Nokia stock surges on Microsoft takeover

[Steve Williams]

By Matti Huuhtanen, Associated Press

HELSINKI (AP) -- Microsoft Corp. is buying Nokia Corp.'s line-up of smartphones and a portfolio of patents and services in an attempt to strengthen its fight with Apple Inc. and Google Inc. to capture a slice of the lucrative mobile computing market.
The 5.44 billion euros ($7.2 billion) deal announced late Monday marks a major step in the company's push to transform itself from a software maker focused on making operating systems and applications for desktop and laptop computers into a more versatile and nimble company that delivers services on any kind of Internet-connected gadget.

"It's a bold step into the future — a win-win for employees, shareholders and consumers of both companies," Microsoft CEO Steven Ballmer told reporters at Nokia's headquarters in Finland Tuesday. "It's a signature event."
Microsoft hopes to complete the deal early next year. If that timetable pans out, about 32,000 Nokia employees will transfer to Microsoft, which currently has about 99,000 workers.

The proposed price consists of 3.79 billion euros ($5 billion) for the Nokia unit that makes mobile phones, including its line of Lumia smartphones that run Windows Phone software. Another 1.65 billion euros ($2.2 billion) will be paid for a 10-year license to use Nokia's patents, with the option to extend it indefinitely.
Investors in Nokia welcomed the deal, sending shares in the company up some 40 percent to 4.12 euros in Helsinki.
Microsoft, based in Redmond, Wash., has been racing to catch up with customers who are increasingly pursuing their digital lives on smartphones and tablet computers rather than the traditional PCs. The shift is weakening Microsoft, which has dominated the PC software market for the past 30 years, and empowering Apple, the maker of the trend-setting iPhone and iPad, and Google, which gives away the world's most popular mobile operating system, Android.
Nokia, based in Espoo, near the Finnish capital, and Microsoft have been trying to make inroads in the smartphone market as part of a partnership forged in 2011. Under the alliance, Nokia's Lumia smartphones have run on Microsoft's Windows software, but those devices haven't managed to compete with iPhone or an array of Android-powered devices spearheaded by Samsung Electronics' smartphones and tablets
Microsoft is betting it will have a better chance of narrowing the gap if it seizes complete control over how the mobile devices work with its Windows software.
Despite the dismal performance of Windows phones — 7.4 million units in the second quarter compared to Apple's 31 million and 187 million Android phones, according to research company IDC — Microsoft CEO Steven Ballmer was upbeat about the partnership with Nokia, saying he was encouraged by a growth of 78 percent in Lumia phone sales in a year.

"Now is the time to build on this momentum and accelerate it further," Ballmer said Tuesday. "Finland will become the hub and center for our phone R&D and we are counting very much on the incredible talent of Nokia employees to be a key part of driving and propelling Microsoft forward."
Ballmer said that Microsoft will invest more than $250 million in a new data center to serve European consumers.
Neil Mawston from Strategy Analytics said the move was good for Nokia's shareholders but did not change much for the ailing Finnish firm which has lost significant market share.

"Nokia is still heavily dependent on Microsoft's software capabilities and Microsoft continues to lag the market like it has done in the last few years," Mawston said. "Not much will change whether Nokia is inside or outside the Microsoft portfolio."
The acquisition is being made at the same time that Microsoft is looking for a new leader. Just 10 days ago, Ballmer, 57, announced he will relinquish the CEO reins within the next year in a move that many analysts regarded as Microsoft's tacit admission that the company needed an infusion of fresh blood to revitalize itself.
Nokia said that Stephen Elop will step down as president and CEO of the company with board chairman Risto Siilasmaa taking over his duties as an interim CEO.
The deal has fueled speculation that Elop, a former Microsoft executive, will emerge as a top candidate to succeed Ballmer. He will become executive vice president of Nokia devices and services in preparation for joining Microsoft once the acquisition closes

The deal with Nokia represents the second most expensive acquisition in Microsoft's 38-year history, ranking behind an $8.5 billion purchase of Internet calling and video conferencing service Skype. Tony Bates, who ran Skype, is also regarded as a potential successor to Ballmer.
The money to buy Nokia's smartphones and patents will be drawn from the nearly $70 billion that Microsoft held in overseas accounts as of June 30.
Microsoft expansion into mobile devices hasn't fared well so far. Last year, the company began selling a line of tablets called Surface in hopes of undercutting Apple's iPad. The version of Surface running on a revamped version of Microsoft's Windows operating system fared so poorly that the company absorbed a $900 million charge in its last quarter to account for the flop.

