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Why Microsoft Should Buy Nokia

Monumental changes are taking place in the wireless handset and tablet PC market. Companies are crossing operating lines as it becomes more obvious that the dividing lines between software and hardware businesses were artificially created and are no longer justifiable or viable.

The recent decision of {complink 2294|Google} to purchase {complink 12925|Motorola Mobility Inc.} for $12.5 billion is the latest step in the evolution of the high-tech industry towards the creation of more compelling business narratives. (See: Google Draws New Battle Line With Bid to Buy Motorola.)

The next shoes will soon be dropping. By offering to acquire Motorola Mobility, Google literally demonstrated that the old walls companies have built around industry segments do not need to exist. Admittedly, there was justification for the industry to rip up the old vertical manufacturing system OEM used up until the last decade of the 20th Century. However, simply because we do not believe an OEM needs to have a semiconductor division does not mean we can also justify the dividing lines between software vendors and hardware manufacturers.

This is why I believe {complink 3426|Microsoft Corp.} is next in line to make a major acquisition in the hardware space. The company has enough cash to fund any deal it wants (aside from buying {complink 379|Apple Inc.} or Google, of course), and if it wants to expand beyond the PC operating system market and make a big splash again in the consumer electronics sector, it should consider making a play for OS partner {complink 3847|Nokia Corp.}. (See: Nok-Win a No-Win Combination.)

The two companies need each other, and together they can become a tougher competitor in the wireless handset and tablet PC market. Microsoft already signaled its intention to move closer to Nokia by agreeing to a joint-development plan for Windows OS that would net its partner billions in support dollars. Also, Microsoft's Windows OS for mobile platforms hasn't done very well in the market so far and has badly trailed offerings from Apple and Google. If Microsoft swallows up Nokia, the relationship becomes more entwined, and both could benefit from the interplay of hardware and software.

Such a transaction would be a no-brainer for Nokia. CEO Stephen Elop's decision to abandon Nokia's Symbian operating system admittedly hurt the company, but that decision is now irreversible. Rather than try to untangle the relationship with Microsoft, the Finnish company should instead seek an even tighter engagement. Nothing can be closer than an acquisition that makes Nokia a business division within Microsoft.

Will investors support the arrangement? They may not like it at first, but it's clear already Microsoft is no longer in a fast-growing business, while Nokia appears to have run out of steam. Together, they would be a formidable presence in the fast-growing wireless mobility market and would be better able to compete against Apple, Google-Motorola Mobility, and Samsung.

Sure, some Windows OS licensees may find the deal unpalatable, but many of these were already irritated at Microsoft's earlier announcement that it would help Nokia migrate to its platform. And, there aren't enough heavyweight companies supporting Windows OS, anyway. The few that are already in Microsoft's camp also have offerings that feature competing operating systems such as Google Android or internally-developed platforms.

By the way, the idea of Microsoft buying Nokia isn't really that far-fetched. It isn't a great mystery, either, that Google would offer to buy Motorola Mobility. {complink 2376|Hewlett-Packard Co.} acquired Palm Inc., absorbing its operating system and using this in its products. {complink 4644|Research In Motion Ltd. (RIM)} is not on the block today, either. But I wouldn't be surprised if some other company with a deep-enough pocket makes a play for the Canadian enterprise mobility company. At their current market capitalization of $24 billion and $14 billion, respectively, Nokia and RIM are certainly affordable, having been trading at a discount for some time.

As I was wrapping up this blog, a Bloomberg news item flashed across my desk. It noted the huge jump in Nokia's share price following the announcement of the Google-Motorola Mobility deal. Speculators were betting Microsoft might agree to buy Nokia, the report said. Makes sense to me.

39 comments on “Why Microsoft Should Buy Nokia

  1. Nemos
    August 15, 2011

    It makes sense ,Even if Nokia isn't Motorola it is in a trouble, and with this spectacular move that Google did ,It shows the way for Microsoft to do the same. I agree with your point also that adopting the windows O.S has already built a relation with Microsoft, and customers have linked the Nokia phones with the Microsoft brand name. So it is obvious that the next step for the Nokia is the acquisition by Microsoft (given the situation that Nokia is in trouble now)

  2. Eldredge
    August 15, 2011

    As you propose, the acquisition of Nokia makes sense, particularly in light of recent market events.

  3. Wale Bakare
    August 16, 2011

    Will investors support the arrangement? They may not like it at first, but it's clear already Microsoft is no longer in a fast-growing business, while Nokia appears to have run out of steam .

    If this wavestorm eventually reached Microsoft and Nokia, will thier consolidation be able to shrug off competitiveness from the likes of Apple's iPhone, Google's Android and RIM blackberry smartphones?

