$7.2B smartphone business sale seen as a win for Nokia, major gamble for Microsoft

Posted:
in iPhone edited January 2014
Microsoft's proposed $7.2 billion purchase of Nokia's handset division has been called as a victory for Nokia, completing its transformation into a network infrastructure business. But now the difficult task of gaining traction in the highly competitive smartphone hardware market will be Microsoft's job.

lumia


Microsoft's proposal to buy Nokia's smartphone division will "remove the albatross" that is Nokia's Device & Services business, analyst Maynard Um of Wells Fargo Securities said in a note to investors on Tuesday. He believes the deal will strengthen Nokia's balance sheet while retaining its intellectual property with a 10-year non-exclusive licensing agreement.

The deal will also immediately provide Nokia with $1.9 billion in convertible bonds. And Microsoft has signed a four-year strategic licensing agreement for Nokia's "Here" maps platform, in which Microsoft will pay Nokia separately to license its mapping and navigation products.

As part of the deal, Microsoft will be able to use the Nokia brand in a limited capacity on the company's "feature phone" platforms. Nokia will be unable to license its brand for use with mobile devices for a 30-month period after closing, and will not be able to use the brand on its own products until the end of 2016.

The sale of its handset division to Microsoft, as well as the buyout of the Nokia Siemens Network, has now transformed Nokia into an network infrastructure focused business, Um said. Microsoft, meanwhile, has inherited a business "fraught with peril given competitive forces and its limited product acceptance."

Investors in Nokia responded positively to the news after it was made public on Monday, sending the Finnish company's stock price surging more than 40 percent. But investors in Microsoft were not as encouraged by the deal, as shares of the Redmond, Wash., company tumbled more than 5 percent in pre-market trading Tuesday morning.

Microsoft and Nokia have been closely aligned since 2011, when Nokia abandoned its declining Symbian platform and embraced Microsoft's Windows Phone as its sole mobile operating system for the company's high-end smartphone lineup. But Windows Phone has failed to regain Microsoft much ground in the highly competitive smartphone space, where Apple's iOS and Google's Android are dominant.
«13

Comments

  • Reply 1 of 59


    Two wrongs don't make a right.

  • Reply 2 of 59
    Two wrongs don't make a right.

    Indeed. Or, "the blind leading the blind".

    This is certainly a victory for Nokia whilst MS ususally gets confused with the tech they purchase, if they need to integrate it. Personally I see fail written all over, but strangely I hope to be proven wrong. The WP8 interface at least is different, though I don't like the cut off text and the live tiles don't do anything for me.

    Nokia used to have pretty easy to use menus, but those were dumb phones. Did they have anything smart in their smartphones? Easy to use menus and all that?
  • Reply 3 of 59
    freerangefreerange Posts: 1,597member
    After seeing the news regarding "Microsoft acquiring Nokia mobile division" I looked up MSFT's actual press release. This is one of the most moronic deals I have ever seen in the tech space, and having worked for the #2 and #3 law firms in Silicon Valley I have seen a lot of deals.

    MSFT actually acquired nothing more than the employees and factories for the phone division, not the name, which they will need to license from Nokia, and "Nokia will continue to own and manage the brand". MSFT will also only license the Nokia HERE mapping program under a four year deal, and Nokia related patents for 10 years and, very importantly, on a non-exclusive basis. They did not acquire some of the most valuable assets - mapping and the services businesses. Thus MSFT has acquired the money losing operations, which includes 10's of thousands of employees and uncompetitive manufacturing facilities based on geographic location, and left Nokia with the profitable services, patent licensing, and the potential for advertising and licensing for the mapping business. BRILLIANT!!!! This should work out well for them, in a Kin and Surface sort of way...
  • Reply 4 of 59


    While they're at it, Microsoft might as well buy Blackberry as well.

     

  • Reply 5 of 59
    richlrichl Posts: 2,213member


    This analysis is bonkers. Nokia Siemens Networks lurches from small profits to massive losses and back again. The only reason that it's generating profit at the moment is that everyone is upgrading their equipment to 4G. Once that wave ends, NSN will be back in the red. The state of maps division is even worse. It has never made an annual profit. The only remaining piece of Nokia that's profitable is the patent licensing arm. 


