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  (Source: driftingfocus/flickr)
Company has $22B USD in assets, but is unlikely to be willing/able to sell them for different reasons

Nokia Oyj. (HEX:NOK1V) was once number one in the phone market.  Number one in smartphones sold.  Number one in total phones sold.  But in 2010, the company was faced with a dilemma.  Its smartphone operating system, Symbian, was growing at a steady pace.  But overall, it was being outpaced in growth by Google Inc. (GOOG) Android and Apple, Inc.'s (AAPL) iOS.  Nokia feared that clinging to Symbian could spell a slow death.  So the company's board made a bold gambit and turned to former Microsoft Corp. (MSFT) executive Stephen Elop for a change of pace.

Mr. Elop in January 2011 gave an impassioned speech labeling Symbian as a "burning platform".  Those words proved prophetic, though it’s open to debate whether he created a self-fulfilling prophecy.  Nokia went on to proclaim Microsoft's Windows Phone as the platform of the future, leaving Symbian in an awkward spot.  Whether Symbian's subsequent tumultuous plunge was due to Nokia's abandonment or to customers' turning to better products in the form of Android and iOS is a hotly debated issue.

I. Now, Certainly, the Platform is Burning

But the facts are what they are.  Today Nokia still is one of the top-five smartphone manufacturers, it still has over $22B USD in assets, and it has seen some promise from early Windows Phone efforts.  But at the same time the company is hemorrhaging cash at an alarming pace and has seen smartphone sales plunge amid as the company slowly made its OS transition at a frustratingly lackadaisical pace.

Reuters is reporting that the situation at Nokia is bad enough that Microsoft may be forced to take more drastic action (in addition to current payments) to "bail out" its struggling partner.  Microsoft has made no secret of the fact that it considers the phone market to be a long term money loser for it, but that it's willing to pour billions from its $60B USD horde of cash into this pit.

burning platfrom
Microsoft may be forced to douse partner Nokia's "burning platform" in
a healing stream of cash. [Image Source: Mobus]

The new report quotes a "veteran technology banker" as commenting, "I don't see Microsoft owning Nokia, but it would definitely provide financing to the tune of a couple of billion dollars."

Another banker was cited as stating that Microsoft was unlikely to purchase Nokia, but was likely to either take an equity stake or offer a generous inter-company loan.  A third banker was quoted as stating that other top phonemakers aren't terribly interested in vying with Microsoft for a controlling interest in the Euro giant who recent saw its credit downgraded to junk.  Comments the third source, "I don't see it as a target for private equity either. It is still too expensive and too volatile.  You would have to be prepared to catch a falling knife."

The financial veterans say that Microsoft has strong vested interests in keep Nokia's assets off the auction block.  Not only does the firm provide Microsoft with a key smartphone hardware partner, but its intellectual property could prove a threat to Microsoft if it fell into the right hands.

II. Rich Assets Unlikely to be Sold for Different Reasons

The company's phone patent portfolio, is very strong -- particularly given it is less reliant on the kind "fair, reasonable, and non-discriminatory" (FRAND) patents that pack the portfolios of such phone making giants as Samsung Electronics Comp., Ltd. (KSC:005930) and Motorola Mobility Inc. (MMI).  FRAND patents are a lovely premise -- industry players cooperating for the betterment of customers and science/technology -- but in the harsh realities of today's hyper-litigious legal atmosphere, they're essentially relegated to junk status.  Thus Nokia's strong collection of non-FRAND IP makes it a dangerous player.

Nokia reportedly forced another non-FRAND powerhouse, Apple, into a favorable licensing deal.  And while Apple is oft blamed for starting the global phone "Patent Wars", an allegation supported by its late CEO Steven P. Jobs' virulent anti-Android rhetoric, it was arguably Nokia who started the war, suing Apple in October 2009.

The phonemaker represents a key threat IP-wise to Apple and the Android alliance.  But it could also prove a godsend to Google, if its IP were to be put on the auction block.  That would be a nightmare scenario for Microsoft, who allegedly has a rather weak smartphone portfolio, but which has shaken down a number of top Android device makers in what multiple Android allies claim is a brilliant bluff (Microsoft refuses to reveal what patents it is threatening to sue Android phonemakers over until after they license).

