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Microsoft buying Nokia makes perfect sense

Despite the weakness in Microsoft’s stock price today (it’s down about 5%), I think their decision to buy Nokia’s hardware and services business is absolutely the right move. And it really shouldn’t be much of a surprise. When Stephen Elop made the gutsy decision to kill Symbian and bet entirely on Windows Phone, most people correctly had a strong sense that this would eventually happen. 

But Wall Street isn’t too excited at the notion of Microsoft spending over $7 billion in cash to double down on its smartphone bet. And that’s understandable. It’s a lot of money for a potential failed deal. I think it probably will end up being successful for Microsoft. They’ve already climbed up to the #3 position in the smartphone market, having overtaken BlackBerry. If they can achieve this while having to balance the growth objectives of two separate companies, then I think it should only get easier for them as a combined entity.

As a long-term BlackBerry user I always hoped the Canadian competitor would cement its #3 position in the market. But they haven’t been able to do so. And I think Microsoft’s push to get more apps on its platform has been one of the driving forces behind its success. BlackBerry didn’t dump enough money (in a smart enough way) into developer recruitment. I remember when I’d visit the website for pretty much any popular app and I’d see little advertisement for both the iTunes App Store and Google Play. Now I’m seeing more situations when Microsoft is mentioned. Microsoft says that it is outselling BlackBerry in 34 markets around the world. They’ve got some decent momentum happening.

$5 billion of the deal is attributed to Nokia’s hardware business. It’s widely reported that Microsoft was bringing in less than $10 of revenue per handset sold, but will now bring in about $40 per unit. Let’s assume net profit can be half of this, or $20 per phone. If Microsoft can maintain a solid #3 position in the market it isn’t crazy to think of them selling 250 million units over several years. This could bring in $5 billion of additional income based on my quick math. In other words, I don’t think Microsoft is overpaying here.

In reading the report from Kantar Worldpanel from yesterday I think it’s interesting how Microsoft has been successful in gaining market share by convincing first time smartphone buyers to try Windows Phone. The high end of the market is dominated by Samsung and Apple. But almost half the planet is still buying dumb phones, and this is bound to change. Nokia was successful with the Lumia 520, and it seems that under Microsoft’s ownership the Windows Phone OS will build critical mass as Lumia penetrates the lower end of the market. Not everyone wants to buy cheap Android phones. BlackBerry’s legacy OS isn’t compelling and the company has been too slow to bring BlackBerry 10 to emerging markets. Apple hasn’t attacked the lower end of the market at all yet. That leaves a lot of opportunity for Microsoft. And I’m not saying Microsoft has to compete only at the low end. That’s just where they get their critical mass. From there, they can fight for customers in the entire spectrum of price points.

As for Nokia?  This sale is exactly what they needed. They were not big enough (any more) to guarantee themselves success, but they were too large to fail. They will now have a hugely strong balance sheet with which to invest in wireless infrastructure and location based services.

(Chris Umiastowski is a contributing financial writer to the Mobile Nation network. You can see the rest of his posts at AndroidCentral, iMore and CrackBerry.)

188 Comments
  • I feel the stock will go up for maybe a week or so, then go back down because all Nokia is now is a Mapping company.
  • On the long term, I believe it have the potential to go back to at least 10 USD.
    Compare Nokia Simens (changed to Solutions now) Network [NSN] to Ericsson, at the current 19b valuation is still way undervalued. What's more is that Nokia have HERE maps as a bonus..
     
    Of course, it'll definitely go down for the next few days. Due to the flood of people buying into Nokia after the announcement. That's exactly why I sold my Nokia shares and plan to get it back next week.
  • Hardly. NSN is where the guts of the company is at and they are light years ahead of everyone in there. Combine that with fears over the Chinese competitors and you have a pretty strong position for Nokia. If I were a career in the Western hemisphere, NSN would be the most attractive option for infrastructure for me. And there is big money in here. Consider this: despite a large-ish loss in the hardware business, Nokia actually came close to breaking even in the last few quarters purely because of NSN. They're basically a wireless infrastructure and services company now dealing with corporate clients. Sort of like IBM in a mobile world. I expect the stock to perform decently for the foreseeable future and that's mainly because of the strong earnings AND the fact that they'll be away from the perception based consumer market.
  • In a few days, Carl Icahn will announce that he believes Nokia is undervalued, and he has invested several hundred million making him a 2% owner of Nokia, and he's proposing a new slate of directors to maximize stockholder value.
  • Nevertheless.. I'll still miss Nokia, after all these years of innovation and pushing the entire industry forward single handed..
     
