Reactions to Microsoft’s acquisition of Nokia’s mobile business has rocked public opinions, with many who think this is a bad desperation move to those who think it’s a fantastic strategic opportunity. The Wall St reaction so far hasn’t been all that remarkable and that’s because there is much room for debate on either side here. Microsoft has been facing limited options of remaining in the smartphone market, despite a series of solid products based on their fledgling Windows Phone 8 platform. Nokia hadn’t made a lot of traction in the smartphone market and was probably on the path of abandoning smartphones as they dominate the feature phones market. So in some way, this was inevitable. It has been noted that this very large purchase was made with offshore cash assets. This is critical to consider because this but one case where a company looks at the repatriation of funds and subsequent taxes versus the risk and reward of spending offshore. Also, Microsoft has an arsenal of mobile and smartphone patent properties and this Nokia deal adds even more to that patent arsenal. It is widely known that Microsoft actually gets royalties from Android phones because of these strategically acquired patents. Nokia has some very popular and innovative mapping technologies and a leg up on the competition with their “Pure View” camera hardware. Also consider that if Microsoft had wanted to launch their own pipeline of manufacturing, distribution, and network, this would been not only risky, but financially way more expensive to do. The door is now open for Microsoft with access to an enormous market. Still there are some things that don’t exactly fit and will have to be answered, and there are a number of things that we do not know. Therefore it’s not that hard to expect that the reaction thus far is so mixed and ideally we will see the strategy formulate quickly.
We know now that Ballmer is on his way out, and this move has lent credence to the candidacy of Stephen Elop as the company’s next CEO. If that is the move then I expect that transition is announced quickly. To many Microsoft is and has always been a software company. Despite the market success of Xbox and recent foray into tablet manufacturing, others maintain that Microsoft is not a hardware company. Adding Nokia into the fold gives them a distinct hardware edge but it remains to be seen if they are able to leverage this into the success they’re looking for as they move towards a hardware and services organization. It is my opinion that Microsoft has done this to guarantee that they have at least one platform for their mobile division. There are some big questions as to what Microsoft does with the feature phones of the Nokia business. Do they continue to operate that part of the business or is their aim to incorporate some type of gateway to MS services on these lower-end devices? Does Microsoft even want to be in the disposable phone business at all?
The bottom line here is that Microsoft is continuing to this transformation path, but it’s not exactly what anyone had predicted just a year ago. The server products, the Office products – those things are still extremely profitable, however the company is also enduring this historic PC decline and therefore a limited future on a number of fronts especially as those numbers dwindle quarter after quarter. Mobile is critical to Microsoft’s future. At the same time the market for feature smartphones is dwindling as it reaches a saturation point, along with the giant profits that were once realized in this sector. Microsoft must see an opportunity to become rapidly dominant at the high end of the smartphone market and that his driven them to this surprise move. Otherwise they are executing some plan for these feature phones that Nokia has been so big on and we will find out what that plan is eventually.