While everyone is still accepting Microsoft CEO Steve Ballmer’s resignation, this week’s headlines revolve around what many professionals have been speculating for years. Earlier today, it was announced that the once leading Finnish mobile phone company Nokia has been bought by the software giants at Microsoft. We’ll get into the details later on, but this planned acquisition (looking to complete the deal in 2014) cost Microsoft a total of $7.2 billion. What’s even more surprising is this is Microsoft’s second attempt to purchase Nokia, though the first deal fell through because of price negotiations. If they bought Nokia for $7.2 billion this time around, many wonder what the initial numbers were that were being thrown around during the first negotiation attempt.
The questions on everyone’s mind, from consumer to shareholder is what does Microsoft hope to accomplish with this deal? They have generally shown a slow pace in the smartphone technologies race grasping onto the third position behind Android and Apple.
(Photo Credit to: BusinessInsider.com)
We will also look into how this purchase affected both of the stocks and analyze why they received the reactions they did.
Why Did Microsoft Buy Nokia
In the last quarter there were 187 million Android and 31 million Apple smartphones sold. Comparing this to Microsoft’s embarrassing 8.7 million sold devices and you can see the hole that Microsoft hopes to dig themselves out of. The news of Microsoft buying Nokia shouldn’t be taken as a surprise as both companies have closely worked together for over two and a half years. To strengthen this alliance and bring the hardware closer to the operating system, Microsoft purchased all of the pertinent divisions of Nokia that they could utilize. Nokia has been struggling for quite some time, after being dethroned by the smartphone movement. Because they have failed to bring anything valuable to the table, their company has been deteriorating since falling off. It’s obvious that this is the best move for Nokia as they have been Microsoft’s biggest smartphone supporters offering a smooth transition while they continue to build off of their alliance.
Nokia’s top executives knew that their company could not take on smartphone leaders Samsung and Apple alone, and Ballmer hopes that this acquisition will lay the foundation for their future success in the smartphone race.
In their acquisition, Microsoft has purchased Nokia’s devices and services division, in addition to obtaining the licenses for Nokia’s patents and mapping services. Of all up-and-coming technologies, the smartphone industry has an immense amount of potential for profit, though it is currently one of Microsoft’s weakest areas. Upon the acquisition announcement, Ballmer sent the Microsoft employees an email expressing his hopes that this purchase will help Microsoft solidify the perfect mobile strategy to increase profits and shares.
Though this purchase offers Microsoft a tighter integration with Nokia, only time will tell if this purchase was worth every penny.
What Does This Mean for Nokia and Microsoft?
At this point, there is a lot that’s up in the air for both Microsoft and Nokia. While many of the internal operations and strategies may not change much (as they’ve already gotten used to working with each other over the last two and a half years) many of Nokia’s staff will have to start looking for other employment opportunities. This acquisition has announced that many of Nokia’s top executives like Stephen Elop (who will be leading Microsoft’s Devices Division) will be transitioning to the Microsoft family. All in all there is only approximately 32,000 Nokia employees that will be continuing their job in a new environment. This counts for approximately one third of Nokia’s entire workforce.
(Photo credit to: Blogs.Telegraph.co.uk)
Another speculation at this time is whether or not Elop is being groomed for Ballmer’s position. Though there is no official announcement of Elop being Ballmer’s successor many feel that he is the best individual to be primed for such responsibilities. Ballmer himself had said not to read into anything too much, so again only time will tell.
How This Purchase Affected Nokia’s Stocks
Before we get into the how this purchase generated mixed reactions on the stock front, let’s first break down what Microsoft actually paid Nokia for. In total, Nokia agreed to the purchase amount of $7.2 billion. This includes almost $5 billion just for Nokia’s Devices and Services businesses in addition to $2.17 billion being spent on Nokia’s patents and licensing.
Upon the announcement of this titanic purchase, Nokia’s shares skyrocketed 35% while Microsoft’s stock fell more than 5%. Why did Microsoft’s fall while Nokia rose? Nokia’s stock rise is obvious, but Microsoft’s shareholders are somewhat apprehensive about this acquisition. Many are cynical in the regards that Microsoft will be able to not only catch up but secure the lead in the smartphone industry.
Possible Microsoft/Nokia Plans for the Future
Microsoft hopes that this purchase will be complete within the first three months of 2014, which is when the 32,000 lucky Nokia employees will don the Microsoft colors. Elop himself hopes that this will also provide Nokia with a solid foundation for future investments in its continuing businesses while he leads the Devices division to the top. Microsoft also plans to use this momentum that they have gained from this acquisition to help accelerate their advancements in their devices to increase their profits. Ultimately with their hardware so close to their operating system they hope to gain the foothold they need to surpass the competition that Samsung and Apple currently present.
Microsoft Buys Nokia Wrap-Up
While this acquisition is great news for Nokia who now have their exit from a failing model, Microsoft has a lot up in the air. As Ballmer continues to search for his successor, the software company may have their own fair amount of catching up to do. They cannot afford to have another flop like they witnessed with the launch of the Surface, and hopefully transitioning everything to in-house will help them develop the perfect strategy for execution. With all of these big, blaring question marks arising only time will tell what Ballmer, Elop and co. plan to do to bring the smartphone device dominance into their possession.
What do you think of Microsoft’s latest purchase? Was it a good idea? Do you think Stephen Elop is a good candidate to succeed Steve Ballmer?
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