    While companies like Samsung sit by and copy... sigh
  • even Windows 8's side-by-side app screen is copied by Samsung. Ah, pity.
  • That's an incredibly biased statement. Every company, including Samsung, have made contributions to the Mobile Industry. Regardless of whether you like a company or not, you have to admit it
  • Contribution and original contribution - two different things.
  • You're right, but the question here is how it was contributed. Samsung did it in a way that gave me a bad impression about them.
  • The ONLY Samsung contribute to the mobile industrial is, copy copy copy, pirate, pirate, pirate...
  • Along those lines of missing Nokia, has any of the articles said what will (specifically) happen to Nokia Music along with some of their other services?
  • When you have 250 billions you can do a lots of thing , pretty much whatever the fuck u want lol
  • Market capacity != total cash.
    Microsoft only have 70b in reserves..
  • only haha
     
  • I wish I had only 70b
  • *only by definition is because of the huge difference as compared to 250b he's saying :(
  • Great read.
  • naice :D
  • sad day
  • A failed partnership and failed products are somehow going to lead to success. Very funny.
  • Whoa, we should hire YOU to write our editorials...such depth, such analysis...truly blown away...nah, I'm kidding.
  • Daniel be nice to your readers! Lol
  • Lol
  • Lol Danny always make me laugh with your sarcasm :)
  • He's obviously a fanboy of one of the other platforms and he is scared. With growth numbers that Microsoft and Nokia have been showing with WP and Lumia, bro is spewing falsehoods in a desperate attempt at self-validation. So sad...
  • I think people want a 'blockbuster' overnight, if it doesn't happen, they become haters... lol
  • Anal-yst speaking here :) Its true! YEAH
  • -1
  • U'r ID should be assonfire.!
  • How is selling 7m+ Lumia devices in one quarter a failed strategy?
  • Are you lost? Because this isn't the verge.
  • It only shows, stagnant waters will stink. If you want to stay relevant, keep innovating. Apple Im looking at you now.
  • What if Microsoft adds Nokia reading to their störe line up like they create a book störe in wp and win 8 :)
  • If they wanted to do that, they would be better off just buying Kindle from Amazon...or buying Amazon, period.
  • They will do that. Im sure an ex MSFT is somewhere in Amazon.
  • His name is...wait for it, Charlie Kindel! =P
  • and Brandon Watson
  • I thought Microsoft and Barnes & Noble had some kind of partnership going?
  • One flaw in your logic: "Microsoft has been successful in gaining market share by convincing first time smartphone buyers to try Windows Phone". Actually, NOKIA was successful in convincing people to try Windows Phone. Microsoft didn't move a finger. If it wasn't for Nokia, Windows Phone would be dead by now.
    With Microsoft in charge, if they indeed erase the Nokia brand from their smartphones...well, I think it's safe to say Windows Phone's growth will go down. 'cause unlike Nokia, Microsoft has a serious image problem which they haven't been able to get rid of. Not even the success of Xbox helped. Actually, if you notice, Xbox 360 was at a distance from the Microsoft branding. They acted always as if it was an independent company. With the XboxOne they tried to bundle the brands together again...and look at the backslash. When Microsoft announced those terrible DRM policies, no one was attacking "Xbox". They were attacking Microsoft directly. So...buying Nokia, getting rid of the Nokia brand...all terrible moves to everyone except Microsoft. And probably Google who'll be able to cash in from Nokia fans that don't want to have any relationship with Microsoft for one reason or another.
  • Nokia would have been dead without windows phone and Windows phone would have been dead without Nokia. They already were practically one entity. Nothing is going to change. This only means that we will get Better Lumia phones.
  • How are you missing out the whole loyalist fans and branding issue here?
  • Loyalist fans should be happy that Nokia now has the resources to pull off even better phones. Its just the Nokia name that is gone. You people act like Nokia died or something. They still here, just under a different name. And better then ever.
  • There's no warranty that Nokia would be dead without Windows Phone. Say they had gone with Android back then? Or something completely different? You don't know that. You can't know that. Now, many things will change. Better Lumia phones? Why? Because Microsoft has more money? What if they lack the driving spirit Nokia had and has for the time being? Microsoft never showed true comittement to WP. The platform was developed around the demans of Nokia. Look at the GDR's. They didn't show up because Microsoft wanted to perfect WP. None of the GDR has perfected WP. All they did was answer Nokia's demands for enabling certain hardware (like the L1020). Now remove Nokia from that equation. No autonomy, no brand, nothing. All sucked into Microsoft and commanded by Microsoft. Do you REALLY believe it will get better?
    If you do, I praise your faith in miracles.
    Based on the experience of 2 years with WP (because of Nokia), I have very very very little faith in anything good coming out of this to the consumers.
  • What if they lack the driving spirit Nokia had and has for the time being?" Dude they ARE NOKIA. They are going to transfer half of nokias employees to Microsoft. The driving spirit is still there. They are the same people under a different name. You act like suddenly all these people died and the only thing Microsoft did was kill the Nokia brand.
  • +200000000000000000000000000000000
  • Imagine the Lumia 920, but instead of the Nokia logo, You see Lumia written in the corner. It is made by the same people. There is no fucking difference, just a different name. You people are just negative nancys.
  • Killing the brand that has put your OS on the map and IS the os, is just plain stupid and BAD business.
    It would be the same as if, say, Amazon bought Apple and killed the iPhone brand. The "NOKIA" brand SELLS. Microsoft doesn't. "Lumia" alone doesn't sell. People identify "Nokia" phones. They don't identify "Microsoft Lumia" phones. Not to mention Nokia as a long tradition of support and quality construction as well as loyalty towards their customers. Microsoft has nothing of sorts. Actually, Microsoft has a bad overall image, and a terrible tradition of dropping projects and platforms.
     
