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Microsoft Shake Up Mobile Industry!

Microsoft purchased Nokia’s devices and services recently in a landmark deal worth £4.6 billion. Microsoft have stated they firmly believe that having Nokia under their wing will enable them to challenge the mobile market and topple the likes of Apple and Samsung. Comms Business believes they have a hard task ahead of them if they are to be serious players in this market as the two ‘big boys’ would seem to have this area sewn up already. But what do the rest of the industry think?

From the Top

Describing the deal as a “big, bold step forward”, Microsoft chief executive Steve Ballmer told the BBC that his company was in the process of transforming itself from one that “was known for software and PCs, to a company that focuses on devices and services”.

“We’ve done a lot of great work in the two-and-a-half years that we’ve been in partnership with Nokia, going literally from no phones to 7.4 million smart Windows phones in the last quarter that was reported,” he said.

But he admitted: “We have more work to do to expand the range of applications on our product.”

Building Nokia’s next chapter

Following the transaction, Nokia plans to focus on its three established businesses, each of which is an enabler in mobility in its respective market segment: NSN, a network infrastructure and services division; HERE, mapping and location services; and Advanced Technologies, a technology development and licensing segment.

Nokia will retain its headquarters in Finland. Excluding the approximately 32,000 people planned to transfer to Microsoft, Nokia would have employed approximately 56,000 people at the end of the second quarter 2013.

“Today is an important moment of change and reinvention for Nokia and its employees,” said Nokia Chairman and interim CEO Mr. Siilasmaa. “With our strong corporate identity, leading assets and talent, and from a position of renewed financial strength, we will build Nokia’s next chapter.”

NSN, a wholly-owned business of Nokia since August 2013, is a strong contender in the mobile broadband space, and is focused on operating at the forefront of each generation of mobile technology, including pushing the boundaries of connecting people through LTE and future technologies. Nokia continues to manage NSN as an independent entity.

HERE will continue to focus on growing its position through a broad location offering across mobile devices, connected devices, enterprise solutions and the automotive environment.

Advanced Technologies business will build on several of Nokia’s current CTO and Intellectual Property Rights activities. Advanced Technologies will explore new business opportunities through advanced research, development and concept products in areas such as connectivity, sensing and material technologies, as well as web and cloud technologies.

“Following this transaction, Nokia’s financial situation is expected to be significantly stronger and its earnings profile significantly improved,” said Nokia CFO and interim President Timo Ihamuotila. “We will have three well-positioned businesses, each a leader in its market. Overall, we will continue to focus on managing and maximizing the assets of Nokia Group prudently and pragmatically to create value for Nokia shareholders.”

Juniper Research comments on this recent development:

Implications for Microsoft

The acquisition by Microsoft reinforces the company’s ‘devices and services’ strategy by purchasing all of Nokia’s Devices & Services business and licensing Nokia’s patents and mapping services. While this acquisition provides Microsoft with a much needed uplift and presence in the mobile sector, integrating these new assets, brand building and increasing market share will be the real challenge.

Microsoft will get a larger footprint in the emerging markets with Asha as Nokia has committed substantial investment to the Asha range. This means the customer would perceive a switch from Asha to Lumia to be a whole scale upgrade in their entire ecosystem rather than just a smartphone.

The technical advances in the smartphone ecosystem mean that the mobile device is increasingly a part of the broader CE industry than it has ever been. An acquisition in this area by Microsoft has been viewed by Juniper Research as a key strategy to expand and strengthen their strong mobile and fixed device ecosystem. The company is also expected to move into wearable devices soon.

Implications for Nokia

Nokia has been struggling to position itself going forward against the likes of Samsung and Apple within the smartphone market. This is by no means a cold acquisition as there is an existing synergy between the two companies.

This acquisition means that Nokia will now continue to focus only on three areas: network infrastructure and services; HERE (mapping and location services); and Advanced Technologies. Nokia is expected to focus on mapping and geo-spatial services as an “an effective alternative to Google”.

Ben Wood, Chief of Research, CCS Insight

“With mobile now firmly positioned as the world’s fastest growing and largest computing platform we see this move as a bold, but entirely necessary gamble by Microsoft. Mobile needs to be a cornerstone of Microsoft’s business for future success. The failure of Microsoft’s platform-only approach over the last 15 years, initially with Windows Mobile and more recently with Windows Phone, has left it with few alternatives given its almost complete reliance on Nokia for Windows Phone devices and the competitive eco-system strength of Google and Apple.

