Microsoft's Nokia acquisition: It was 'double down or quit'

Microsoft's Nokia acquisition: It was 'double down or quit'

Summary: In many respects, the Microsoft-Nokia deal rhymes with Google's Motorola purchase. The difference: Nokia controlled so much Windows Phone distribution that Microsoft had to buy it.

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Microsoft's Nokia purchase price can be justified on intellectual patents and an integrated device strategy---much like Google's acquisition of Motorola Mobility could---but the software giant really had no choice. Nokia was the dominant Windows Phone distributor and Microsoft had to buy it to be a device player.

The companies announced a deal where Microsoft will buy Nokia's device business for EUR 5.44 billion. Microsoft pays for the deal with its offshore cash hoard. The deal, which is expected to close in the first quarter, is---and isn't surprising.

On the surface you have to wonder why Microsoft would get into a low-margin hardware business and buy a company that's struggling. But then reality hits you: Microsoft had no choice. Microsoft could double down on mobile or quit. Microsoft chose to double down just like it always does. The company has also doubled down on search with mixed results at best.

Global coverage: Nokia Interim CEO: Microsoft deal makes us stronger | Even with Nokia devices, Microsoft wants to license Windows Phone to other makers | Does its Nokia buy thwart or fuel a possible Microsoft break-up? | Microsoft shows how to flush decades of Nokia goodwill away | Microsoft gets less than $10 per Windows Phone unit | Microsoft-Nokia deal: Reaction from the Twitter trenches | Elop drops Nokia CEO role to lead devices team under Microsoft deal | Microsoft-Nokia deal: 11 quick facts | Microsoft to buy Nokia's devices, services unit for $7.2B

What's also clear is whether Microsoft CEO Steve Ballmer just gave his successor another headache. Time will tell on that one.

In many respects, the Microsoft-Nokia deal rhymes with Google's Motorola purchase. Both companies want end-to-end devices. Both companies want to push services. Both companies risk alienating partners. And both companies got intellectual property.

Here's the difference. Google didn't have to buy Motorola, but did for the patents and a yet-to-be-seen device strategy. Moto X is the first volley at best. Microsoft had little choice. Nokia controlled Windows Phone distribution and the companies were so integrated they might as well be one unit. With Nokia, Microsoft can now put Windows Phone on low-end devices to gain share. Nokia kept Windows Phone as a high-end OS.

Jefferies analyst Lee Simpson said:

Microsoft was the only possible buyer of this division although it never appeared clear to us that this was a deal that had to happen; but with sub-5% market share in smartphones for its windows phone OS, the choice for Microsoft was “double-or-quits” in mobile. The OS provider will continue to license its WP8 to other parties but many will expect Microsoft/Nokia to continue to dominate the ecosystem.

Oppenheimer analyst Shaul Eyal said:

With the acquisition of Nokia's device and services unit Microsoft is placing a final bet on its mobile
opportunity. While the transaction does not come as a full surprise it does remove an uncertainty enabling investors to weigh the chance of getting it right this time. We view the transaction as a Microsoft call option on mobile, whereby some positive reward could be reaped from the money entered. If the option expires then (hopefully) not too much damage will have been done.

Ballmer and Stephen Elop, Nokia CEO who now rejoins Microsoft and loses a title (for now), said in an open letter.

nokia0905ballmerelop-v1-620x413

 

Nokia and Microsoft have always dreamed big – we dreamed of putting a computer on every desk, and a mobile phone in every pocket, and we’ve come a long way toward realizing those dreams.

It remains to be seen whether Nokia becomes a nightmare, but at least Microsoft didn't break the bank. Most analysts say Microsoft paid fair value for Nokia, which gets to focus on its network business and lands cash.

Barclays analyst Andrew Gardiner outlines what Nokia gets. Simply put, Nokia gets focus and value it wouldn't have received from devices anyway.

nokvalueparts

 

Topics: Steve Ballmer: The Exit Interview, Microsoft, Mobility, Nokia, Smartphones, Windows Phone

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112 comments
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  • Wow...

    Wow. This is big.

    Let's hope something good comes from it.
    cybersaurusrex
    • MS kills any company it makes a "deal" with

      Here are facts:

      WordPerfect
      Borland
      Caldera
      Novell

      The list is endless.

      The only reality that will most likely come out of this deal, is that Microsoft bought Nokia patents for chump change.

      This deal would have not been possible when Nokia dominated the cellphone market, as the cost would be too high. Having eroded Nokia's market share first, reach your own conclusions.

      With Balmer out of the picture, there might be a chance. Though with the lack of innovation seen at Microsoft the past 10 years ( they have not actually lead in this field, just followed) the prospects of something "good" are slim at best.
      Uralbas
      • Borland

        Borland/Inprise was not killed by Microsoft, they committed suicide with the name change, sudden attempt to sell their developer division and a string of extremely bad choices all the way around.