    Yeah, there is a fucking difference. And you'll see it if you take off your fucking fanboy-sunglasses and use your brain for once ;)
  • I don't speak retard, thus I can not continue this conversation.
  • You aren't able to speak at all. You bark. It's understandable you have those disabilities.
  • And I don't understand why you are still speaking here when you already have emphasized several times on different occasions you were done with WP and going over to iPhone!
  • Well said. Microsoft brand in mobile is a no go. Remember KIN, ZUNE AND EVEN SURFACE. They should keep the NOKIA brand.
  • Leave it man ..They dont know what Nokia is !
     
  • "Microsoft never showed true comittement to WP. The platform was developed around the demans of Nokia. Look at the GDR's. They didn't show up because Microsoft wanted to perfect WP. None of the GDR has perfected WP."
    Microsoft would have done all these improvements anyway even without Nokia. It was Microsoft that started WP and they always had plans for enhancements. They started it in a hurry because they were too late to the market and is catching up. But without Nokia WP would not have had this much success. 
  • You seem to think that Nokia, the brand name, built the phones. It was the people behind the brand that did. Microsoft bought them. They are coming with. So, "Nokia" has more money, has the ability to have direct say in what happens to the OS, and will probably get more people on their team. Yeah, that is leading towards failure. Yeah ... You're right. :/ In reality, my friend, this is GOOD for Nokia's hardware fans. It's bad for WP. But oh well.
  • Which will not be Nokia's :( They will be Microsoft's Lumias from now on I think.
    That's just better for me, but not for all.
  • Actually they want to drop the Lumia brand, would make more sense a NOKIA WINDOWS PHONE.
  • Nokia is pretty much dead now. I'm 100% sure that Nokia would be still making phones if they had chosen any other way than Windows Phone.
  • I'm afraid of that happening.
  • +1
    This ... This.... This!!!
  • You must be real fun at parties and have a really rich, active social life...people must love you! =P
  • I actually do. But I'm lucky my friends all have inteligence above that shown by the average WPCentral-user. So I never have to explain obvious things to them.
  • DJCBS, what is your f**king problem dude? Everybody can give the opinions they want! You look like the retarder one here!
  • I don't understand why you are still hanging out here when you have already made it clear that you were moving to the iPhone.
  • They moved enough fingers to sign checks over to Nokia to enable them to manufacture, market, and pay developers to bring apps to the Lumia line of Windows Phones. If you say they didn't create the Nokia partnership to move WP forward then you just in denial because you want to believe in Nokia so badly; Steve Jobs believed in Apple so much, he formed an alliance with Microsoft to get 150m dollars he needed to save Apple when it was in trouble.....I suspect this is exactly what Ballmer did in reverse, he purchased MS to potentially bring them to relavancy in the cell phone market after he missed the boat years ago. So, the question becomes......If sucessful, will people give him credit for the parting gift he gave to Microsoft? Will they credit this to his finally legacy?
  • Killing the Nokia name will make a difference to half of the consumers who don't know much about technology...who doesnt know the employees are the same, who doesnt know there is Nokia running behind still because they ain't all deep readers like maybe you and me. This will maybe make a difference because most of them feel safe with the name NOKIA, not WINDOWS PHONE nor any WINDOWS branding. Just see the difference? Not even a loser asked me whether my phone was a WP. Infact everyone asked me whether it was a LUMIA. There lies it. Em sure Microsoft will improve its OS with this deal but a Brand name makes a difference. At first, maybe a number of customers will be reluctant to buy phones coming from MICROSOFT WINDOWS PHONE, then some people take their risk, buy them, get to know how wonderful the OS is and then the news spreads out eventually.
  • Those Nokia fans were using Microsoft's OS for the last 2 years. If they wanted to distance themselves from Microsoft, they wouldn't have bought Nokia phones. I bought Nokia phone because of the design and excellent hardware and ease of use of the windows os. I didn't buy it because it had Nokia's name on it. As long as those employees that used to work for Nokia continue make nice designs and great hardware, I will keep buying it. If Microsoft somehow mismanages them and they start making generic slabs made of cheap plastic, I will stop buying their phones.
