Microsoft and Nokia: A Match Made in Heaven or Hell?
September 3, 2013 2:43 PM
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Let's examine two views on this controversial, provocative union
Microsoft Corp. (MSFT) late Monday announced its intention to purchase Nokia Oyj. (
) sending shockwaves through the OEM space. Whether this is a match made in heaven or hell remains to be seen, but one thing's for sure -- these two companies were already closely tied so this relationship is not exactly new.
With that in mind, I'd like to present two schools of thought on the merger.
I. Windows Phone, the Winner
Microsoft will save
a $250M USD quarterly payment
to Nokia for Windows Phone use
Nokia is cash positive
Multiple phonemakers --
, Inc. (
) -- pay Nokia royalties for its intellectual property
Microsoft has been
masterful into leveraging IP into royalty payments
Nokia is "locked in" to the Windows Phone platform
Nokia Lumia devices constitute
4 out of every 5 Windows Phones sold
Lumia sales are up 73+ percent on a year-to-year basis
Lumia are the only significant Windows Phone device to show differentiation hardware-wise e.g.
the Lumia 1020
Nokia has singular driven Windows Phone to become the market's
fastest growing platform
Let's assume for a minute that Nokia continues its current Windows Phone sales growth. That seems reasonable given that its Q2 bump was before its most impressive Windows Phone to date -- the Lumia 1020 -- even landed. With a Nokia-crafted "
", sales could leap even faster.
The Surface and Nokia's Lumia devices mesh well together -- both share similar bright, colorful style cues and some common elements in terms of hardware. A single branding -- either "Surface" or "Lumia" -- could reduce confusion and sell consumers on an ecosystem/look similar to Apple's iOS products.
Currently the only OEMs growing faster than Nokia are Lenovo Group, Ltd. (
), Samsung Electronics Comp., Ltd. (
), and LG Electronics, Inc. (
). Samsung is predicting a Q3 sales slump, so Nokia could soon find itself in the top three in market growth.
Google Inc. (
) and its subsidiary Motorola have shown that a platform provider can use a hardware-making subsidiary to lead by example and encourage other OEMs to step up their game. Likewise Nokia, if properly managed could actually encourage
other prospective Windows Phone makers like Acer
) to push out high-end Windows Phones.
Windows Phone is the fastest growing mobile platform. [Image Source: WinSource]
In a way the Nokia-Microsoft union is superior to the Motorola-Google union as Nokia has already independently undergone its own restructuring, so Microsoft won't have to alter the unit
as drastically as Google had to with Motorola
Finally, Stephen Elop could play a key role in Microsoft's leadership team. The former Microsoft Canada executive has had his share of ups an downs as Nokia's chief, but he has ultimately revamped his company into a leaner, growing competitor. That kind of reimagination seems like it could be
a boon to Microsoft amidst its "devices and services" push
CEO Steve Ballmer
, Mr. Elop provides the kind of veteran leadership Microsoft is short on.
II. Losers Flock Together
Microsoft's desktop companion to Windows Phone, Windows 8, has missed badly
Both companies have suffered recent declines in sales, relevance
Nokia has been
slow to deliver on devices
-- a major reason why Windows Phone failed to take off early
OEMs could run from the Windows Phone platform at the first hint of Nokia brand favoritism
What ifs -- Nokia could have done better sticking with Symbian or switching to being a premium Android OEM
A second perspective would be to look at this merger as a union of two failing firms. While Nokia's Windows Phone sales are "growing", they still remain less than
half of the Symbian smartphones it sold in 2011
. Likewise Microsoft is suffering
the worst percentage drop in PC sales in history
Nokia and Microsoft have both struggled, seeing a net decline in sales from their peek levels.
The problem with Nokia, image-wise, from an investor's perspective is that it will never be able to lay to rest the "what ifs". While 2011-era Symbian was losing sales and looked dated, if Nokia had opted to aggressively overall its own platform -- or
opted to jump to a mature Android
, there's no telling how its sales might be different today. BlackBerry Ltd. (
) has certainly
presented a cautionary tale
regarding first party OS development by smaller firms, but perhaps Nokia could have found a way to deliver better with Symbian.
The Motorola-Google tieup, viewed in a different light, could offer some concerns for Microsoft-Nokia. In the wake of its pairing with Motorola Mobility, Google
has seen slow sales
Nokia might have suffered less of a fall, had it gone with Android.
Combine that with OEMs'
vocal fears about Microsoft's Surface
, and you could see Nokia's recovery slowing, while competitor OEMs to Nokia are driven away from the Windows Phone ship.
This article is over a month old, voting and posting comments is disabled
9/3/2013 5:36:12 PM
MS only has a license to Nokia's patents for smartphones, a non-exclusive license at that. MS gains no ability to go after any royalties from anyone as Nokia retains control of them.
"We basically took a look at this situation and said, this is bullshit." -- Newegg Chief Legal Officer Lee Cheng's take on patent troll Soverain
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