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BRIE-ETLA Seminar talk, Berkeley (CA), September 6th, 2013
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Microsoft’s Acquisition of Nokia’s Phone Business marks “the failure of both companies” International Herald Tribune, 4 Sep 2013, p. 16
Petri Rouvinen, ETLA , www.etla.fi Chaos or Turbulence in Digital Ecosystems BRIE-ETLA Seminar, Berkeley, 6 Sep 2013
1998: Gates in
talks w. Nokia Jan 2013: MS-Nokia
talks
2006: Nokia & Siemens merge network
businesses2008/9: Google Android
Feb 2011: Platform
burns
Feb 2011: WindowsPhone in
MeeGo out
Jan 2007: Apple iPhone
Sep 2010: Elop, Nokia’s CEO
Jul 2013: Nokia buys
Siemens out of NSN for $2.21bn
Aug 2013: Ballmer’s
step down announced
3 Sep 2013: MS’s acq. of
Nokia devices
Preceding rocky rides of Microsoft & Nokia
2008 2009 2010 2011 20120%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Market Shares of Mobile Smartphone Operating Systems
Source: Gartner.
AndroidGoogle
iOSApple
SymbianNokia
RIM Blackberry
OtherWindows
2009/1
2009/2
2009/3
2009/4
2010/1
2010/2
2010/3
2010/4
2011/1
2011/2
2011/3
2011/4
2012/1
2012/2
2012/3
2012/4
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
PC, Smartphone and Tablet Op-erating Systems Together
Sources: Business Insider, Gartner, IDC, Strategic Analytics, company filings
Android
AppleRIM
Other
MS Windows
2008 2009 2010 2011 2012 2013
-10
0
10
20
30
40
50 Operating Profit Margins, %
Source: Company releases.
Nokia
Samsung
Apple
Microsoft
2007 2008 2009 2010 2011 2012 2013-10
90
190
290
390
490
590
690 Market Value, $bn
Source: Company releases. End of the year except for 2013, which refers to Sep 2nd
Nokia
Samsung
Apple
MicrosoftGoogle
MS-Nokia Deal
Microsoft pays
$5bn for Nokia’s devices unit &
$2.18bn to license IPRs Nokia retains
Rougly what Microsoft paid for Skype in 2011 orNokia for Navteq in 2007; under 10% of MS’s cash
Current Nokia split to half – New Nokia:NSN, location-based services (Here), IPRs
Employment
Jun 2013 Q1/2013
Jun 2013 Q1/2013
Jun 2013 Q1/2013
Jun 2013 Q1/2013
Nokia, Global Microsoft, Global
Nokia, Finland Microsoft, Finland
NSN:50,476
NSN:50,476
Other:37,295 5,295
99,139
131,139
NSN:5,800
NSN:5,800
Other:5,100
400
300
5,000
32,000
4,700
Aug 30 = 100 Sep 5 close
-10
0
10
20
30
40
Aug 30 = 100
Daily close prices at Nasdaq (MS) & NYSE
Sep 5 Close
+41% Nokia
-6.5% Microsoft
Stock market reaction
Nokia gets out of its cash crisis & is left with a solid network eq.business
Microsoft positions itself to burn cash in an effort to make its ecosystem fly
Why?Nokia
• Cash crisis
• Windows ecosystem not gaining ground– No improvement in the
short or medium term
• No ability to jump the MS ship?
Microsoft
• Mimicing Apple & Google
• Windows ecosystem not gaining ground– HW-SW integration– Avoid double margins
in Windows phones– All-in cash burning
• Nokia made >80% of Windows phones & was at a fire sale price
Viable next steps• Microsoft might
– Sell Nokia factories (18,000 employees)
– Leverage licensed Nokia brand in urging feature phone users to Windows
– Discontinue headquarter functions & feature phone development in Finland
– Retain 80-90% of its Finnish employment– Replace Ballmer with Elop
• Nokia might– Concentrate primarily to network eq. & services– License/sell IPRs (w. reduced focus on related R&D)
– Narrower focus in location-based services– Be engaged in further M&A action
Ultimate outcomes?• Microsoft: Renewed hope for the ecosystem
but slim chances of success
• Nokia: Nicely pooring business after a rocky ride
• Industry: None?
• Finland: Mentally a shock, but economically neutral?
• Conspiracy theory: After exiting Windows & filling its coffers, Nokia re-enters phohe business
ThankYou!
fi.linkedin.com/in/petrirouvinen/[email protected] +358–50–3673474