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Microsoft Buys Nokia: What Does It Mean For Rivals?

Steve Ballmer  Siilasmaa
Microsoft CEO Steve Ballmer, left, with Nokia’s chairman of the board Risto Siilasmaa during a news conference in Espoo, Finland. Photograph: Lehtikuva/Reuters

Microsoft‘s purchase of Nokia‘s handset business, along with a long-term licence of its patent portfolio and for its Here maps products, has sent shockwaves through the industry. What everyone wants to know is: what does it mean? There’s no single answer to that, because it depends where you stand.

So what does this deal mean for …

Microsoft?

This is the second handset business Microsoft has bought. The first was Danger, in February 2008 for $500m (£322m). It had made a phone, the Hiptop, which was used by celebrities such as Paris Hilton. Microsoft screwed up the acquisition, alienating the Danger staff by forcing a rewrite of the software using its own frameworks and crushing them through bureaucracy. Eventually they produced the Kin – a phone so horribly compromised it was withdrawn from sale in just 42 days.

Now Microsoft is getting hold of a phone company with one of the best supply chains in the world, and access to a name known around the world – though it only acquires the Lumia and Asha brands (it’s licensing the Nokia brand for handsets).

For a company that is trying to turn itself into a direct rival to Apple and Google, it has completed a key step: like those two, it will from next year own a handset business. (Google has Motorola, bought for $12.5bn in 2011.)

The problem will be integrating the businesses while not disrupting its function; making sure key staff are not weighed down by bureaucracy; and pushing into big “enterprise” businesses which can and do purchase thousands of devices at once. Nokia had already been working on building tablets; Microsoft’s gigantic cash reserves mean it can do that too.

For Stephen Elop, it means a position just outside the chief executive’s door; and Steve Ballmer is due to depart within 12 months. His experience running a hardware business puts him well ahead of almost everyone else inside Microsoft. For Julie Larson-Green, head of the Windows division, it is a setback to her ambitions.

The big problem for Microsoft is that by taking Nokia’s Windows Phone business under its wing, it will alienate the few companies outside Nokia selling phones with its software. But as they were only 13% of sales, it clearly considers that a risk worth taking.

Nokia?

The remaining divisions – Location & Services (which provides HERE maps) and Nokia Siemens Networks – are barely profitable. Without the handset business, Nokia will shrink to roughly half its present size. The maps business is expensive: updating maps is a constant cost with little reward, and if Nokia does not have a handset business to feed, there’s little benefit in running it. There must be a question over its future.

For NSN, which makes mobile infrastructure, the challenges are equally great. China’s Huawei is a key threat in every market outside the US and Australia (which are suspicious of its links to the Chinese government), and even without that threat, it has to battle Sweden’s Ericsson for business. NSN is profitable, barely, and will have to hope that it can benefit from some of the cash Vodafone is pouring into its network after selling its 45% stake in Verizon Wireless to Verizon Communications.

It also brings down the curtain on over 140 years as an independent, self-sustaining business. But Nokia is a survivor: “it’s in the company DNA,” as one of its spokespeople said a while ago.

BlackBerry?

One suspects that BlackBerry’s management tried to interest Microsoft in buying it – for its patents, technology and deep enterprise penetration, banks and governments use BlackBerry – and failed.

The fact that Microsoft has chosen to go with Nokia is very bad news for BlackBerry: it now has no buyer of last resort, which means it will have to try to go it alone – with a loss-making handset business, which it may dump in favour of becoming just a services and software company – or seek a distress buyer. But no Chinese company would be allowed to buy it on security grounds.

That means that the clock is ticking for BlackBerry. “It might not be a slow death,” one analyst mused to me a couple of days ago, before this news broke. “Perhaps it’ll just be a single shot to the head.”

An outside chance – depending on how seriously it takes its ambitions for big business contracts – would be for Apple to buy it. But it’s unlikely.

Apple?

With expectation high that Apple will announce new iPhones next week, the news that Nokia has fallen into Microsoft’s arm looks like the final act of the destruction that has been playing out since the first iPhone was announced in 2007.

But being bought by Microsoft means Nokia has a new source of plentiful cash, with which it will renew its attempts to interest both consumers and businesses. Apple has been successful with both – but the changing dynamics of the smartphone market, with fewer high-end buyers, are expected to force it to offer cheaper phones next week. Nokia is strong there – but buyers don’t like the lack of apps on Windows Phone.

Similarly in businesses, Windows Phone still lacks a number of security elements required by businesses – but Apple has it. (The Pentagon has approved iOS 6 for use on low-grade networks.) Apple has a lead – but Microsoft will aim to catch up. That, however, is Microsoft’s problem: by the time it catches Apple, the Cupertino company is already moving on to the next thing. It happened in phones, and then in tablets. What’s next?

HTC?

The Taiwanese smartphone maker is heading into all sorts of trouble, expected to announce its first-ever quarterly loss this week as its revenues plummet in the face of increasing competition from South Korean rival Samsung.

There had been some murmuring that Microsoft might buy HTC, which makes some Windows Phone handsets (possibly to fulfil a patent licensing deal with Microsoft). Now that won’t happen – so with no recovery in sight, it is likely to fall into the arms of a Chinese smartphone maker such as ZTE, Huawei or Lenovo.

Google?

With Android, Google created a product that ensured Microsoft could never displace it from mobile search. With that aim achieved, Android’s work is effectively done. Now Google is focusing on gathering ever more data from all of us, through our phones (whether iPhone or Android) to learn and predict what we will do next – so that it can offer it.

Microsoft plus Nokia is no more dangerous to Google than they were apart. It’s impossible to conceive that Windows Phone will seriously challenge Android in key markets such as India, Latin America and China; only inside businesses, where Android is weak, is there any risk.

So far, Google has essentially ignored Windows Phone, refusing to make a YouTube app for it and making it troublesome to set up Google email.

If Windows Phone does start getting wider use inside business, Google might find it useful to be more cooperative – but Android has essentially won already.

Samsung?

Having taken over from Nokia and Apple as the world’s biggest mobile phone and smartphone maker, it now sits atop the mobile business. Because it makes everything from the chips to the screens to the physical handsets, it can drive huge economies of scale and production.

Like HTC, it makes some Windows Phone devices – but whether it will still be keen to compete against a company with a home advantage is unclear.

Finland?

It’s the loss of a crown jewel – Nokia used to be worth 10% of all of Finland’s manufacturing. Over the past five years it has been gradually shrinking, and the diaspora created from that has created pockets of technological innovation in cities such as Tampere.

The acquisition is sure to see a number of people leaving Nokia to look for jobs inside Finland rather than move to join Microsoft. But that could inspire a new generation of developers with new ideas – rather like Rovio, the Finnish company that now dominates the app world through its Angry Birds franchise.

The man and woman in the street?

Initially, not much at all. The acquisition won’t close until early next year. Phones with Nokia’s brand (licensed from the parent company) will still be on sale. But you’ll probably see the “feature phone” devices vanish within a year as they are withdrawn from all but the lowest-cost markets, such as Africa. Then Microsoft will try to get people to upgrade to Lumia and Asha phones.

But will cheap Android – and even cheap iPhones – be a bigger temptation? That’s been the problem for Microsoft since October 2010, when it launched Windows Phone, and it hasn’t found the solution yet.

Source- TheGuardian

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