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Microsoft and Nokia: the bare facts

John Cox | Sept. 4, 2013
Two mobile industry losers join forces.

Microsoft's surprise announcement over the long weekend that it's buying Nokia's mobile phone business for just over $7 billion has set off a flurry of analysis from all directions. Here's a quick look at just the facts.

What's the deal?
Microsoft is buying several Nokia business units, notably the Smart Devices unit (the Windows Phone-based Lumia smartphones), the Mobile Phones unit (feature phones, including the Asha line), along with their attendant operations, and an array of related services. That comes to just over $5 billion.

Microsoft is also licensing a bunch of related Nokia patents, under a 10-year non-exclusive license. There's an option that lets Microsoft extend the patent agreement "to perpetuity." This amounts to about $2 billion.

Finally, Microsoft is signing a four-year license for Nokia's Here platform its mapping software, services, and so on. It's paying Nokia something for that, probably a hefty amount, but no number has been announced publicly.

The deal is expected to close in the first quarter of 2014, or five to eight months from now.

Is this a big deal?
For Nokia investors, some stock speculators, and the Nokia employees affected, it's a biggish deal. The size of the total transaction makes it seem like a big deal.

But apart from that, no one will really care by next week, or even tomorrow. Microsoft's Windows Phone smartphone software, though well-regarded, has gone nowhere in three years. Nokia adopted Windows Phone as its platform and in the second quarter managed to sell all of 7.4 million Lumia smartphones. Compared to the Android and iOS phones sold in that same period, that's almost a rounding error.

Why is Nokia doing this?
Basically, they gave up on phones. Nokia is going to focus on its wireless broadband business (LTE base stations and the like), its Here mapping service and platform (competing with Google Maps, among others), and "advanced technologies," basically trying to come up with cool stuff it can license to other companies.

Why is Microsoft doing this?
Essentially, Microsoft is buying a working, global mobile device business, with existing expertise and processes, in order to "accelerate the growth of its share and profit in mobile devices," according to the company's press release.

Given Microsoft and Nokia's current positions in the phone market, that's a pretty low bar. If you go from one mile per hour to two miles per hour, you've accelerated. But you're still losing the race because there are two guys way, way ahead of you, they're going way faster than you, and they're accelerating, too.

The acquisition by itself doesn't change the market challenges, or Microsoft's internal priorities. Those priorities can only be changed from within, by becoming less what Microsoft has been, and more what Nokia is. (See below, "Who benefits?")

 

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