  • Loved my Lumia 920 and love my 1020, but this has me more nervous for Windows Phone than before. I always had Palm/webos phones (only gave it up for my 920) and am reminded of hp buying palm and shutting it down a year later.
  • This is not the same relationship.  Microsoft chose to buy Nokia devices and services.  Palm was going out of business and HP was the highest bidder.  To me this proves that Microsoft is fully behind WP.  Microsoft did not become the most sucessful tech company in the world by spending billions of dollars on entire braches of their business to just kill it off a year later.  Microsoft is in the phone business for the long run and they proved that by putting their money where their mouth is.
  • I agree. I had slight fear of MS giving up on Windows Phone, but this purchase goes to show they are in it for the long haul. I also think they will leverage Nokia in building tablets/PCs.
  • This isn't the same. HP had a CEO who was going to stop making hardware all together. Microsoft isn't buying an OS. They bought a hard war OEM. Meaning they want to continue making hardware.
  • Big difference here is that if Elop is the new CEO, he won't abandon the lumia line. The new ceo of HP decided he wanted the company to be a service company and abandoned webos. He is gone now, but the damage is done. Microsoft is going in the opposite direction. They want to become a hardware company and there is no way they are abandoning the Nokia hardware division.
  • Do you know what I think? That's what I think today! Thinking about Nokia's limited production capacity (remember that Nokia is still in its loss?), Microsoft did the perfect step by bought Nokia's devices and services division to keep maintaining its sales of Lumia phones. Also, its big production capacity, I believe that they can ship a lot more Lumia phones to the market, so it will be less likely to be out of stock. ;) Kudos, Microsoft and Nokia!
  • Who will buy Microsoft Lumia? Does Microsoft have a following? Nokia Lumia was a hit as much as it was, because of a massive loyal following. Heck, it sold 70%+ WP. Lumia = WP.
  • ...then Microsoft should name its devices to just Lumia. I did sure about MS, that it has a following. Like Nokia, which is now a part of big Microsoft family. Or, take a view of its Windows OS sales.
    Yeah, I know that NL has 80% of market share of WP, but it's still a way to go to keep pushing it through, so it can reach 10%+ market share globally.
  • Does MS have a following?  You do realize you just posted on WPCentral, not Nokia Central...right?
  • All I will say is. Nokia Lumia. Microsoft Surface RT.
  • Honestly, everyone calls my phone (L920) the Windows Phone. Not Lumia. Not Nokia. Not Microsoft.
  • This is accurate. All my boys call it a windows phone. And that to me is the perception Microsoft really needs to change. The name Windows is extremely common (the pc market of course) Microsoft s trying to change is common talk of windows and how many people consider it to be "wack, old, slow" and not hip enough. That's why I believe their commercials are taking a different spin on things now. They want people to speak of Windows and how vibrant, fluid, fast, doesn't crash, doesn't get slower after months of use, ect. Little by little some of my friends are talking different about Windows and they speak of the Lumia 1020 cause of its camera and the second thing they say is "Yeah man isn't it a windows phone"
  • I'm pretty certain if you read a few things that MS have a license to use Nokia for up to 10 years. 10 years ago, none of the current competitors made phones. 'Nokia' brand is very unlikely to disappear overnight - lets not panic!!
  • Whatever you say, i am not happy Nokia has been bought by Microsoft.
    On top of it, i read Nokia's name will be wiped clean of all (high-end?) devices and replaced by 'Microsoft'.
    Nokia, in my eyes, lost it's prestige.
  • Then you do a disservice to the 32,000 employees of Nokia that come along and will still be making, designing and selling these devices.  That is your right however.
  • That is what i fear they might do...
  • What's to say they won't leave. I say they'll all - well, most of them - jump ship.
  • Source?
  • There's the whole of internet for you to check out.
  • Kinda sucks!
  • Nobody said its going to be replaced by "Microsoft".
    No Microsoft product has Microsoft written on it. At least not the mainstream ones. Look at Xbox and Surface. I think its going to be branded "Lumia" from now on.
  • Lumia products minus the "Nokia" name?? I don't know if that will work but we'll see. Will miss the Nokia brand though.
  • All this because not one single fucking American can pronounce the word 'Nokia' correctly. Perhaps that's why hardly anyone in the US gives a fig about Nokia or the brand, MS included - whereas in the rest of the world it actually means quality, reliability and robustness.
  • Can't disagree more with this editorial.
     
