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This Is How Nokia Will Help Microsoft

April 26, 2014 | About:
Arrow Analysis

Arrow Analysis

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After dragging on for nearly half a year, tech giant Microsoft (MSFT) and Finnish mobile maker Nokia (NOK) finalized their merger. On Friday, April 25, Microsoft announced that it had completed its acquisition of Nokia, including hardware and services. The deal, originally set to be a $7.2 acquisition of all of Nokia’s assets, may not have gone as planned, but it was a definite step-up from the waiting game investors were being subjected to.

The specifications of the deal

The merger between the two companies had been in the works since September, but hit many a bump on the road. The two major obstacles in the path were the Chinese regulations and the ongoing tax investigation regarding Nokia’s Indian plant, operating in Chennai.

While China green-lighted the deal easily, the Indian authorities were less obliging. The end result is that the Indian facility was not a part of the acquisitions and will be retained by Nokia. Although Nokia has not announced any conclusive plans, the fact that it offered its 7500+ Indian workers early retirement scheme suggests that the plant may soon be shut down. Also, noticeably absent from the terms of the merger was the “state of the art” South Korean plant in Masan.

The deal closed for $7.5 billion. As previously decided, Nokia’s former CEO Stephen Elop will be reporting to Microsoft CEO, Satya Nadella and will be appointed executive vice president of Microsoft Devices Group. He will be overseeing the division that, from hence on, will be in charge of expanding the business of Lumia smartphones and tablets, Xbox hardware, Perceptive Pixel (PPI) products and accessories.

Microsoft also plans to export more than 25,000 of Nokia’s former 90,000 employees.

What does it mean for Microsoft’s future?

According to a 2013 IDC report, Windows OS holds a 3.3% share in the smartphone market, compared to Google Android’s (GOOG) 78.6% and Apple’s (AAPL) 15.2%. However, now that this latest acquisition puts the company in charge of its own hardware and software, analysts presume this may change. Like Apple, Microsoft will now have exclusive rights over its devices, software as well as online presence, giving it an advantageous opportunity to further its position.

Windows boasts of the fastest growing smartphone market, as well as the fastest growing platform with a 91% YoY gain. The company has continuously turned out award winning devices and has firmly carved its niche in the smart phone world. An IDC report of the fourth quarter of 2013 puts it among the top three smart phone makers of the world.

Furthermore, continuing the trend of the Nokia mobile phone business, Microsoft plans to target the mid to lower end of the consumer spectrum in its range of affordable phones. This provides an opportunity of a $50 billion market annually.

Concluding thoughts

The company has assured users of delivering new and improved products, and it will work closely with a plethora of hardware partners, operators, developers and retailers, providing platforms, applications and services that enable them to create outstanding devices.

With hardware and software falling under the same network, the company has proclaimed that it will achieve an edge over its competitors. The windows phone now seeks to create an integrated ecosystem that will strengthen the platform and enable the growth of demand for Windows devices overall. In such an enticing scenario, many are optimistic that the Windows Phone may prove to be the device that finally challenges Samsung and Apple’s hold over the market.


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