Microsoft has decided to take a risk by acquiring Nokia’s cell phone and services business for a hefty $7.17 billion. In addition to the acquisition of these two key parts of Nokia, Microsoft will also be taking over all of the company’s licensing and mapping. Though the deal won’t close until early next year, Microsoft will be paying out around $5.5 billion for Nokia’s Device and Services business, while paying out even more for patents. Though this is great for Nokia, which hasn’t been doing too well in the market over the past several years, Microsoft is taking a big risk.
It is unclear exactly what Microsoft plans to do with the company, but Nokia CEO Stephen Elop will step down and take on a new role at Microsoft. Steve Ballmer seemed very optimistic about the acquisition, noting that the Nokia acquisition is “… a bold step into the future – a win/win for employees, shareholders and consumers of both companies.”
“Bringing these great teams together will accelerate Microsoft’s share and profits in phones, and strengthen the overall opportunities for both Microsoft and our partners across our entire family of devices and services. In addition to their innovation and strength in phones at all price points, Nokia brings proven capability and talent in critical areas such as hardware design and engineering, supply chain and manufacturing management, and hardware sales, marketing and distribution.”
Microsoft now has a 10 year licensing agreement, which will allow them to use any and all of Nokia’s name branding and services. Many sources are suggesting this is very similar to Google’s acquisition of Motorola several years ago, which proved to be quite a success with its DROID line of smartphones.
I think this is a smart choice for Nokia, but I also agree it is a risk for Microsoft. I believe if Microsoft dedicated its money and manpower towards its Windows Phone operating system, it could have a very successful impact, especially because it only controls about 3.5% of the U.S smartphone market. Apple’s iOS and Google’s Android control a large 43.4 and 51.1%, respectively.
Though this shouldn’t pose much of a threat to Apple, it is somewhat of a concern, because of some of the smaller players teaming up to build larger contenders in the U.S smartphone market. While it may not affect Apple now, it could if the consumer confidence in the company continues to falter.