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September 3, 2013

Microsoft Buys Nokia’s Devices & Services Business

by Master Pillow

In a move that has long been speculated upon Microsoft Corp has finally pulled the trigger on a huge $7 billion USD acquisition of Nokia’s Devices & Services business bringing the number one Windows Phone maker into the fold.  Analysts are certainly going to have a field day tomorrow morning when the Stock Market opens but this is a move that should not be much of a surprise.

Microsoft will pay approximately $5 billion for Nokia’s Devices & Services business along with an extra $2.18 billion to license Nokia’s patent library.  Yes, that means Nokia will continue as a separate company but will now only be focused on their navigation/mapping unit as all their phone production has now been sold to Microsoft.

This obviously includes the entire Lumia line of Windows smartphones but also the Asha line of low cost devices as well which actually sold a huge 53.7 million units in the 2nd quarter of 2013.  By comparison the Lumia line only sold 7.4 million units in the same period.

While Windows Phone 8 hasn’t exactly caught fire yet there are certainly encouraging signs in certain markets that the mobile OS is growing.  The newest Kantar Worldpanel report shows that Windows Phone is slowly inching upwards into double digit marketshare in certain countries such as France where it holds 11% and Mexico at an even higher 12.5%.    In fact Microsoft should be thanking its fans in Mexico which, for the first time ever, have propelled Windows Phone into second place in front of Apple and Blackberry.

However, the biggest problem with Windows Phone is that it has basically stagnated in the USA and China where it holds a miniscule 3.5% and 2.4% share respectively which is rather dire.  About the only good news for Microsoft in the USA is that they are now ranked third as Blackberry has truly fallen off a cliff with only 1.2% of all sales in the same period.

This deal effectively moves 32,000 Nokia employees to Microsoft which includes just about every recognizable Nokia executive including its now former CEO, Stephen Elop.  In this one deal there is now little doubt that Elop vaults himself into major contention for Steve Ballmer’s soon to be vacated CEO job and I wouldn’t be surprised if this is the grand plan.  There is also little doubt that this will probably be Ballmer’s last major move before his retirement although in this business anything can happen.

As for Elop the deal marks his return to Microsoft before he left to become CEO of Nokia.  Elop was previously the head of Microsoft’s Business division that oversaw Office and other enterprise software so there is no doubt the man knows Microsoft very well indeed.  Now that he has run Nokia for the past little while, Elop has even broader experience to draw from heading both software and hardware units.  Is Ballmer grooming him to take over?  We shall see.

As for the deal itself it is certainly intriguing as it immediately gives Microsoft a big boost in manufacturing as they attempt to transition themselves to a new business model focused on devices and services where they control the entire vertical along with other successful companies like Samsung.

At the same time the deal makes Microsoft a beast in terms of patents a fact that should actually be scary for the competition considering the company already owns a treasure trove of patents and is not afraid to use them.  The licensing deal with Nokia adds about 8,500 design patents along with 30,000 licensed utility patents.

It also means that while Microsoft will now own Nokia’s devices and services business that they will still be using the Nokia branding on their smartphones for an additional 10 years which is a good deal simply because Nokia still has global cachet as a quality phone maker.

As with any mega-deal it is going to be some time before anyone can make a definitive case as to whether this is a good move or not but at the very least it will shake up the mobile business for the next while as competitors as well as normal OEMS figure out how to deal with the fact that Microsoft now has more than a toe-hold in the market.

© 2013 The Galactic Pillow

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