Expert reaction: Microsoft buys Nokia’s phone business for $7.2bn

Microsoft has agreed a deal to buy Nokia’s mobile phone business for 5.4bn euros ($7.2bn or £4.6bn), and Nokia will also license its patents and mapping services to Microsoft.

The purchase is set to be completed in early 2014, when about 32,000 Nokia employees will transfer to Microsoft, according to the companies.

While Nokia has had challenges of its own keeping pace with competition from Apple, Samsung and others, it’s one of the few companies that has made any headway with the Microsoft Windows Phone operating system. Microsoft, meanwhile, has been slow in getting up much of a head of steam behind its phone or indeed tablet ecosystems. It’s clearly hoping that taking control of Nokia will give it the expertise and focus to turn that situation around.

We’ll be publishing expert reaction here as it comes in.

Frost & Sullivan’s Adrian Drozd, Research Director, ICT Europe, said: "In the post-PC world, and in the midst an ecosystem war, Microsoft has finally bought Nokia. This deal is less about the devices themselves, and more about the Windows Phone platform. In order to have any relevance in this new era, Microsoft must develop a strong ecosystem – at 4% market share, it still has a long way to go. The acquisition enables Microsoft to re-double its efforts with Windows Phone, and use the Lumia brand to truly innovate with the platform. Microsoft is now able to control the full user experience, which will help avoid OS fragmentation (as has been the case with Android) and make it easier to attract developers to the platform. Microsoft is also now much better placed to win back some of the enterprise customers it has lost as a result of BYOD and consumerisation. It is now able to offer a full portfolio of hardware, software and services to customers.

The question that arises from the acquisition is what Microsoft intends to do with the Windows Phone platform now that it owns an OEM. Its long history with partners suggests that it is unlikely follow Apple’s lead and only allow its platform to be used on Nokia devices. In order to grow market share, Microsoft will need to keep Samsung and HTC on board, and will need to alleviate any concerns that emerge as a result of the acquisition. Microsoft can use Nokia to really drive innovation on the platform, as Google is doing with Motorola. However, in order to succeed it will need to ensure it maintains good relationships with its partners."

 

Victor Basta, managing director of Magister Advisors, M&A advisors to the technology industry, said: "Microsoft effectively ‘acquired’ Nokia several months ago when it entered into a deal to license Windows Mobile to Nokia, making Nokia entirely reliant on Microsoft’s software for its mobile future. Nokia’s value has eroded progressively since, making the actual deal to acquire the mobile business even more attractive now for Microsoft. In the meantime Microsoft has had the chance to work with Nokia and learn about the business, so this now looks like a safe deal for Microsoft. The burning question, of course, is whether Nokia’s gradual erosion – in market share, value and perception – can be reversed.

Microsoft must be betting that with more control they will be able to reengineer the business and gain market share. There is a huge array of challenges in the way though. There is fierce competition in the market and the competitor set in mobility has changed as fundamentally as the PC market changed when Microsoft entered it in the early 80s.

"The risk for Microsoft is that this deal is a me-too strategy on the heels of Google’s deal with Motorola and a fundamental recognition that Apple’s content and hardware ecosystem is the only model that can work. In fact Microsoft is attempting to ‘recreate Apple’ by combining its software and hardware under one roof.

"This still leaves the strategic question of how Microsoft will be competitive in the mobile space. A ‘me too’ strategy, catching up with Apple is not likely to succeed. Microsoft needs its own strategy in the marketplace, and Nokia alone will not deliver that strategy.

"Nokia employs 30,000 people too, which will make integration a costly, time-consuming and inevitably blood-letting exercise. This feels like a clean up deal at the end of an era."

 

Gartner analyst Van Baker, noted that the deal will likely lead to Microsoft-Nokia being the only handset makers still using Windows Phone as an OS: "It’s an all-or-nothing bet. They have to be successful in the marketplace because there won’t be anyone else to fall back on."

 

Adrian Barnard, MD of Modern Communications, thinks MS could buy Blackberry too: "This is a great deal and it will be interesting to see Microsoft’s next move. Blackberry’s ubiquity, client base and excellent data security would make it a perfect fit."

 

Nigel Hawthorn, Director EMEA Marketing, mobile platform firm MobileIron says, "Blackberry is big news here. This year we’ve already seen Windows 8 overtake Blackberry in shipments, and with this announcement that position is further strengthened. As the mobile handset industry consolidates – with Motorola acquired by Google and Nokia by Microsoft, this leaves BlackBerry as a small fish in a global pond.