  4. Adeniji Kayode
    August 16, 2011

    I also agree with you that if this two companies can become one, they will create a strong competitive edge for their products.

  5. Adeniji Kayode
    August 16, 2011

    In my own opinion, based on the past performances of both Microsoft and Nokia, they should be able to come up with something that can stand in the market with apple's iphone and the rest of the smartphones

  6. FLYINGSCOT
    August 16, 2011

    I understand there is a possibility of a Nokia takeover but Microsoft and Nokia have completely different corporate cultures and both have lost their way somewhat recently.  It sure would take a lot of careful leadership to make 1+1=3.  However everyone must be worrying like crazy about being left behind by the newly formed behemoths.

  7. Wale Bakare
    August 16, 2011

    @Adeniji with both Microsoft and Nokia pedigree in the field technology one could easily predict successful market outing should they come together. 

    At same time, looking at smartphone sales activities especially from Android, Apple and RIM in the last few years, it may be diffcult for any new design from Nokia/Microsoft smartphone to gather much momentum.  Windows or Symbian OS?

  8. Jay_Bond
    August 16, 2011

    Microsoft purchasing Nokia makes complete sense. With Google's purchase of Motorola Mobility and Apple's overall current dominance, Microsoft and Nokia need each other to survive. Every day that goes by without innovation and forward progress puts these companies’ two steps behind the power players of Apple, Google, and even Samsung. The next question will be whose going to step up and grab RIM. RIM's shares are under priced and they have been underperforming for a while, though they still have a good market segment with the business community.

  9. Adeniji Kayode
    August 16, 2011

    Bakare, I completely agree with you,I should have added initially that theoretically they should do well and perform enough to meet consumers expectation when considering  their impacts in the field of technology but that may not be

  10. Barbara Jorgensen
    August 16, 2011

    After yesterday, Microsoft-Nokia doesn't seem far-fetched at all. No one predicted MM-Google, yet it seems to be getting favorable reception from the market. The WSJ has written an article on Microsoft and the post-PC era; I think we will see some kind of move from MSoft in the not too distant future

  11. SunitaT
    August 16, 2011

    @Wale Bakare,

     I strongly feel Microsoft+Nokia+skype represents strong alternative to Apple and Android. Reason being Nokia mobiles have excellent hardware features and Microsoft OS is very popular among users.

  12. SunitaT
    August 16, 2011

    Barbara,

     I totally agree with you that Microsoft-Nokia doesn't seem far-fetched at all. I feel this was always in the mind of Nokia CEO Stephen Elop and thats why he chose Microsoft as the Nokias future OS rather than Android.

  13. SunitaT
    August 16, 2011

    Microsoft and Nokia have completely different corporate culture

    @FLYINGSCOT,why do you feel that  Microsoft and Nokia have completely different corporate culture ? I felt since Stephen Elop is originally from Microsoft he would have encouraged Microsoft-way of workculture in Nokia.

     

  14. bolaji ojo
    August 16, 2011

    @Tirlapur, Quite a few industry observers noted they didn't see the Google-Motorola deal coming so nobody should write off a Microsoft-Nokia deal or any other combinations involving other companies in the market, including Research in Motion, Sony-Ericsson and even perhaps Google buying another company. You are also right in pointing out that Nokia's CEO Stephen Elop moved over to Finland from Microsoft so repositioning the company into his previous employer's corporate culture shouldn't be a problem.

  15. Anna Young
    August 16, 2011

    @Flyingscot, Your point is well noted. Integration is always a problem in cross-continent/cross-culture mergers. However, the cultures of Google and Motorola Mobility are certainly different. Google is a relatively young company while Motorola dates back some 82 years or so. Different generations work at both companies, one yuppy and the other more reserved; one based in California and the other in Illinois. Now that they've agreed to merge they have to make it work.

  16. AnalyzeThis
    August 16, 2011

    I actually disagree with this, I don't think a Microsoft/Nokia deal makes much sense.

    And I think a lot of people forget that Microsoft has attempted this strategy before: they bought Danger Incorporated for around $500 million in 2008 and the only resulting product that came out of that – Microsoft Kin – was about as close as you could possibly get to a commercial product being an instant failure.

    I just don't agree that this acquisition makes sense. For one thing, Nokia is not NEARLY on the same level as Motorola. Motorola had an attractive patent portfolio, plenty of history, experience building high-quality hardware, and was still producing phones that make sense and people were purchasing. Nokia? They're in the middle of a transition, they completely missed the Android boat… they are very clearly in the midst of a steep dive they may not be able to pull themselves out of.

    I get why people are bringing this idea up. There is SOME logic to it beyond a simple “me too!” acquisition. But I personally strongly feel that this would not be a good deal and many of the potential synergies people are talking about aren't based in reality.

