Should Microsoft rescue Nokia?

The Finnish cellphone maker is in deep financial trouble, triggering speculation that Microsoft will swoop in to protect its Windows Phone investment.

By TheWeek.com Jun 15, 2012 4:15PM

This week, Nokia (NOK) reduced its profit forecast and announced it would lay off 10,000 workers, causing the Finnish cellphone maker's share price to sink 18%.


Nokia continues to get crushed by Apple (APPL) and Samsung (SSNLF) in the smartphone market, having failed to make an impact with its Lumia phone, which runs on Microsoft's Windows Phone operating system. Analysts don't hold out much hope for Nokia, with some saying it has only six months to supercharge its smartphone sales -- or die. That poses a big problem for software giant Microsoft (MSFT), which badly wants to be a smartphone player, but relies on Nokia to make the actual phones. (Microsoft owns and publishes Top Stocks, an MSN Money site.)


Should Microsoft just acquire Nokia?


Microsoft might not have a choice: Microsoft "could be forced to rescue" Nokia if the phone maker can't get its act together, says Juliette Garside at Britain's The Guardian. Nokia, whose prospects are entwined with Microsoft's, is the "only company attempting to sell significant numbers" of Windows Phones, so allowing it to go under would seriously damage Microsoft's attempts to carve out a space in the booming market for smartphones and tablets.


No. The two companies would never gel: It's rare for a merger between a software company and a hardware company to work out,analyst Rob Enderle tells ComputerWorld. The respective business cultures are vastly different. Plus, it would be hard for Microsoft, based in Redmond, Wash., to run a distant Finnish company without running it into the ground. And it's in Microsoft's interest to work with several hardware vendors to develop Windows Phones. It shouldn't be seen as exclusively partnered with Nokia.


But Microsoft should stick with Nokia: A merger would saddle Microsoft with an ailing, money-bleeding company, says Benjamin Pimentel at Marketwatch. But Microsoft needs Nokia to stay afloat if it wants to be a serious player in the industry. The best course is to double down on its investment in the Lumia, and hope that it can gradually claw out more market share for the phone. 


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4Comments
Jun 19, 2012 11:50AM
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Microsoft already got Nokia for free (FOR FREE) 11th May 2011 when MS took over Nokia´s SW, UI and mobile services´ development (google: Nokia and Microsoft Announce Plans)

     Today Nokia's first trouble is that it is not anymore an independent actor in ICT business. Nokia's second trouble is that it is not in the same business as its alleged rivals Apple and Google and Samsung. Microsoft owns the best margin business (platform, UI, apps, developers, services, content). Apple and Google are in Technology – Access – Interest – Channel (google: TAIC SIMO model design-driven) and Samsung and Apple are in Screen business with total offering, when Nokia has only the tiniest phone screen (google: Screen business Risku).

     It is hard for Nokia to break through those troubles alone and with any help. Nokia had its time two years ago: google: Risku Manifesto. Nokia is part of Microsoft´s business (google: microsoft nokia ecosystem risku)

     Microsoft’s problem is that it is far away from viable, credible and profitable Screen – Internet – Media – Operator SIMO business model (google: TAIC SIMO model design-driven).

- - - - - - @jeandarch

Jun 17, 2012 1:44AM
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If the NOK phone is successful, others will carry WP7 as part of the Win8 ecosystem since they will want to get a piece of it too. And all carriers sans Samsung have declining margins and not much to look forward to in Android over the long terms so its the successfulness of WP7 that they are waiting for. Therefore Msft must ensure the success of NOK, one way or the other if they dont want to be in the phone business themselves and it they want others to carry it. Now how do they do that. They first backed Elop. Fine but hes not doing so well. The intro was rediculous, the marketing non existent, the PR a disaster. Now NOK is a 2.5 stock. Below book value. And making Msft look idiotic as well. Not a propicious beginning. They have two choices, one is to buy out the company, reshuffle the management and get it working. But that takes a long time, they would have to move people into Finland, not NOK to Redmond. The second is to send a horses head to Mr Elops house and hope he gets the message. Just kidding. The second real one is to buy the company and FIRE the **** and bring in someone else who can get the company back on track. After all, they have a great phone, they just cant seem to get it made and advertised. Maybe its the distribution. And that one is easy. Give it away with the purchase of other stuff as loss leaders. The most important thing is to get it out there and in use so that people see it and like it and it fits with all the other parts of Msft ecosystem. If they can do that, they eventually will make money from it and the carriers will push them. But they have to be convinced that they can actually get it out.

 

Jun 16, 2012 11:53AM
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They're already doing it paying Nokia $1 a year during the transition to Windows Phone. I suspect MIcrosoft's next move would be to loan Nokia $5b to retire thier existing debt if Microsoft can get convertible options at $5 share, 5% per year interest and patents, mapping and WP phone manufacturing as collateral. Microsoft would then have the option of 1b shares or 20% common.  It would be a sweet deal since Microsoft could use $5b of the foreign profits avoiding US taxes.
Jun 15, 2012 10:16PM
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As cheap as Nokia is right now, it wouldn't be a bad move on Microsoft's part.  They should pick up RIM while they are at it.  
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