A rundown of analysts’ responses to Microsoft’s $7.2 billion acquisition of Nokia’s devices division.
Tony Cripps, principal device analyst – Ovum
While enabling Microsoft to face industry rivals such as Apple, Google and Samsung on more equal terms, [the deal] also represents an indicator for the future of the consumer tech industry more generally and a symbolic end to the mobile phone industry we've known until today.
Nevertheless there is still much to resolve if the acquisition is really to have meaningful impact. While Microsoft and Nokia have jointly been increasing the money flow through the Windows Phone marketing faucet of late it will take mega bucks to take on Apple and Android head-cheerleader Samsung for marketing volume and volume shipments. We need to see that kind of commitment coming before we can really count Microsoft in the same league as its two main competitors.
There is also a sense that, while Microsoft has many of the key elements for consumer tech market success in place, too many of those elements feel not quite at parity with their rivals.
That said Microsoft has some areas of definite advantage over its rivals across this vast battleground, especially in gaming (via Xbox), in consumer-business crossover services such as VoIP (Skype) and in the ease of integration of Windows Phone with its own Office 365.
Ovum needs to see sustained progress in Windows Phone shipments over the next three or four years – 15% market share is a good target to aim for – to be convinced that Microsoft can establish itself as a real consumer tech market maker rather than a follower.
The heat may be off for Nokia’s shareholders but for Microsoft’s investors the fire is only just being stoked.
Implications for Microsoft
- The acquisition by Microsoft reinforces the company’s ‘devices and services’ strategy by purchasing all of Nokia’s Devices & Services business and licensing Nokia’s patents and mapping services. While this acquisition provides Microsoft with a much needed uplift and presence in the mobile sector, integrating these new assets, brand building and increasing market share will be the real challenge.
- Microsoft will get a larger footprint in the emerging markets with Asha as Nokia has committed substantial investment to the Asha range. This means the customer would perceive a switch from Asha to Lumia to be a whole scale upgrade in their entire ecosystem rather than just a smartphone.
- The technical advances in the smartphone ecosystem mean that the mobile device is increasingly a part of the broader CE industry than it has ever been. An acquisition in this area by Microsoft has been viewed by Juniper Research as a key strategy to expand and strengthen their strong mobile and fixed device ecosystem. The company is also expected to move into wearable devices soon.
Implications for Nokia
- Nokia has been struggling to position itself going forward against the likes of Samsung and Apple within the smartphone market. This is by no means a cold acquisition as there is an existing synergy between the two companies.
- This acquisition means that Nokia will now continue to focus only on three areas: network infrastructure and services; HERE (mapping and location services); and Advanced Technologies. Nokia is expected to focus on mapping and geo-spatial services as an “an effective alternative to Google”.
- Juniper Research estimates Nokia’s smartphone shipment market share to be 6% in 2013.
[W]e see this move as a bold, but entirely necessary, gamble by Microsoft.
The failure of Microsoft's platform-only approach over the last 15 years, initially with Windows Mobile and more recently with Windows Phone, has left it with few alternatives given its almost complete reliance on Nokia for Windows Phone devices, and the competitive strength of Google and Apple.
This is still by no means a silver-bullet solution to Nokia and Microsoft's current difficulties. The massive restructuring that Nokia has done over the last two years offers Microsoft a more stable foundation on which to focus its efforts in mobile. However, Windows Phone remains a distant third place in the smartphone race compared with Apple and Google/Samsung. The challenge of integrating the two businesses should not be underestimated, especially at a time when Microsoft is in the middle of its biggest ever reorganization.
Acquiring Nokia's Devices and Services division will reshape Microsoft's business. With the notable exception of Xbox and recent forays into tablets with Microsoft Surface, the company has largely avoided a significant commitment to hardware. That now changes with the transfer of 32,000 Nokia employees into Microsoft. Like Apple, the company will now control both hardware and software on mobile devices.
The next chief executive officer is now fully committed to an "integrated devices and services" strategy.
Ronald Klingebiel, assistant Professor of strategy, Warwick Business School, University of Warwick
Handset markets are commoditizing. The action is in software, apps, and soon these will be delivered online. The emergence of html5 is an early indication. Smartphones will then turn into mere windows to the cloud.
Handset manufacturers without a suitable software platform in the cloud stand to suffer and Nokia is right to divest of its phone business. Blackberry should do the same.
Questions had been raised as to why Microsoft decided to partner Nokia in the smartphone market while purporting to not treat any other vendor less favorably. Today’s announcement goes to show that they were onto something: Nokia’s dominance of the Windows phone market suggests that other vendors lost interest.
There were also questions over Nokia’s rationale for dropping one unsuccessful Linux system for another unsuccessful proprietary system…Some people connected the dots and asked whether Microsoft was really preparing to take over Nokia. This is where we are today.