  17. Parser
    August 16, 2011

    Microsoft could buy Nokia, but a hostile take over Apple could do it too. Why Apple would do it? As a hostile take over they would possibly keep a few portions of it and sell off or write off many divisions. Then the only competion would be Google + MM.

    From this perspective Nokia is going to ask Microsoft to be bought.

  18. Susan Fourtané
    August 17, 2011

    “with this spectacular move that Google did ,It shows the way for Microsoft to do the same.”

    Nemos, 

    Why? Why Microsoft should play copycat and do what Google does? Most importantly, why Nokia should accept? 

    -Susan 

  19. Susan Fourtané
    August 17, 2011

    Eldredge, 

    Do you really think that is so simple? Do you think IF Microsoft would want to buy Nokia, Nokia has to accept? What if Nokia doesn't want? Who is going to force Nokia to accept? Nokia has autonomy and the right to decide by itself. 

    -Susan 

  20. Susan Fourtané
    August 17, 2011

    “if this wavestorm eventually reached Microsoft and Nokia, will thier consolidation be able to shrug off competitiveness from the likes of Apple's iPhone?”

    Wale,

    I don't see it happening. Apple is too strong and too stable.

    -Susan

  21. Susan Fourtané
    August 17, 2011

    “@FLYINGSCOT,why do you feel that  Microsoft and Nokia have completely different corporate culture ?”

    Tralapur, 

    Flyingscot is right. The corporate culture and way to do business is completely different. Who would conquer who? The way you put it sounds as if Microsoft should conquer Nokia and impose its own corporate culture. Why? 

    -Susan 

  22. Susan Fourtané
    August 17, 2011

    “I understand there is a possibility of a Nokia takeover but Microsoft and Nokia have completely different corporate cultures and both have lost their way somewhat recently.  It sure would take a lot of careful leadership to make 1+1=3.” 

    Flyingscot, 

    Exactly! Even though it is not impossible for two companies with different corporate cultures to merge, for the merge to be successful a lot of cross-cultural work has to be done. The best in a case like this would be to take the best of each worlds. But we are not talking about two companies merging but the possibility of MSFT aquiring Nokia, right? 

    -Susan 

  23. Adeniji Kayode
    August 17, 2011

    I quite agree with you Susan that Apple is stable and strong at the same time.

    But Microsoft and Nokia were once like that, a step delay or too forward can cause a setback for Apple,time and chance happen to all of them

  24. bolaji ojo
    August 17, 2011

    @Susan, Let's for a moment look beyond the potential hurdles of a Microsoft-Nokia transaction to the current imperatives facing these two companies: 

    • Nokia is facing declining market share and a reversal of this trend is unlikely in the short term, perhaps not in years. The Motorola Mobility example tells us grounds lost aren't easily recovered. Motorola Mobility today is the 8th largest smartphone vendor in the world. How did a player who only a few years ago was No. 2 plunge so far, so fast?
    • Windows OS for handheld devices isn't doing great. Microsoft agreed to pay a lot of money to get Nokia to abandon Symbian because this buys it instant market share. Windows OS has been in the market for years and it wasn't gaining traction with any of the leading handset vendors. Microsoft needed to do something drastic to establish a toehold in the market. Why should it stop now and why shouldn't it go all the way? Google needed to do something drastic to stop competitors eroding the validity of Android hence the deal with Motorola Mobility.
    • All orthodox practices are being questioned in today's wireless handset market. The old rules are going away and news ones being established by daredevil individuals who have no respect for old boundaries. We celebrate Apple today but less than 10 years ago the company wasn't remotely considered a player in consumer electronics. In only a few years it demolished competitors in digital music, mobile phones and tablet PCs. These achievements did not come by respecting orthodoxy.
    • Lastly, remember Nokia's background? The company was an industrial (wood & papermill, I believe) business until it saw the light and jumped into electronics. That is even more stunning than the idea of it aligning itself with Microsoft. I don't necessarily think Microsoft will buy Nokia but are there good reasons for such a transaction? Yes.
  25. elctrnx_lyf
    August 17, 2011

    Nokia is really struggling to gain any market share in the smart phone market to compete with both iOS and Android based phones. So what I strongly belive is Nokia should try and release the smart phones to support android rather than just bought over by Microsoft. I don not think Google Moto combination could have any new impact on Nokia.

  26. Wale Bakare
    August 17, 2011

    I don not think Google Moto combination could have any new impact on Nokia.

    elctrnx_lyf,

    What of Apple and RIM?

  27. bolaji ojo
    August 17, 2011

    @Wale Bakare, Apple & Research in Motion would be interesting but hardly likely. Apple is not known for making that kind of large acquisition and they seem to be doing very well without RIM. It's quite feasible that RIM would seek partnership with another company. On the other hand, stranger things have been known to happen, like Google buying Motorola Mobility?