"In the enterprise, BlackBerry’s traditional stronghold, I’ve always believed there would be three main Operating Systems. Android and iOS rule right now of course, and just 12 months ago the battle was really on for that third spot. I think this news answers that question. For now."

 

Mark Kenrick, Patent Attorney and Partner at Marks & Clerk, comments:

"This deal again shows the huge value that the mobile telecoms sector places on patents. This is an industry that has seen many high-profile patent disputes, and companies realise that they need a robust portfolio of patents if they are to defend themselves and maintain or achieve greater market share.

"Microsoft has entered this sector relatively late, so gaining access to Nokia’s very established patent portfolio through a licensing deal makes real sense. Similar to Google’s tactic in purchasing Motorola Mobility, this will help Microsoft level the playing field with the rest of the sector. Microsoft also gains the benefit of Nokia’s earlier licensing agreement with Qualcom, which will provide it with access to an even wider pool of patent rights.

"This arrangement allows Nokia to retain its patent portfolio and provides Microsoft with a 10-year licence, with an option to extend it at a later date. That Nokia was not willing to give up its patents – but only to license them – indicates the value it attributes to its own intellectual property."

 

The BBC’s business editor Robert Peston sums it up quite nicely asking, "Is Microsoft’s $7bn purchase of Nokia’s mobile phone business a reshaping of the telecoms landscape, or two drunks propping themselves up at a party?"

Warwick Business School’s Assistant Professor of Strategy, Ronald Klingebiel, who says he has researched and consulted the telecoms industry for more than a decade, said:

"Handset markets are commoditising. The action is in software, apps, and soon these will be delivered online. The emergence of html5 is an early indication. Smartphones will then turn into mere windows to the cloud. There will be little that differentiates one black, rectangular touchscreen phone from another, besides perhaps screen quality and battery life. Handset manufacturers without a suitable software platform in the cloud stand to suffer and Nokia is right to divest of its phone business. Blackberry should do the same. As for Microsoft, it remains to be seen whether it can leverage its still significant strength in desktop operating systems and software and migrate its customers to the mobile cloud.

"Questions had been raised as to why Microsoft decided to partner Nokia in the smartphone market while purporting to not treat any other vendor less favourably. Today’s announcement goes to show that they were onto something: Nokia’s dominance of the Windows phone market suggests that other vendors lost interest. There were also questions over Nokia’s rationale for dropping one unsuccessful Linux system for another unsuccessful proprietary system. In a winner-takes-all market with substantial network effects, especially as regards appstore ecosystems, a distant third challenger proved hardly the boost to the business Nokia was hoping for. Some people connected the dots and asked whether Microsoft was really preparing to take over Nokia. This is where we are today."

Vasileios Tziokas, Marketing Manager at mobile monetisation player Upstream, said: "Despite Microsoft being criticised for its slow growth in the mobile market, the decision to acquire Nokia’s phone business gives the company a direct route into the emerging markets – where Nokia devices prove to be extremely popular. While the immediate focus for Microsoft is on hardware, having control over the device itself will mean that its other services, such as its Bing search engine can be preinstalled on the devices, which may eventually challenge Google’s Android stronghold in these regions."

Juniper Reseach has just published this reaction:

– "The acquisition by Microsoft reinforces the company’s ‘devices and services’ strategy by purchasing all of Nokia’s Devices & Services business and licensing Nokia’s patents and mapping services. While this acquisition provides Microsoft with a much needed uplift and presence in the mobile sector, integrating these new assets, brand building and increasing market share will be the real challenge.
– Microsoft will get a larger footprint in the emerging markets with Asha as Nokia has committed substantial investment to the Asha range. This means the customer would perceive a switch from Asha to Lumia to be a whole scale upgrade in their entire ecosystem rather than just a smartphone.
– The technical advances in the smartphone ecosystem mean that the mobile device is increasingly a part of the broader CE industry than it has ever been. An acquisition in this area by Microsoft has been viewed by Juniper Research as a key strategy to expand and strengthen their strong mobile and fixed device ecosystem. The company is also expected to move into wearable devices soon.

– Nokia has been struggling to position itself going forward against the likes of Samsung and Apple within the smartphone market. This is by no means a cold acquisition as there is an existing synergy between the two companies.
– This acquisition means that Nokia will now continue to focus only on three areas: network infrastructure and services; HERE (mapping and location services); and Advanced Technologies. Nokia is expected to focus on mapping and geo-spatial services as an "an effective alternative to Google".
– Juniper Research estimates Nokia’s smartphone shipment market share to be 6% in 2013."

 

 

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