    Microsoft has been consistently non-communicative, lagging on several WP development fronts (e.g. Xbox live games, the horrible Xbox music app, a notification center, etc., etc.) and mispricing their hardware (SURFACE). Nokia has been coming up with great software, cool marketing ideas, and negotiating pretty good pricing in order to get their foot in the door with high-volume, low cost devices.
     
    Most importantly, Microsoft is a FAR inferior smartphone brand to Nokia.
     
    Will this bring an end to high end Nokia sets being carrier exclusives in America, thereby limiting the customers available? No. Will this get updates like GDR2 out any faster than the already glacial pace? No.
     
    The new "Windows Phone ONE" may have some Lumia design language, but it won't be the same. Microsoft simply has yet to get thir act together when it comes to bring Windows Phone up to feature parity.
  • Agree.
  • Agree. And to the people who keep saying that the Nokia people will be coming to MS too... did you listen to the MS conference call? They made it pretty clear that there would be a lot of layoffs outside sales and manufacturing. And you think the executives at MS are going to let the executives at Nokia outshine them? That's not how office politics works, esp at MS, which is known for its corporate dysfunction. Nokia's head of design has already left; more will follow.
  • "may have some Lumia design language"
    Well, good luck with that! Their main designer just left.
  • MEGA LOL at the live tile!!!
  • As a long time Nokia fan, I must say that this is a bitter-sweet affair for me. Regardless, I wish Nokia the very best.
  • and makes me CRY
  • Well, the only reason I bought a windows phone was because of Nokia. Wasn't interested in the Samsung or HTC phones. No reason now for me to not buy an IPhone or Android. 
  • Did you buy the phone for a logo or for the 33.000 employees who worked hard to give you the best smartphone?
  • I feel the same way.. 33,000 employees work with Nokia and because of that Name which is a trusted brand to give you a product which will work.. That's why pple buy.. you can have a whole world as empliyes and you give a shit phone and lets see how many pple buy.
  • No it doesn't make sense. LOL. This guy. 
  • Article full of waste lies from Windows fan
  • Thank you. Do you like pudding?
  • Hey welcome back!
  • if you stopped your stupidity, you would know Chris is NOT windows phone fan, probably its not even a windows phone user, he probably doesnt even care about it. he is only a "contributing financial writer" and thats all.
    get a brain next time you will comment please, you are just a waste of time.  
  • Why else would you come here..? =P
  • That's cool. Did it take you months to come up with that?
  • I'm not so sure about "I think it should only get easier for them as a combined entity." Acquisitions can be tricky and time consuming. This is a distraction the Nokia employees don't have time for right now. WP Blue launch will be so crucial, my fear is that they might take their eyes off the ball. No amount of execs saying "continue on as usual" will work. Every employee will be wondering about the future of their career. I guess we'll see what happens!
  • Umm your forgetting that WP blue is a Microsoft release not a Nokia release...try again pls k thx
  • Microsoft gains a phone manufacturing business. Nokia gets a huge cash infusuion and can focus on forward looking technologies for the next three years with all that cash and the cash that NSN is going to make them. Then when the name deal ends in 2015 Nokia releases a Meego powered phone in a new design language with all sorts of cool new shit. If not then shareholders can enjoy a nice healthy dividend from a cash rich Nokia for years to come because their patents and NSN will keep them in the black for a long time.