  28. Kunmi
    August 17, 2011

    I do not see any reason why Nokia could not be bought by Microsoft. If by Nokia assessment and they discover it will be hard to compete with the current technology, it will be better to cash out and give room for the new fish in the ocean.

  29. Nemos
    August 18, 2011

    First of all, I want to make clear this, I don't think that when a company been bought by other bigger one it means that the company it is a failure company, and in the case of Motorola Google pays a lot more money for the acquisition of Motorola than the actual value of the stock shares.

    Why?  Because I want Nokia to continue playing a critical role in the mobile market.

  30. Houngbo_Hospice
    August 18, 2011

    I would say that Google and Apple alone cannot meet demands in the phone market. Nokia and RIM still have their place in the industry. But their viability will depend on how they can readily turn things around.

  31. Adeniji Kayode
    August 18, 2011

    Good point, Hospice, and that is why i said that in theory the coming together of Microsoft and Nokia should cause a way somehow.The opportunity in phone is so vast that it can't be fully occupied by Apple alone,there is still more room for creativity, inventions and innovations

  32. itguyphil
    August 18, 2011

    Well, not just Apple. Google (Android) is supposedly making alot of headway and is projected to overtake Apple as the predominant mobile platform.

  33. Anna Young
    August 19, 2011

    @ Adeniji Kayode, I agree with your point – ” there is more room for creativities, innovations and inventions”

    Like Bolaji said, “rather than untangle the relationship with Microsoft, the Finnish company should instead seek an even tighter engagement”- true, it'll be beneficial for both Microsoft and Nokia.

    Afterall, there is room at the inn. It makes good business sense.

  34. Susan Fourtané
    August 23, 2011

    Bolaji, 

    You have good points, especially Nokia facing a declining market. Nokia seems to slowly be taking a direfent direction, somehow away from the smartphone market.

    Yes, the jump of Nokia from its starts to electronics is quite impressive. (yes, wood, papermill and rubber)

    You say there are good reasons for thinking of the possibility of MSFT wanting to buy Nokia. What I question is the willingness of Nokia wanted to be bought by MSFT. I am not inclined to think that this is the case. On the contrary, I believe that Nokia would prefer to keep on doing things its way. 

    -Susan

  35. Susan Fourtané
    August 23, 2011

    Kunmi, 

    Despite all the difficulties that Nokia has been experiencing lately I believe Nokia is not the sort of company that gives up and gives room for the new fish in the ocean. Maybe Nokia thinks it's time for a change of course and sail in different waters. We'll see. 

    -Susan

  36. Kanttila
    August 23, 2011

    Nokia will not be easy target to anyone who tries to buy it. Majority of the share owners are private share owners who have bought their stocks when Nokia was worth a lot more. Current sub-5eur per share price will not make them to give up. Even doubling the price will not make the stubborn Finns to sell their shares when they have bought them for more and the expectations have been over 10 times higher.

    Why? It is not just a money issue here. The share holders have emotions in the play as well, they have their heart in their investment decisions when we are talking about Nokia. This fact makes it almost important for someone to acquire all of the shares and to operate in any level even as the largest shareholder.

    Microsoft also should not touch Nokia, because the brightest minds who have not yet left the Espoo Giant will most definitely bail the ship and leave it sink in Microsoft’s pond. Nokia was bred from the ground of open-source minded software developers. Symbian and Maemo have been both open source and the mentality with lot of the engineers is towards that philosophy. The corporate cultures and values on personal level are way too far apart.

    What if Microsoft wants to buy Nokia just for the papents and kick everything else out? Possible, but I still think it will be way too expensive for ANYONE to try that. Because of what I said in the beginning of this comment.

  37. Susan Fourtané
    August 23, 2011

    Anna, 

     Nokia  may not consider it is enough just to make good business sense. There are other things that are equaly important for Nokia's investors. 

    -Susan

  38. Susan Fourtané
    August 23, 2011

    Hi, Karri! 🙂

    Exactly! When I have discussed here about the Finnish emotions in play in the whole Nokia story sometimes I am not sure if people understand this. I believe Nokia's investors well may prefer to sail slowly rather than giving up the ship. 

    As someone who knows both, the Finnish and American cultures and values on business and personal level I agree that they two companies are way too far apart to be able to merge.

    -Susan

  39. JADEN
    August 31, 2011

    I don't see Microsoft-Nokia doing much to stand Apple or Google-Motorola Mobility. Nokia is on the decline dramatically and Microsoft has been trying to use its Windows model for mobile operating system and that just doesn't really make ways for mobile.  For the two to come together, I don't really see what they can offer in the market.

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