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Microsoft and Nokia: the bare facts

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

What resources does Microsoft get?
In terms of what's measureable, Microsoft gets everything related to Nokia's phone and mobile device business.

That includes Nokia's design and development facilities, access to intellectual property and patents, manufacturing, logistics and distribution, marketing, customers, as well as revenues and profits, if there are any. In other words, pretty much everything that Microsoft, as a traditional software vendor, lacks in order to become, in its own words, a devices and services vendor.

What about people?
In theory, the sale will mean that about 32,000 Nokia employees worldwide the people who actually do the hardware and software design, manufacturing engineering, logistics, marketing and sales and so on will become Microsoft employees.

The big unknown: how many of those people, especially those in key positions in hardware and software design, will want to make the change?

These people also apparently include Nokia's President and CEO Stephen Elop, and other members of this top management team. Elop is a former Microsoft executive himself. For the moment, he is stepping down from the top posts to become Nokia's executive vice president, devices and services, until the deal is final. At least one analyst has gone so far as to suggest that, assuming Elop does move to Microsoft, he now becomes the top candidate to replace retiring Microsoft chief Steve Ballmer. 

Who benefits?
In the short term, stock market players. Nokia gets a big infusion of moolah, and a future stream of revenue from Microsoft through the licensing deal.

But whether Microsoft will benefit is a very open question. Its attempts at creating its own devices have been notable failures. Most recently, it wrote off $900 million of its investment in the Surface RT tablet; and three years ago, it wrote off $240 million in the cancelled Kin phone, and that doesn't count the $500 million to buy the Kin's originator, Danger.

In that sense, investing $7 billion in an already existing device business makes sense. The problem is that since the Windows Phone platform was announced and the first phone unveiled in the fall of 2010, that platform has gone exactly nowhere: it's share of the smarphone market remains in the low single-digits. Under Elop, Nokia scrapped its own firmware and opted for Windows Phone, and it remains the only phone vendor aggressively pushing it. As noted above, Nokia is now selling just over 7 million smartphones per quarter.

Industry analyst Horace Dediu, in a post at his Asymco blog argues that a company being bought is "defined as the sum of three values: resources, processes and priorities." Resources are the measurable assets, in this case, Nokia's customers, revenues, and so on. Processes are what create, sustain, and expand these assets. But the key, Dediu says, are Nokia's priorities.

 

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