  • I'm unsure of my confidence in this choice.  Microsoft has, in my opinion, made necessarily bold decisions as to objective--they could no longer stick to the TIRED desktop concept, and I felt from the beginning that the Metro approach was better in most respects than iOS or Android.  I think where they are ultimately headed is right.  Microsoft's mistakes have been in the horrible decisions in tactics.  They kicked out WP7 to introduce the world to their bold vision for smartphones---but neglected to tell us they where already working on the do-over with WP8.  In their desperation to get WP7 out they bowed deep to the carriers and allowed us to go on believing the misconception that carriers couldn't get in the way of updates.  Their marketing has been hit-or-miss (mostly miss).  The one thing that has turned this around has been Nokia.  Nokia had to huge things going for them.  First, they had the technical chops to do exactly what they've been doing, and do it with amazing agility.  Second, and in my opinion more importantly, Nokia was hungry.  They essentially found themselves in the same boat Apple was in.  They had to make a decision that would chart their course definitively.  It would have been to their demise had they chosen Android.  Anyone who believes differently is just simply clueless as to Android's strength and Samsung's domination there.  Choosing Windows Phone when nobody was putting both feet in (every WP device has been Android retreads).  Nokia has, for all intents and purposes, become the Samsung of Windows Phone, and has done so because there was no half-way for them.  Microsoft, in contrast, has had the luxury of really stupid choices in execution because they are so big (still) and could afford to p*ss off everyone.  Or so they believe.  Nokia solidified its position as THE saving grace for Windows Phone and, as such, was able to leverage that position as a way to get Microsoft to do things it likely wouldn't have done, and to do things much more quickly than it would have
    I'm afraid that once Nokia's devices & services have been rolled into Microsoft that the so-called "acceleration of the ecosystem" will be nothing more than another failed slogan.  And, as I expect, if the Nokia name is dropped from the devices, the consumer confidence that followed the Nokia name (rightly or wrongly) will evaporate in the face of the predictable lack of consumer confidence in Microsoft devices (save the Xbox).  The average consumer (low information voter) will not know or care if the entire Nokia devices team is still intact and that all the design & manufacturing of these devices will continue for the forseeable future.
  • I agree with a lot of what you say but there is one saving grace...Elop. I truly believe he understands the importance of pushing the OS to maturity. As CEO of Nokia he didn't have any push in that regard, but as VP of devices of better yet CEO of MS could put Windows Phone on the right path. Had Elop remained CEO of Nokia I would have been concerned.
  • Agree. Microsoft brand is weaker than NOKIA in the worldwide scheme and geopolitics.
  • It is no huge accomplishment that windows phone is ahead of blackberry. They have been dead since blackberry introduced the atrocious Storm about six yrs ago. When they come close to IOS and Android I'll start celebrating. Not that either of the phones are wonderful but until the app store gets it together windows phone unfortunately will always come in last. Love my 1020 but can't stand the marketplace its a disgrace.
  • I'm sure its mentioned around here somewhere but MSFT may not have been given a choice in regards to buying there division and bringing Elop along. Though I'm a big Nokia and MSFT fan and investor, but one has to look at all the angles.
    Nokia could have very well told Elop and MSFT there time was up. Hopefully this wan't the case and given the sale price it likely wasn't. Nokia has been left in a very good position with two other profitable divisions.