Microsoft-Nokia deal: Can Satya Nadella and Stephen Elop bring new life to devices?

Microsoft, which announced the closure of the Nokia phone deal today, will gain more as compared with the earlier agreement. But the question is that can Satya Nadella and Stephen Elop bring new life to devices?

This is because Microsoft will not be adding any controversies surrounding Nokia and the dwindling Nokia brand.

Nokia said the total consideration would be slightly more than the $7.2 billion (EUR 5.44 billion) announced earlier.

Microsoft remains committed to achieving annual cost synergy targets of at least $600 million within 18 months of close.

Microsoft Devices Group, headed by ex-Nokia CEO Stephen Elop, will have a devices business that includes Lumia smartphones and tablets, Nokia mobile phones, Xbox hardware, Surface, Perceptive Pixel (PPI) products, and accessories.

Remember, Microsoft just earned $500 million from Surface tablet business in the recent quarter against Apple’s iPad income of $7.6 billion in Q2 FY 2014.

There’s an alarming situation. Apple iPad tablet shipments dropped 16 percent, while revenue from tablet dipped 13 percent. Both Microsoft and Nokia are new comers in tablet space. HP and Dell are struggling to sell their Windows-based tablets due to high cost as compared with Android-based tablets which are gaining momentum in both emerging and developed telecom markets.

Microsoft Corp Nadella Elop

Microsoft will expand its reach of consumers for its software products through the deal. This is in addition to the new and better opportunities for Microsoft to work with hardware partners, developers, operators, distributors and retailers, providing platforms, tools, applications and services.

Two manufacturing facilities — Masan in Korea and Chennai in India — are not part of the Microsoft-Nokia deal which was originally announced on September 3, 2013.

While Nokia would produce mobile devices for Microsoft at its Chennai plant, it will close down the Masan facility which employs approximately 200 people.

Microsoft adds more than 130 sites across 50 countries worldwide, including several factories that design, develop, manufacture, market and sell smart devices, mobile phones and services. It has a number of manufacturing units in Asia. This was one of the main strategies to buy Nokia. Nokia also announced voluntary retirement scheme to reduce manpower in Chennai.

Microsoft will welcome approximately 25,000 transferring employees from around the world. There are indications that Microsoft will announce severance package in other centers.

Stephen Elop is the best candidate to head Microsoft Devices Group because he knows the culture of both Nokia and Microsoft. Microsoft CEO Satya Nadella will guide him to gain smartphone share against Samsung, Apple and Google. He guided Nokia to use Microsoft Windows phone OS and exit from phone business later. Though Elop could not become the Microsoft CEO, he will now manage substantial business under Microsoft than Nokia.

Nokia leaders Stephen Elop, Jo Harlow, Juha Putkiranta, Timo Toikkanen, and Chris Weber have stepped down.

Future

Windows Phone is the fastest-growing ecosystem in the smartphone market. In the fourth quarter of 2013, according to IDC, Windows Phone reinforced its position as a top three smartphone operating system with 91 percent year-over-year gain. But smartphone vendors like HTC, which has Windows-based devices, has lost acceptance in the mobile phone market. The IT giant relied heavily on Nokia for the success of Windows OS.

The mobile OS industry has seen the $12 billion plus acquisition of Motorola by Google and sale of the Motorola business to Lenovo for around $2.3 billion this year. While Google tried to gain from Motorola patents, it is not clear what will be the main benefits to Microsoft from the $7.2 billion Nokia deal.

Microsoft can sell more OS to its captive business now. But Nokia itself tried to re-invents by bringing X smartphones with Android apps. The market will determine who will be the leaders among Samsung, Apple and Microsoft.

Microsoft will target the affordable mobile devices market, a $50 billion annual opportunity. But it puts pressure on margins because several Chinese and Indian vendors are aggressively pushing their innovations in the low-end devices market.

Pix: Microsoft blog

Baburajan K
editor@telecomlead.com