‘Jury Still Out’ on Microsoft/Nokia Combo

SAN FRANCISCO — The “jury is still out” on Microsoft’s $7 billion purchase of Nokia’s cellphone group, according to one analyst who said the deal, which cleared regulatory hurdles this week, could fuel more mobile apps and improved devices.

Microsoft officially purchased the Nokia division on December 2 in an all-cash deal for 5.44 billion euros (US$7.17 billion). The transaction is expected to close in the first quarter of 2014, after which Microsoft will get a 10-year license to the Nokia brand.

“Building on our successful partnership, we can now bring together the best of Microsoft’s software engineering with the best of Nokia’s product engineering, award-winning design, and global sales, marketing and manufacturing,” said Stephen Elop, Nokia’s former chief executive, now an executive vice president at Microsoft.

According to a Nokia release, Microsoft will acquire the mobile phones and smart devices business units, a design team, production facilities, devices and services-related sales and marketing activities, and related support functions. Approximately 32,000 people will transfer to Microsoft.

The purchase has far-reaching implications for both companies, said Will Strauss, president of market watcher Forward Concepts. Although the jury is still out on whether the purchase is a good one, both Microsoft and Nokia stand to benefit from each other’s experience.

“It’s a good horse to ride. You can argue that Nokia is a shadow of its former self, but the fact is that the vector is growing very rapidly and getting traction overseas,” Strauss said. “I think Microsoft can expand its consumer base; they’ve done a miserable job of getting into the hardware business in the past.”

Strauss cited Nokia’s popular Lumia smartphone and tablet, as well as Microsoft’s Surface tablet, as examples of successful development. However, Nokia’s old operating system has been a burden. Strauss said:

Clearly Nokia needed something and Microsoft was a life preserver at the time. [Nokia] had to drastically update Symbian or find a new operating system. Nokia culture is very, very much hardware-centric. They feel they have got to make the best hardware period, software has been secondary and that’s what killed them. They rode their software for too long and everybody else went to something with a different iOS that was more modern.

Microsoft’s acquisition of Nokia will help in developing new products, specifically apps for mobile devices. Although Microsoft will have to continue paying app developers to port to their products, securing a mobile company may be “a marriage made in heaven.”

Additionally, Microsoft will become a strategic licensee of the HERE platform, focused on mapping and location services, and will pay separately for a four year license. HERE will continue to focus on mobile devices, connected devices, enterprise solutions and the automotive environment, the Nokia release stated.

Microsoft CEO Steve Ballmer called the acquisition a “bold step into the future” that will bring Nokia talent in hardware deign and engineering, supply chain and manufacturing management, as well as sales, marketing, and distribution, into the Microsoft fold. Still, the software giant should tread lightly.

“Microsoft has to be very careful that they don’t crush the inventiveness and entrepreneurial spirit of engineers and designers at Nokia,” Strauss noted. “Microsoft could ruin the company if they don’t keep kid gloves on it. It’s happened before; the culture of the company didn’t mesh with people and company they acquired.”

Following the transaction, Nokia plans to focus on its advanced technologies business through advanced research, development, and concept products in areas such as connectivity, sensing, and material technologies, as well as web and cloud technologies. The company also plans to expand its technology licensing program.

— Jessica Lipsky, Associate Editor, EE Times