Microsoft (NASDAQ:MSFT) shares jumped on the announcement of the “One Microsoft” strategy by former CEO Ballmer, followed by his announcement of resignation. Steve Ballmer resigned in style having announced the acquisition of Nokia’s device and service business along with license and patents for $7.71 billion. With this new acquisition, Microsoft can now focus on Nokia’s operating system, cloud computing initiatives, device and apps.
This acquisition is being seen as a well planned play by Microsoft. This might prove to be a winner for it in the long run. Ballmer’s resignation and now Nokia’s acquisition looks like a well-tailored move to change the direction of the company to devices and services.
However, many analysts are not thinking this move to be a smart one by the company. Microsoft has entered a Google-Apple hybrid model which can be negative for it.
Analysts think that this move is not going to benefit the company much as Nokia has lost its image and has failed to hold a competitive edge among its competitors. According to Gartner, Nokia’s mobile phone sales fell to 61 million units in the second quarter of 2013 from 83 million units in the year-ago period.
- Warning! GuruFocus has detected 9 Warning Signs with MSFT. Click here to check it out.
- MSFT 15-Year Financial Data
- The intrinsic value of MSFT
- Peter Lynch Chart of MSFT
Nokia, at a point of time, was a leader in feature phones. But as the smartphone trend started getting traction, some Chinese smartphone makers such as Xiaomi and Indian makers such as Micromax have captured the market and hurt Nokia’s sales. In China, Xiaomi’s phones are seeing great demand and its flagship Mi 2S has also defeated Samsung’s Galaxy S4 as reported by TechCrunch. Further, looking at some financials, Xiaomi’s valuation is now put at $10 billion, which is substantially more than what Microsoft is paying for Nokia.
There are many disappointing facts with Nokia which makes it a non-impressive move by Microsoft. Since China is the world’s fastest growing smartphone market, it has opportunities for many companies but still, in such favorable environment, Nokia’s device and services revenue in this region fell by 57%. Also, seeing good demand for its low cost segment, Nokia was expecting even stronger sales for the Lumia, but the company failed to beat strong competitors such as Xiaomi, Samsung and Apple. Further, according to recent updates, Apple’s low cost iPhone 5c will further hurt Nokia’s room for growth.
Too Late to the Party
Microsoft is focusing on improving Nokia’s business and is integrating it to make a cutting edge device. However, with this acquisition, Microsoft has closed its OS and it is making moves to challenge Apple’s playbook by taking over its operating system and device successfully.
This sounds robust, but Microsoft is too late for the party. Apple is enjoying a stronghold in the market and its devices are seeing fantastic sales. Also, Apple’s operating system is seeing its seventh generation which has succeeded in building a strong customer base. The flaw is that Microsoft will start aligning its forces towards this achievement, which Apple has already achieved in the past. This will be a hard nut to crack for Microsoft.
Apple is well known for delivering top class quality and best in the class range for its products. Since it makes high end devices and is always focused on providing unique services, it is difficult for customers to give a second thought before going to some other brand. In addition, Apple is focusing on introducing a mid-range version of iPhone to strengthen its customer base in countries such as China and India.
Nokia did make some impressive moves by launching the Nokia Lumia 520. It was expecting good sales of the phone, but with Apple introducing a low-end iPhone, the prospects for Lumia seem to be fading away.
Nokia’s phones are not as popular as they once were, and Windows-based smartphones are growing at a slow rate. Therefore, the acquisition of Nokia by Microsoft isn't a good move by the company.