Android statues
Microsoft would likely rather pay Nokia off than allow its patents to be sold to rival Google.
[Image Source: AndroidModo]

Aside from IP Nokia has two major assets it could sell off -- its Navteq map services unit and its stake in the Nokia Siemens Networks (NSN) joint venture it holds with Germany's Siemens AG (ETR:SIE).  The latter is the more likely of the two to be sold, but doubts of the likelihood of a sale burn bright, given the collapse of a previous sale offer from private interests.  As for Navteq, a sale is very unlikely, say experts, given Nokia's resolute stand that it will not sell the unit, which it views as a core pillar of its product differentiation.

III. Did Mr. Elop Start the Fire?

Some investors hint that it was a mistake to bring Mr. Elop and Microsoft into the house.  States John Strand, founder and CEO of Danish consultancy Strand Consult, "Elop was not hired as a boss for a burning platform.  He put the platform on fire."

Perhaps he's right, but the facts are about as ambiguous as possible -- when Mr. Elop took over Symbian was growing in unit sales, but seeing its market share burn away.  Again it's impossible to say whether everything that's happened since -- plunging sales, the sluggish transition, etc. -- is solely Mr. Elop's fault.  

Stephen Elop
Nokia CEO Stephen Elop [Image Source: Mark Vlander/Getty Images]

But it's also hard to completely absolve the tech veteran of some degree of culpability.  His precise measure of guilt in Nokia's mess is a hot topic among analysts, but their analysis should be recognized as nothing more than educated opinion.

Whatever set the fire; it's certain that Nokia has now been badly burned.  And if there's one thing the analysts seem to agree on, it's that a Microsoft intervention may be vital and necessary for Nokia's survival.

Source: Reuters



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RE: Two drowning men trying to save each other
By Tony Swash on 5/7/2012 6:29:41 PM , Rating: 2
quote:
I think the argument could be made that Android is the only thing that has kept those manufacturers in the game at all. Not that YOU would see it like that. Without Android phone makers would have had to rely on Symbian or WinMobile (UGH!) back in the early days. Yeeeahhh, good luck making that work.


That's true, Android kept those manufacturers in the game but it hasn't made them profitable, and without profits eventually all businesses will fail. Obviously if you have a very profitable main line of business making lots of money you can afford a loss leader here and there but you cannot sustain endless losses if they are in your core business and it's no good to sustain losses if those losses are leading nowhere.

Nobody but Samsung makes money on Android handsets (HTC make a tiny razor thin profit but their figures are trending in the wrong direction).

Google doesn't break out either Android related costs or income in it's publicly reported figures. That in itself is interesting. We have information from a variety of sources of data with which it is possible to make a reasonably informed calculation of what Google is earning per Android device. The best piece of analysis I have seen is that by Horace Dediu at Asymco which is here:

http://www.asymco.com/2012/04/02/android-economics...

he comes to the conclusion that Google make about $1.70/device/year. If we generously assume that there are around 350 million Android handsets in use then that implies an annual income of around $600 million per year for Google. What are Android's maintenance costs for Google? We don't know but one could take a conservative guess of an absolute minimum of $100 million per year. So let's round those figures and say Google currently makes around $500 million profit on Android per year based on running costs. However we have to also set that Android income against the original Android purchase, Android related development costs (which Google won't release), and the purchase of Motorola which is clearly part of the Google Android effort. Motorola cost Google $12.5 billion. So leaving aside all ongoing and past development costs and the cost of the original acquisition it will still take Google 21 years to recoup the cost of the Android predicated Motorola purchase before moving into profit and even if the number of Android devices in use doubles it will take another decade before Google breaks even on Android.

In the Android developer ecosystem it is possible to make money but only at a fraction of the returns that the same developers can make in the iOS ecosystem.

The Android ecosystem is just not very healthy as a business environment. All those accumulating losses and failed business models will begin to take a toll, toss in the license fees to Microsoft and things don't look great for the wider Android business sector.

The only two players with a viable, growing and profitable handset business are Samsung and Apple, and Apple out earns Samsung by about three to one.

It's not a question of iOS versus Android but instead it's a question of Apple versus Samsung.

