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What Microsoft’s $7.2 Billion Acquisition of Nokia’s Devices and Services Division Means For Windows Phone

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Microsoft have bought Nokia’s devices and services unit, in a move that sees Nokia’s Lumia hardware division finally under Redmond’s roof. The deal, set to close in the first quarter of 2014, includes Nokia’s business and patents and will end up costing Microsoft in total $7.2 billion – thats just $1.3 billion off of what Microsoft paid for Skype in 2010. But its not the numbers that are interesting, its more what Microsoft expect to get out of the deal thats the interesting part.

Ever since the two entered into a partnership together two years ago, industry analysts have predicted Nokia would be in some talks to sell its hardware business to Microsoft, as it looks to grow its Windows Phone platform. And after Nokia’s Lumia lineup managed to invigorate some sort of interest back into Windows Phone, its made a lot of sense for Microsoft to want to work more closely with the company, especially now it sees both a hardware and software company can work in unison with one-another.

Will the benefit of having complete end-to-end control in mobile that only the likes of Apple and Blackberry have enjoyed – to some extent – help them grow its Windows Phone business?

But will the benefit of having complete end-to-end control in mobile that only the likes of Apple and Blackberry have enjoyed – to some extent – help them grow its Windows Phone business? Microsoft’s licensing deal doesn’t include future Lumia models – effectively getting rid of Nokia’s high-end smartphone brand altogether. And with the rumours that Microsoft could be looking at building a ‘Surface Phone,’ we might just possibly see a competitive answer to Apple’s hardware.

Rather interestingly, Nokia’s low-end ‘Asha’ brand which focuses on emerging markets, has been acquired outright by Microsoft, allowing it to focus on bringing the Windows Phone brand to these emerging markets and hopefully make it more popular. But if Apple play their hand in the next couple of days and bring out the hotly rumoured low-cost iPhone model, Microsoft could have headaches if it doesn’t provide a similar software experience to Apple’s.

In their press conference explaining the rationale behind its deal with Nokia, Microsoft stated that it aims to grow its Windows Phone marketshare by three-times what it is now by 2018. How it plans to do that exactly is down to two big businesses that were included in Nokia’s devices and services business deal; Nokia’s HERE mapping technology and its hardware. Redmond sees mapping and geospatial services as core to its strategy going forward, saying that there needs to be “an effective alternative to Google” and “more than one ‘digital map of the world.” It also believes that the companies patent portfolio is valuable, and that the licenses Nokia has in place could give it a valuable income stream in the future.

Redmond sees mapping and geospatial services as core to its strategy going forward, saying that there needs to be ”an effective alternative to Google” and ”more than one ‘digital map of the world.”

The companies ultimate goal for platform growth however, is to create great Nokia products. The best way you can do that is with communication, something Google lacked when they built the MotoX in conjunction with the mobile hardware company they bought last year, Motorola. And whilst Redmond is still committed to its other smartphone manufacturing partners, Microsoft believes that once it gets more attention from the market, more opportunities should start to arise for the partners that chose to stick with the platform.

Microsoft expects the deal with Nokia to bring them in $600 million annually for the first 18 months thanks to cost synergies. Currently Microsoft only makes $10 per-device sold in their partnership with Nokia, but that will grow to over $40 per unit once it finalises the takeover of Nokia’s devices and services division. Whilst that isn’t Nokia’s most profitable division, Microsoft believes it can break even once sales of phones and tablets crack 50 million units. Global Lumia shipments have grown by 40 per-cent per-quarter over the past two and a half years, and with the company looking at branching into the tablet market, its certainly a realistic target for Microsoft to set the company, especially since they have a ten-year license to use the Nokia brand on feature phones.

For $7.2 billion, Microsoft have effectively bought its way into a “devices and services company.” It gives them complete, quality control over their Windows Phone platform, allowing it to further build on what it set to do with Nokia all along, which is show their other hardware partners how to build a Windows Phone device. And with Nokia CEO Stephen Elop joining the company just as longtime Microsoft CEO Steve Ballmer announced he will be stepping down within the year, its certainly looking like a time for Microsoft to make some big moves with its Windows Phone platform.

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