This is by no means a silver-bullet solution to Nokia and Microsoft’s current difficulties. The massive restructuring that has taken place within Nokia over the last two years offers Microsoft a more stable foundation on which to focus its efforts in mobile, but Windows Phone remains a distant third place in the smartphone race compared to Apple and Google / Samsung.

Acquiring Nokia’s devices and services business reshapes Microsoft’s business. With the notable exception of Xbox and recent forays into tablets with Microsoft Surface, the company has largely avoided a significant commitment to hardware. That now changes with the transfer of 32,000 Nokia employees into Microsoft.

This move should be positive for both companies. A more integrated approach to hardware, software and services will help overcome some of the challenges Nokia and Microsoft have faced operating as independent entities in terms of service integration, marketing consistency and costs, as well as time-to-market for new devices and updates.

What this means for the “New Nokia” is less clear. The combination of Nokia Siemens Networks, Here Maps, the patent portfolio and CTO’s office is not currently an organization with compelling logic. For Nokia it brings another chapter in its history to an end, having once dominated the mobile devices business with a global market share of over 40 percent.”

Vasileios Tziokas, Marketing Manager, Upstream

Despite Microsoft being criticised for its slow growth in the mobile market, the decision to acquire Nokia’s phone business gives the company a direct route into the emerging markets – where Nokia devices prove to be extremely popular. While the immediate focus for Microsoft is on hardware, having control over the device itself will mean that its other services, such as its Bing search engine can be preinstalled on the devices, which may eventually challenge Google’s Android stronghold in these regions.

Tony Cripps, principal device analyst at Ovum

While enabling Microsoft to face industry rivals such as Apple, Google and Samsung on more equal terms, it also represents an indicator for the future of consumer tech industry more generally and a symbolic end to the mobile phone industry we’ve known until today,” believes Cripps.

He continues: “The sale of Nokia’s mobile phone business demonstrates conclusively the need for major consumer technology vendors to create ever deeper and wider offerings to consumers and ecosystem participants in terms of their device, platform and service offerings. This approach is no longer simply an option but a pre-requisite to competing successfully in this highly converged market (as outlined in Ovum’s Consumer Tech Market: Index 1H 2013).

“Nevertheless there is still much to resolve if the acquisition is really to have meaningful impact. While Microsoft and Nokia have jointly been increasing the money flow through the Windows Phone marketing faucet of late it will take mega bucks to take on Apple and Android head-cheerleader Samsung for marketing volume and volume shipments. We need to see that kind of commitment coming before we can really count Microsoft in the same league as its two main competitors.

“There is also a sense that while Microsoft has many of the key elements for consumer tech market success in place too many of those elements feel not quite at parity with their rivals.

“That said Microsoft has some areas of definite advantage over its rivals across this vast battleground, especially in gaming (via Xbox), in consumer-business crossover services such as VoIP (Skype) and in the ease of integration of Windows Phone with its own Office 365. Moreover, we shouldn’t forget its huge global installed base of PCs, which are as much a part of the complete picture as smartphones, tablets and online services.

“What is almost for certain is that beyond Apple and Google, Microsoft is the best equipped of today’s consumer tech giants to be able to put all the requisite pieces in place to succeed long term. Execution is another matter though and Ovum needs to see sustained progress in Windows Phone shipments over the next three or four years – 15% market share is a good target to aim for – to be convinced that Microsoft can establish itself as a real consumer tech market maker rather than a follower.

Mark Kenrick, Patent Attorney and Partner at Marks & Clerk, comments:

“This deal again shows the huge value that the mobile telecoms sector places on patents. This is an industry that has seen many high-profile patent disputes, and companies realise that they need a robust portfolio of patents if they are to defend themselves and maintain or achieve greater market share.

“Microsoft has entered this sector relatively late, so gaining access to Nokia’s very established patent portfolio through a licensing deal makes real sense. Similar to Google’s tactic in purchasing Motorola Mobility, this will help Microsoft level the playing field with the rest of the sector. Microsoft also gains the benefit of Nokia’s earlier licensing agreement with Qualcom, which will provide it with access to an even wider pool of patent rights.

“This arrangement allows Nokia to retain its patent portfolio and provides Microsoft with a 10-year licence, with an option to extend it at a later date. That Nokia was not willing to give up its patents – but only to license them – indicates the value it attributes to its own intellectual property.”

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David Dungay

Editor - Comms Business Magazine
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