        It was a shame because Delphi had real potential, and their developer conferences were the best bang for the buck I ever saw.
        CJRyan
        • Re: Borland/Inprise was not killed by Microsoft

          Oh yes it was. With predatory pricing on products like QuickC (vs Turbo C), Excel (vs Quattro) and Access (vs Paradox), Microsoft was determined to gain market share at any cost.
          ldo17
          • Excel

            Excel was out a long time before Quattro for windows .. Borland didnt move quickly enough into WYSIWYG which allowed the others in. Win 3.1 + Word + Excel was a lot better than the DOS based solutions. Give credit where its due.
            bklooste
          • Yes it was killed

            They used to sell VB as low as US$100 to compete against the so so (...) superior leader of the RAD Delphi US$3000, so most of people settled with the inferior product (VB)
            orendon
      • WordPerfect

        um, what?

        WordPerfect corp. sold itself to Novell, which sold the product to Corel. It was never in Microsoft's hands.
        Mac_PC_FenceSitter
        • directly, no.

          It was a "partner" strongly encouraged to use the new APIs to be provided with Windows 95. All provided through beta tests, through previews, right up to RTM.

          Then they were yanked without warning.

          MS is still in lawsuits over that.
          jessepollard
          • I think people who say this sort of thing weren't around at the time

            WordPerfect 5.2 for Windows (long before the Win95 era) was a horrible thing that shelled things down to a hidden DOS version of itself... such as this weird horrible printer manager that used to pop up and intercept the stream to the windows spooler. Then there was WordPerfect's codes system, which totally overrides anything you see on screen... so you'd have to, WP 5.1 style, do a "reveal codes" to see what your document was actually doing.

            People can't blame that on Windows 95 (which didn't even exist yet.) Nor can they blame it on Microsoft - there were perfectly serviceable document creation applications on Windows at the time other than Word (such as AmiPro and PageMaker 4.x.)
            Mac_PC_FenceSitter
          • I hear ya, about Reveal Codes

            But that's far better than Word's invisible system where you but backspace, and you lose your formatting, so you have to remember where you started it. If you're busy typing in new stuff in a large document like I did for Ephesians1REPARSED(dot)doc (on the internet, so you can see what complexity I mean), it's a freaking nightmare to work in Word.

            Oh: WordPerfect can't properly convert that doc, so you'll have to see it IN Word.
            brainout
          • Wow, thanks for pointing this out!

            I guess I need to stop producing all these 500 page, layout- and graphics-rich proposals and tech manuals in Word. Tragedy averted!
            Vesicant
          • poor you but if you are an employee

            doesn't matter the time you take; but if being efficient is paramount you will learn to use a good tool for the job, and get to understand why people consider that working with Microsoft Word is a nightmare.
            theo_durcan
          • I use LibreOffice all the time.

            Nothing wrong with it, If files are for my own use, I may use open source extensions.

            But otherwise I go to Tools > Options > Load/Save > General >
            Joe.Smetona
          • ( Cont.)

            > Text Document... and change to Microsoft Word 97/2000/XP/2003 or change to a newer MS Office version as required.

            I can't see why anyone (including Windows users) would have to pay for MS Office.

            LibreOffice comes with most Linux anyway by default.
            Joe.Smetona
          • Word is not very good

            Compared to the current competition, including WordPerfect. I've personally found Word so cumbersome and unreliable over the years that I regularly use Wordpad for typing up something quick if I'm on someone else's computer.
            JustCallMeBC
          • You have been wasting so much years of your life...

            Try Lyx and see the light my friend.
            orendon
          • You have been wasting so much years of your life...

            Try Lyx and see the light my friend
            orendon
          • The coment was for Vesicant

            Try Lyx and see the light my friend Vesicant
            orendon
          • Re: But that's far better than Word's invisible system

            No other word processor in the world¹ used embedded codes for formatting, except WordPerfect. With no embedded codes to reveal, what need is there for a "reveal codes" function?

            This is something that WordPerfect fanbois just don't seem to get.

            ¹Not since WordStar, anyway.
            ldo17
          • You Obviously Haven't Used WordPerfect

            @Ido17

            MS Word is full if invisible codes. IF not, why does one need to be so careful when pasting? They may not be "embedded", but the effect is the same. I have to use Word at my day job, but I use WordPerfect whenever I can. For those who think WOrd is the standard, if one has to send a WordPerfect document, just publish to PDF. At least the PDF/A option is easily available in WordPerfect.

            Furthermore, WordPerfect is clearly superior when it comes to outlines and bullets, especially editing them. This really shows up when tables are interspersed throughout the document. I've been able to work on complex documents in Corel WordPerfect about twice as fast as I can in MS Word. Also, correcting the position of graphics is easier in WordPerfect.

            If I'm a WordPerfect fanboi, maybe it's because I recognize a quality word processor when I see one, and I've used a variety of them for over 20 years. Maybe you're just a Word fanboi, and can't get over the fact that fewer people bow down to MSO that 5 years ago.
            wnematollahi