Microsoft-Nokia deal: too good to be true?

Microsoft-Nokia deal: too good to be true?
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Published September 4th, 2013 - 10:44 GMT via

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“Microsoft purchased Nokia to make sure that no one else buys Nokia. Microsoft could have bought Nokia last year and saved money,
“Microsoft purchased Nokia to make sure that no one else buys Nokia. Microsoft could have bought Nokia last year and saved money," said Zimmerman.
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 The Microsoft-Nokia deal looks to be better for Nokia and less beneficial for Microsoft due to the uncertainty that surrounds the US company, industry experts told Gulf News.

“Microsoft is undergoing a huge reorganisation and its CEO Steve Ballmer has announced his intentions to retire in 12 months. The future of its new mobile handsets business will remain unclear until the new CEO announces his/her intentions,” said Daniel Gleeson, mobile analyst at IHS electronics and media.

Nokia did not have the scale on its own to compete as a challenger in the smartphone market. One of the key characteristics of the main handset vendors now is that they all have major businesses besides handsets.

For example, Samsung has semiconductors and consumer electronics, LG has displays, Sony has TVs and cameras, and Apple has Macbooks etc.

“This scale provides companies with the war chests necessary to fight for consumer attention and shelf space with operators. While Nokia has the networks business, that has made significant losses over the past few years. Nokia simply did not have the cash to recapture its market leader position,” Gleeson said.

Uncertain future

The future of its Nokia’s handsets business was very uncertain and it has managed to divest itself of that while retaining its valuable patents. Nokia will be free to re-enter the handset market from 2016, but unlike now it will be free to chose precisely if and how that move will happen.

In February 2011, then Nokia CEO Stephen Elop made the decision to switch Nokia’s smartphone strategy to using Windows Phone. In the process, Elop killed Nokia’s Symbian and MeeGo smartphone operating systems. Since then, Nokia smartphone shipments have collapsed from 24.2 million in the first quarter of 2011, to 6.1 million in the same quarter two years later in first quarter of 2013.

IHS forecasts that unless Microsoft speeds Windows Phone innovation, in 2017 Windows Phone will comprise just 5 per cent of overall smartphone shipments.

According to Ian Fogg, head of mobile analysis at IHS Electronics and Media, the price of acquisition is a reflection of Nokia’s handset business challenges in the aftermath of the Windows Phone switch. €5.44 billion is a fraction of the price that Nokia would have fetched two years ago.

Also, it’s significantly lower than the $12.5 billion that Google paid to buy Motorola’s mobile device business in 2011, even though Motorola Mobility was and is a much smaller company than Nokia with little geographic strength outside of north America, while Nokia is a true global player.

From the timing perspective, Annette Zimmermann at principal analyst at Gartner Deutschland said the uptake of Windows platform has been very slow.

“Microsoft purchased Nokia to make sure that no one else buys Nokia. Microsoft could have bought Nokia last year and saved money. But the aggressive Chinese vendors, with extra cash in hand, would have targeted the Finnish giant,” Zimmermann said.

If someone else buys Nokia, especially from the Android vendors, then that “would have impacted Microsoft’s mobile business. That is why Microsoft purchased Nokia. Microsoft has invested heavily in Windows phone and Nokia is the only vendor aggressively selling it,” she said.

Nokia had a market share of 50 per cent in the feature phone (non-smart phone) business and 2.5 per cent in the smartphone business as of second quarter in the Middle East and Africa.

Gleeson said the deal will benefit the Windows Phone ecosystem. Development of the Windows Phone platform has been slow by Microsoft, but Nokia has been very innovative in bringing new hardware features and making its own software. Hopefully, Nokia will “bring this innovation to Microsoft and spur on the software development side of things. The unknown is how Microsoft’s reorganisation will affect development,” he said.

“Microsoft is hoping to use the Asha line to draw people into its ecosystem and eventually onto Windows Phone smartphones. Microsoft can use hooks like Outlook and Skype in its feature phone business to draw people into using its ecosystem and not Google’s,” he said.

Zimmermann said that what Microsoft needs to take care is the Windows app developer community. Microsoft needs to support the developers more and show interest in the app market. Also, Microsoft needs to “keep the good managers and design team at Nokia because they have the knowledge of design and the hardware-software integration, then they will be able to succeed. If the vice versa happens, then it is the end of mobile business for Microsoft,” she said.

To succeed with Windows Phone and change this forecast, Fogg said that Microsoft must increase both the quality and quantity of third party Windows Phone apps. It must spend much more on marketing and channel incentives to drive Windows Phone awareness with consumers and ensure Windows phones are widely ranged by mobile operators.


© Al Nisr Publishing LLC 2013. All rights reserved.

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