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Did Microsoft Make a Smart Buy with Nokia?

Did Microsoft Make a Smart Buy with Nokia?
January 23, 2014 12:23PM

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Whether Microsoft made a smart buy with Nokia will depend on the answers to two key questions: Will the Nokia handset business really start to do well after the Microsoft acquisition? How does Nokia plan to show growth going forward once it spins off its handset business?

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Risto Siilasmaa, Nokia Chairman and interim CEO, called Nokia’s fourth quarter a “watershed moment” in the company’s history. Some analysts beg to differ.

Sales of the company’s flagship Lumia Windows phone dipped in the fourth quarter of 2013, despite the expected boost from the holiday shopping season. That’s bad news for both Nokia and Microsoft, especially considering Redmond has bet $7 billion on Nokia’s handset business through an in-progress acquisition.

Microsoft is in the middle of acquiring Nokia’s Smart Devices business unit, including the Lumia brand and products. Lumia handsets have won numerous awards and had grown in sales for three consecutive quarters, with sales reaching 7.4 million units in the second quarter of 2013.

But the story is suddenly changing. Nokia’s handset revenue declined a startling 29 percent in the fourth quarter of 2013 compared the year-ago period. The report was also a 4.5 percent dip from the previous quarter.

False Sense of Security?

Nick Dillon, a senior telecommunications analyst at the research firm Ovum in London, told the New York Times that "Breaking into the high-end market was always going to be a challenge for Microsoft and Nokia because Windows phones still don’t offer the same level of applications that are available on Android and Apple’s iOS. The software is still lagging behind."

We caught up with Jeff Kagan, an independent technology analyst, to get his take on the Nokia news. He told us the quarterly numbers continue to look worrisome.

"Nokia has shown a slow, but steady level of growth for a while with smartphones. They have roughly 4 percent of the market," he said. "Has that given us a false sense of security?"

Of course, Nokia is hardly the only wireless handset maker to struggle. BlackBerry has made more than its fair share of headlines for poor performance. Indeed, Kagan noted, most handset makers are struggling in some way shape or form, save Apple and Samsung. But considering Nokia was the number one handset maker for more than a decade, it’s a high-profile struggle.

Two Key Questions

“The Nokia handset business will be acquired by Microsoft. Could that be what Nokia needs to breakout? While the acquisition is not a bad thing, I don’t see that event alone being enough,” Kagan noted.

“It’s not like Microsoft has been hitting it out of the park on their own, either. This sounds similar to when Google acquired the Motorola handset business not long ago. Sure, it changed the business -- but Motorola is not breaking any records yet, either.”

As Kagan sees it, there are two key questions that need to be answered: Will the Nokia handset business really start to do well after the Microsoft acquisition? How does Nokia plan to show growth going forward once they spin off their handset business?

“These are not easy to answer,” said Kagan. “Going forward, Nokia will not be the same company we have all grown to know over time. Whether they are successful or not is entirely up to them. Let’s hope for the best.”

Tell Us What You Think
Comment:

Name:

geez...:

Posted: 2014-01-25 @ 3:02am PT
What a messed up train of thought...
Nokia position will be a good one,
look at the results! so going forward
they will be profitable with the cash for expansion! what dont you get?

The smartphone issue is now effectively in MS's hands. hopefully the consolidation will give MS more room for better pricing. and some heavy ads.
Motorola was about patent portfolio primarily. the reference phones was a way to utilize the new company....
how can you get this so wrong?

Stratego:

Posted: 2014-01-23 @ 3:41pm PT
The problem is not Nokia handsets (hardware), but the software they run. It is Microsoft that needs a turnaround after a lacklustre decade. Embrace Android (i.e. Open Source) and leverage your strenghts to put a corporate layer on top of it. Either Microsoft/Nokia or BlackBerry, that's the survival recipe for one of them. Unless they keep waiting until somebody else (Samsung?) cracks the code to put a corporate layer on top of what is essentially a consumer device.



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