     


    This is the death of Nokia. This is the ultimate loss for Nokia. 

  • Reply 6 of 59
    herbapouherbapou Posts: 2,228member


    At what time the event invitations will be out?  I think they do it near noon if I am not mistaken

  • Reply 7 of 59
    All this comes down to is an expensive CEO purchase.

    It's evident in both the stocks this morning: MSFT down 5%, NOK up 45%.
  • Reply 8 of 59

    Quote:

    Originally Posted by anantksundaram View Post



    All this comes down to is an expensive CEO purchase.



    It's evident in both the stocks this morning: MSFT down 5%, NOK up 45%.




    In Ballmer's mind this purchase appears the same as when Apple bought Next.

  • Reply 9 of 59
    jragostajragosta Posts: 10,473member
    freerange wrote: »
    After seeing the news regarding "Microsoft acquiring Nokia mobile division" I looked up MSFT's actual press release. This is one of the most moronic deals I have ever seen in the tech space, and having worked for the #2 and #3 law firms in Silicon Valley I have seen a lot of deals.

    MSFT actually acquired nothing more than the employees and factories for the phone division, not the name, which they will need to license from Nokia, and "Nokia will continue to own and manage the brand". MSFT will also only license the Nokia HERE mapping program under a four year deal, and Nokia related patents for 10 years and, very importantly, on a non-exclusive basis. They did not acquire some of the most valuable assets - mapping and the services businesses. Thus MSFT has acquired the money losing operations, which includes 10's of thousands of employees and uncompetitive manufacturing facilities based on geographic location, and left Nokia with the profitable services, patent licensing, and the potential for advertising and licensing for the mapping business. BRILLIANT!!!! This should work out well for them, in a Kin and Surface sort of way...

    Ballmer had to go out with a splash.


    I agree. In fact, you've missed one of the big problems with this.

    Microsoft's business (at least in the computer world) is about software. They license Windows and Office to OEMs on an equal basis, so no one has any advantage other than the advantages they can create for themselves. With Surface and now with cell phones, Microsoft is putting themselves in competition with their licensees.

    It's much like the line from the Karate Kid about learning karate: "Learning Karate is like crossing the road. If you stay on one side (traditional Microsoft software licensing), you're safe. If you go clear to the other side (Apple focus on hardware with software being used to help sell hardware), you're safe. If you go halfway, you get run over."

    Microsoft appears to be going halfway - and it's not at all clear that this will be successful.
  • Reply 10 of 59
    murmanmurman Posts: 159member


    This is supposed to change what? Nokia already makes Windows phones, so Nokia will lose Symbian completely for the Asha line? Fire Ballmer now b**ches.

  • Reply 11 of 59

    Quote:

    Originally Posted by island hermit View Post


    In Ballmer's mind this purchase appears the same as when Apple bought Next.



    It looks like that was the idea.

  • Reply 12 of 59
    freerange wrote: »
    After seeing the news regarding "Microsoft acquiring Nokia mobile division" I looked up MSFT's actual press release. This is one of the most moronic deals I have ever seen in the tech space, and having worked for the #2 and #3 law firms in Silicon Valley I have seen a lot of deals.

    MSFT actually acquired nothing more than the employees and factories for the phone division, not the name, which they will need to license from Nokia, and "Nokia will continue to own and manage the brand". MSFT will also only license the Nokia HERE mapping program under a four year deal, and Nokia related patents for 10 years and, very importantly, on a non-exclusive basis. They did not acquire some of the most valuable assets - mapping and the services businesses. Thus MSFT has acquired the money losing operations, which includes 10's of thousands of employees and uncompetitive manufacturing facilities based on geographic location, and left Nokia with the profitable services, patent licensing, and the potential for advertising and licensing for the mapping business. BRILLIANT!!!! This should work out well for them, in a Kin and Surface sort of way...

