News
· Microsoft announced that it is acquiring Nokia’s handset and services business along with certain licenses to Nokia technologies for $7.17 billion. The remaining business of Nokia will remain an infrastructure, navigation services, and IP vendor. Nokia leadership will become Devices division of Microsoft. Handset R&D remains in Finland for now.
· Microsoft makes the case for buying its leading smartphone OEM; make more on device gross margin (40%) than licensing Windows Phone to Nokia (10%).
· N.B. Microsoft acquired Nokia for much less than Google acquired Motorola ($12.5bn)!
· Nokia improves its balance sheet by focusing on the NSN infrastructure, HERE navigation services, and revenues from IP licenses.
Analysis
· The acquisition means end-to-end business models are THE mobile device strategy. Is hardware no longer a stand-alone business, due to price erosion/commoditization and the move to monetization through content and services. Of course hardware remains a crucial element of the mobile user experience, hence the acquisition.
· Google’s plans for Motorola will become a higher priority, leaving handset OEMs without an end-to-end hardware and software play exposed.
· Expect some knock on affects. How will Samsung react? Does Tizen become even more strategic? Has BlackBerry and even HTC become more of an acquisition target? Will HP try the acquisition route again?
· It’s clear to see that what remains of Nokia will be a services and solutions company; i.e. Here + Managed services + Customer experience management + Telco API + NaaS.
· Here is a significant asset and must have been a bone of contention in the negotiations.
· Expect to see the accelerated demise of feature phones in the next 18 months.
· Stephen Elop is now a Microsoft employee again. The CEO job is one easy step away.
Obstacles Ahead:
· Windows Phone on Nokia may be the 3rd largest smartphone OS platform as of the most recent calendar quarter (3.5% share), but questions remain about consumer desire for a 3rd ecosystem, its ability to catch up and subsequently the profitability of the Nokia Lumia line.
· Nokia tablet still coming out? If so, the unannounced tablet going through regulatory certification now would be in conflict with Microsoft’s own Surface devices.
· Microsoft tried the smartphone OEM route before; remember Kin? Nokia certainly has the team and the sales channels beyond what Microsoft has done with Kin and even the Surface tablet.
· Is it enough to make Nokia a significant player in underpenetrated, emerging markets and viable for prosumers and business audiences – at the same time? To be viable in emerging markets Windows Phone prices would need to drop considerably, with nothing below $200 ASP (Lumia 520) currently according to ABI’s Device Portal.
