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“The Nokia acquisition is a colossal mistake”
Why would Microsoft pay €5 billion for what apparently is a troubled mobile devices company?
Perhaps there’s a method to this madness. Let’s look at three facts that most of the critics never seem to mention.
First, Microsoft gets to pay for the deal with cash that’s trapped overseas, where it’s free of U.S. taxes. As the Wall Street Journal noted last fall, $69.6 billion out of a total of $77 billion cash on Microsoft’s books is held overseas in low-yielding securities. If the company brought it back to the U.S., it would be taxed at corporate rates. Not having to pay that tax makes the effective price of Nokia’s Devices and Enterprise division a mere €3.25 billion.
And in exchange for that relatively modest investment, the company gets an amazing pool of engineering and hardware design talent, worldwide supply chain management expertise, global manufacturing resources, billing deals with mobile carriers worldwide (crucial to selling apps and services), and access to a treasure trove of patents. Those 32,000 employees can make an immediate dent across the board in Microsoft’s other hardware lines, including Surface and Xbox.
This isn’t a struggling division. It’s worth noting that Nokia has won major awards at Mobile World Congress three years in a row: Best New Mobile Handset, Device or Tablet in 2012; Best Feature phone or entry level phone in 2013; Best Low Cost Smartphone (the Lumia 520) in 2014.
And here’s the kicker: the division promises to begin contributing to a positive bottom line for Microsoft immediately. As Microsoft noted in its required disclosures:
With ongoing share growth and the synergies across marketing, branding and advertising, we expect this acquisition to be accretive to our adjusted earnings per share starting in FY15 [which begins in July 2014, mere months after the deal is due to close].
Terrible deal? Colossal mistake? We can revisit this in a few years, but there are a lot of positives to start with. If you think this could end very well, you’re not crazy.
“Microsoft hates Open Source”
This one comes from the same crowd that’s been promising "the Year of the Linux Desktop” since dinosaurs roamed the earth. So adjust your expectations accordingly.
Still, the Microsoft that talked smack about Linux and Open Source software five years ago has undergone a fundamental transformation since then. I’m going to turn the mike over to Microsoft’s Scott Hanselman here. Scott is one of the most passionate and publicly visible advocates for the Open Source community and a genuine star at Microsoft. Here’s what he wrote just a few days ago:
We're putting source on GitHub, many groups are using Git with TFS internally for projects, we've open sourced (not just source-opened) huge parts of .NET and are still pushing. We've open sourced Azure hardware specs, opening SDKs, and we're making systems more pluggable than ever. Frankly, we're bending over backwards to NOT be dicks about stuff, at the very least in my corner of the company. Could we do better? ALWAYS. Are we pure evil? Nah.
Is Microsoft circa 2014 worse than Google, Apple, or Facebook? We're not nearly as organized as we'd need to be to be as evil as you might think we are.
Moreover, I think that Microsoft is very aware of perceptions and is actively trying to counter them by actually being open. I'd say we're more concerned than a Google or Apple about how folks perceive us.
And in the picture-is-worth-a-million-lines-of-source-code department, look at the screenshot above, taken from my own personal Microsoft Azure account. Yes, those are fully supported Linux distributions available for immediate, automated installation in Microsoft’s premier cloud-based service.
As Hanselman says, “This is not your grandfather's MSFT, and now the dude who helped us (Azure) change things in a fundamentally non-MSFT and totally awesome way is in charge. I'm stoked - big things coming, I think.”