    True dat, but Microsoft probably doesn't see the name Nokia as valuable anymore. No one ever cared about Nokia but a few loyalists. Microsoft can start their own brand or use windows, xbox or surface to brand their phones. So now they've got the factories the workers and the patents to do it. Was it worth 7 bill? I don't think apple needed 7 billion to get into the phone market, but windows not only thinks it can afford anything, but they see this as their last chance to stay relevant, and the number one software co in the world.
  • Reply 13 of 59
    lkrupplkrupp Posts: 10,557member


    Ballmer's final screwup before taking a hike?


     


    Or is it possible that this is NOT Ballmer's idea and that's why he is being eased out?

  • Reply 14 of 59
    murman wrote: »
    This is supposed to change what? Nokia already makes Windows phones, so Nokia will lose Symbian completely for the Asha line? Fire Ballmer now b**ches.

    They already did that but he's still spending money like a drunk sailor! I suppose if I had access to a billion dollar checkbook I might be tempted to spend a little on some Finnish strange before the boot was official.
  • Reply 15 of 59

    Quote:

    Originally Posted by Doctor David View Post





    They already did that but he's still spending money like a drunk sailor! I suppose if I had access to a billion dollar checkbook I might be tempted to spend a little on some Finnish strange before the boot was official.




    I think Microsoft's Board is rudderless. They've hit some choppy seas and nobody knows what to do. Panic has set in.

  • Reply 16 of 59


    Assumptions:


    1. This deal has been cooking for a while. The board was aware. (Sub-assumption: they support the deal.)


    2. This deal was cinched simply because he needs to finish with negotiations.


    3. There are other big tasks that Ballmer will need to wrap up before leaving.

  • Reply 17 of 59
    I had a glimmer of hope for Microsoft's next CEO before this move by Ballmer, but now, not sure. It will take them years to find direction for the company. This move takes them one step back. Balmier is trying to recreate his last success, Xbox, in the cellphone world. But this market is different, ur not simply competing against Nintendo and Sony, ur competing against 100 models. This was the only obvious move he had left, but not a good one. I can't imagine any companies creating more windows phones anymore, or trying their best anyway. Microsoft is finally seen for what they always were, a company that copies to make quick cash. They were never anything more. Android beat them to the punch this time, so there's no place for them. I hope they learned more than just to copy quicker next time.
  • Reply 18 of 59
    freerange wrote: »
    After seeing the news regarding "Microsoft acquiring Nokia mobile division" I looked up MSFT's actual press release. This is one of the most moronic deals I have ever seen in the tech space, and having worked for the #2 and #3 law firms in Silicon Valley I have seen a lot of deals.

    MSFT actually acquired nothing more than the employees and factories for the phone division, not the name, which they will need to license from Nokia, and "Nokia will continue to own and manage the brand". MSFT will also only license the Nokia HERE mapping program under a four year deal, and Nokia related patents for 10 years and, very importantly, on a non-exclusive basis. They did not acquire some of the most valuable assets - mapping and the services businesses. Thus MSFT has acquired the money losing operations, which includes 10's of thousands of employees and uncompetitive manufacturing facilities based on geographic location, and left Nokia with the profitable services, patent licensing, and the potential for advertising and licensing for the mapping business. BRILLIANT!!!! This should work out well for them, in a Kin and Surface sort of way...

    That is exactly Microsoft's strategy: stubbornly fight against an entrenched market leader until they fold. Their plan is to relentlessly execute on Ballmer's "devices and services" strategy until (they hope) their competition stumbles. What other hope do they have? Microsoft has the reserves to fight a losing war, whereas a Nokia, Palm, and BlackBerry don't. It was inevitable that MS would buy one of them, and obvious which one.
  • Reply 19 of 59
    Don't forget Nokia has been a huge worldwide brand, and previous dominator of the low price market.

    The name is instantly known to most people, the only problem is that it is known as a big name from the past.

    It's hard to think of buying a business in decline as a smart move.

    Then you have the problem of such a well known brand taking over Nokia... If MS took over the Apple brand would people assume nothing would change?

    I think most people will think MS is going kill any desirability left in Nokia.

    But... Time will tell, huge restructuring etc and a fresh face for CEO?
Sign In or Register to comment.