs and Google Android in smart phone terms. While it is yet to see if Microsoft could come up with something new in smart phone market, prospects are rather bleak.
@slfisher I know at least this that these kind of ventures are not without purpose or any future planning. We being sitting outside might not see it comming till it actually surfaced. I think its better to wait before making any assumptions. ?
Robjvargas - Good point. The modders develop technology -- or ways to tweak existing technology -- that finds its way into off-the-shelf PCs.
You still see hacking of proprietary technology -- people running MacOS on non-Apple PCs, for example, called "Hackintoshes" -- but it's very rare and technically illegal.
There's a terrific company here in Southern California called Weaknees that sells hacked TiVos. They'll drop a massively big hard drive in a TiVo and sell it to you. This company exists because TiVo legally permits, and even encourage, hacking its products. Wouldn't it be great if Weakness could get into the hacked-iPhone business? There is no sane reason why Apple should be allowed to dictate what it is legal to do with a legally purchased iPhone.
How would the general consumer, who neither knows nor wants to build their own PC, be harmed in this scenario?
GPU's exist largely because modders wanted them. Would the manufacturers of whole PC's, or Windows, have ever gone there otherwise? At the very least, not nearly so quickly. And (potentially) the PC would therefore have not been ready for the move to HD.
That's just one example. I think the modding community, perhaps calling it the "independent hardware" community might be a worthy euphemism, has driven a great deal of hardware advancement.
I think this acquisition could be good in the long run for MSFT -- but it's not going to disrupt the iOS/Android hegemony in the short term. This is a play for a distant 3rd place finish and a spot on the top 3 podium for a bronze.
The mobile gadget business isn't that secure. Apple went from having no presence in the phone market AT ALL to being in the top 2 in less than a decade. Sure, Apple has built a moat of app developers and a marketplace for content that will be hard to dislodge, but MSFT could potentially start eating up the low-end market by building off a Nokia userbase. MSFT just has to stop being so single-minded about always pushing a Windows mobile OS and maybe try a "throw everything out there and see what sticks" strategy like Samsung has. And. Just. Make. Good. Phones. (or Tablets/Phablets/etc)
Throughout the 90s and 00s hardware and software were separate businesses, but now it's like back to the 80s.
Apple has always had their own hardware and software -- Steve Jobs used to say something along the lines of: "any serious tech company needs to control its own hardware and software" -- and even Microsoft has dipped its toe into hardware and found success with the XBox. It's a reasonable strategy that the ability to design a product experience with control over both the hardware and software leads to a better end result for both the end user and the manufacturer. I always think of Sony PCs when I think of this strategy -- Sony makes nice looking PCs, but once you actually take them out of the box and try to use them... it's like finding out your Lamborghini has a Yugo engine and interior.
I'm wondering if Dell will ever catch on to this trend and try to fork its own version of linux so that it can actually make unique products for consumers (or if HP will.. or if Sony will.. or Samsung...).
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