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Microsoft's Acquisition of Nokia's Phone Business marks "the failure of both companies" (IHT, Sep 4th)
This document summarizes the acquisition of Nokia's phone business by Microsoft in 3 main points: 1) Microsoft paid $5 billion for Nokia's devices unit and $2.18 billion to license Nokia's patents, in an attempt to strengthen its Windows ecosystem against competitors like Android and iOS. 2) The acquisition marks the failure of both companies to gain traction in the mobile market, with Nokia unable to transition from Symbian and Windows Phone not growing under Microsoft. 3) The deal splits Nokia into two - a networking equipment company and a patents/IP licensing company - and provides renewed hope but slim chances of success for Microsoft's mobile ecosystem, while leaving Nokia with a more focused business after a difficult period
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Microsoft's Acquisition of Nokia's Phone Business marks "the failure of both companies" (IHT, Sep 4th)
- 1. Microsoft’s Acquisition of Nokia’sPhone Business marks “the failure of both companies” International Herald Tribune, 4 Sep 2013, p. 16 Petri Rouvinen, ETLA, www.etla.fi Chaos or Turbulence in Digital Ecosystems BRIE-ETLA Seminar, Berkeley, 6 Sep 2013
- 2. 1998: Gates in talks w.Nokia Jan 2013: MS-Nokia talks 2006: Nokia & Siemens merge network businesses 2008/9: Google Android Feb 2011: Platform burns Feb 2011: Windows Phone in MeeGo out Jan 2007: Apple iPhone Sep 2010: Elop, Nokia’s CEO Jul 2013: Nokia buys Siemens out of NSN for $2.21bn Aug 2013: Ballmer’s step down announced 3 Sep 2013: MS’s acq. of Nokia devices
- 3. Preceding rocky ridesof Microsoft & Nokia
- 4. 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2008 2009 20102011 2012 Source: Gartner. Market Shares of Mobile Smartphone Operating Systems Android Google iOS Apple Symbian Nokia RIM Blackberry Other Windows
- 5. 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Sources: Business Insider,Gartner, IDC, Strategic Analytics, company filings PC, Smartphone and Tablet Operating Systems Together Android Apple RIM Other MS Windows
- 6. -10 0 10 20 30 40 50 2008 2009 20102011 2012 2013 Source: Company releases. Operating Profit Margins, % Nokia Samsung Apple Microsoft Google
- 7. -10 90 190 290 390 490 590 690 2007 2008 20092010 2011 2012 2013 Source: Company releases. End of the year except for 2013, which refers to Sep 2nd Market Value, $bn Nokia Samsung Apple Microsoft Google
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- 9. Microsoft pays $5bn forNokia’s devices unit & $2.18bn to license IPRs Nokia retains Rougly what Microsoft paid for Skype in 2011 or Nokia for Navteq in 2007; under 10% of MS’s cash Current Nokia split to half – New Nokia: NSN, location-based services (Here), IPRs
- 10. Employment Jun 2013 Q1/2013 Jun2013 Q1/2013 Jun 2013 Q1/2013 Jun 2013 Q1/2013 Nokia, Global Microsoft, Global Nokia, Finland Microsoft, Finland NSN: 50,476 NSN: 50,476 Other: 37,295 5,295 99,139 131,139 NSN: 5,800 NSN: 5,800 Other: 5,100 400 300 5,000 32,000
- 11. -10 0 10 20 30 40 Aug 30 = 100 Sep5 close Aug 30 = 100 Daily close prices at Nasdaq (MS) & NYSE Sep 5 Close +41% Nokia -6.5% Microsoft Stock market reaction Nokia gets out of its cash crisis & is left with a solid network eq. business Microsoft positions itself to burn cash in an effort to make its ecosystem fly
- 12. Why? Nokia • Cash crisis •Windows ecosystem not gaining ground – No improvement in the short or medium term • No ability to jump the MS ship? Microsoft • Mimicing Apple & Google • Windows ecosystem not gaining ground – HW-SW integration – Avoid double margins in Windows phones – All-in cash burning • Nokia made >80% of Windows phones & was at a fire sale price
- 13. Viable next steps •Microsoft might – Sell Nokia factories (18,000 employees) – Leverage licensed Nokia brand in urging feature phone users to Windows – Discontinue headquarter functions & feature phone development in Finland – Retain 80-90% of its Finnish employment – Replace Ballmer with Elop • Nokia might – Concentrate primarily to network eq. & services – License/sell IPRs (w. reduced focus on related R&D) – Narrower focus in location-based services – Be engaged in further M&A action
- 14. Ultimate outcomes? • Microsoft:Renewed hope for the ecosystem but slim chances of success • Nokia: Nicely pooring business after a rocky ride • Industry: None? • Finland: Mentally a shock, but economically neutral? • Conspiracy theory: After exiting Windows & filling its coffers, Nokia re-enters phohe business
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