Pirks: I know Samsung are involved in WP7, my point was that as the only Android player making money they might decide to ditch Google altogether and either fork Android or just switch wholesale to WP7, particularly if Microsoft come a knocking with an Android related license fee in one hand and wad of cash in the other. Imagine: Samsung forks Android kisses goodbye to Google search and says hello to a better offer from MS to make Bing the default search engine. Stranger things have happened :)


RE: Two drowning men trying to save each other
By Tony Swash on 5/7/2012 6:55:22 PM , Rating: 2
Meant to include this link in previous post as an example of the business realities of the iOS versus Android (and everybody else) developer business ecosystems

iOS takes 84 percent of mobile gaming revenue

http://venturebeat.com/2012/05/06/mobile-gaming-re...


By mcnabney on 5/8/2012 10:08:03 AM , Rating: 2
Distorted data.

Most Android games are ad supported, not marketplace supported while Apple generally charges their consumers directly. That data completely ignores free-download games that are paid for through advertisements. Nice try though.


By Pirks on 5/7/2012 7:12:18 PM , Rating: 2
quote:
they might decide to ditch Google altogether and switch wholesale to WP7
yeah, sure, they're going to dump the major smartphone brand everyone knows about with the highest market share and instead use very new unrecoginzed brand from MS with market share around 1%? you think they are THAT braindead? really? :)

I mean if MS could have given them cash or could have persuaded them to dump google or something - they would have done it a year ago if not earlier. the fact that MS is not really violently pushing windows phone on anyone tells me your napoleonic fantasies about MS paying sammy to ditch google sre totally unreal

I guess the deal is the market share, until windows phone grabs substantial market share MS won't move a finger to violently push it. if they really wanted to - they would have paid sammy a few billions already, but they didn't, so your business logic is seriosuly flawed and you don't know something MS and other big shots know. so I'd be sceptical about your judgement for now


RE: Two drowning men trying to save each other
By zephyrprime on 5/8/2012 11:02:59 AM , Rating: 2
There is no point in them forking android. why would they do that? How does that benefit them? That would give them their own platform and product differentiation but look at the other players with their own platform (rim and symbian) - they are failing. If Samsung developed their own platform, they would incur all the development and business costs which you have mentioned and those costs are a huge net loss for google. And android is free. Samsung would start making losses instead of profits in the smart phone market if they made their own OS.

On the other hand, it makes sense to make WP phones. The hardware is virtually the same. The only reason it's not exactly the same is for marketing reasons (product differentiation and branding).


RE: Two drowning men trying to save each other
By Tony Swash on 5/8/2012 12:35:12 PM , Rating: 2
quote:
There is no point in them forking android. why would they do that? How does that benefit them? That would give them their own platform and product differentiation but look at the other players with their own platform (rim and symbian) - they are failing. If Samsung developed their own platform, they would incur all the development and business costs which you have mentioned and those costs are a huge net loss for google. And android is free. Samsung would start making losses instead of profits in the smart phone market if they made their own OS.

On the other hand, it makes sense to make WP phones. The hardware is virtually the same. The only reason it's not exactly the same is for marketing reasons (product differentiation and branding).


Android is free in terms of having no monetary license but it comes with strings - you have to use Google services such as search, maps. Suppose Samsung got a really good monetary offer from another company to use their search and maps and Samsung thought the current version of Android was at a basic level pretty good, then why not fork it and cut the strings binding them to Google. As the only Android handset maker making any money, as the dominant Android handset maker by far, Samsung have got some powerful leverage, how they choose to use that will be interesting to see. I have no idea whether Samsung will do anything like this but I am sure they must be considering their options.


RE: Two drowning men trying to save each other
By zephyrprime on 5/8/2012 12:46:58 PM , Rating: 2
What other search and map provider? Bing? Mapquest? Yahoo? Bing loses 4 billion a year and mapquest and yahoo as also rans. The mapping services at mapquest and yahoo suck and the yahoo search sucks. Bing is the only other decent choice but MS would never tie to it any Linux platform. As soon as Samsung announced that they would go with a proprietary platform, samsung phone sales would drop because no one has any faith in Samsung being able to deliver a decent OS experience (which is why everyone is bailing on BB and Symbian). Any monetary incentive would be tiny compared to how much sales Samsung would lose.

The strings Google ties to Android are free value adds for the phone manufacturers. None of the phone guys have a map service, search service, or document service of their own to offer and creating anything like them would cost a fortune and produce low quality compared to extent google offerings.


“And I don't know why [Apple is] acting like it’s superior. I don't even get it. What are they trying to say?” -- Bill Gates on the Mac ads














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