 

[Keith_W]

In the other thread it was mentioned that Elop might take over Ballmer's position as CEO. Interesting to see what happens next.

 

[amirm]

In the other thread it was mentioned that Elop might take over Ballmer's position as CEO. Interesting to see what happens next.

And I said the precursor to that would be acquisition of Nokia . Nokia has a strong patent portfolio in mobile devices which will be a help to Microsoft in its fights with Motorola and such.

Two (rather) struggling companies (in mobile/devices market) merging. Wonder how much precedence there is for the combo to do better than the parts.

Just the other day I was watching Nokia commercials and thinking how their sales would improve if they also supported Android on the same phone. Today, a decision to go Nokia requires going with Windows phone which is a non-starter for many.

Overall, it is a logical move for Microsoft and for Elop (to make some money). A move that has been in play for months so it would have factored in Steve's decision. With so much of the company now hardware focused, in markets that Steve is not comfortable in, may have triggered the push for his retirement.

 

[FrantzM]

Hi

I would not discount MSft too fast. Their products have gotten much better these past few years. The world is going mobile and Nokia knows a few things about mobile communications. MSoft knows a few things about Software. The duopoly (AIOS and Android) could be short-lived. There is now an elephant in the room and it does have money and reach .

 

[JackD201]

Hi

I would not discount MSft too fast. Their products have gotten much better these past few years. The world is going mobile and Nokia knows a few things about mobile communications. MSoft knows a few things about Software. The duopoly (AIOS and Android) could be short-lived. There is now an elephant in the room and it does have money and reach .

It took just one application to wrestle market share from Sony and Nintendo for the X-Box. What will be Microsoft and Nokia's equivalent to the Halo series? They've done it before, they can do it again.

If I were them I'd do something with massive multiplayer that can take advantage of their X-box Live network. 50 million loyal members is a great place to start.

 

[FrantzM]

It took just one application to wrestle market share from Sony and Nintendo for the X-Box. What will be Microsoft and Nokia's equivalent to the Halo series? They've done it before, they can do it again.

If I were them I'd do something with massive multiplayer that can take advantage of their X-box Live network. 50 million loyal members is a great place to start.

And the +1.5 Billions Msoft Windows users ...

 

[asiufy]

And the +1.5 Billions Msoft Windows users ...

If those 1.5b users were to make a difference, they would've made it already, and that's not the case with Windows Phone. Most of these users are not truly satisfied, loyal users. They're more like an unwilling mass. Sort of like the Android user base, of folks who want a smartphone and just get what's cheaper/bigger/flashier/etc.

The path is surely a killer app, IMO. And Microsoft knows that, as they've been trying to lure developers, big and small, to their platform.

A major, MAJOR screw up was that, when they first announced the new Windows Phone (7.xx), they did a huge push with developers, and within 6 months, launched an entirely new, and incompatible OS (Windows Phone 8.xx). That, to developers, is even worse than Android's fragmentation problem. You're trying to lure people in, and all of a sudden you alienate the few you managed to do so that far...

But that is in the past now, and given enough funds, I'm sure these developers will be lured back in. But make no mistake, the lure wasn't the "1.5b Microsoft Windows users", it was cold, hard cash, that Microsoft distributes for its developers as a "prize" for releasing apps on its platform.


alexandre

 

[JackD201]

I'm with alexandre on this. It will have to be a killer app like Halo was for the X-box. I can't see how the 1.5B are going to help in the mobile market as the 1.5B are largely using Win for productivity. Mobile is entertainment land. Casual gaming and Social networking. Candy Crush wherever I turn. Holy smokes. Touch lends itself well to RTS games. Add a secondary touch pad and the device could be great for FPS and Sports Sims games as well. The single touch surface is a disaster for these types of games. With a second smaller touch surface one might even be able to edit text easily.

If they do this, I want royalties! LOL!

 

[amirm]

If those 1.5b users were to make a difference, they would've made it already, and that's not the case with Windows Phone. Most of these users are not truly satisfied, loyal users. They're more like an unwilling mass. Sort of like the Android user base, of folks who want a smartphone and just get what's cheaper/bigger/flashier/etc.

That is an off-topic and pretty incorrect analogy. Android users love their devices as much as the next guy. There is no way they could have eclipsed Apple if that was not the case. So let's not derail this thread with an incorrect jab at Android.

The issue here is that there just isn't room for three players naturally. In computing, there was Apple and Windows ecosystem. No other OS could penetrate that (although Chrome OS is making a decent run at it as of late). Going back to the previous point, precisely because both iOS and Android users love their devices makes this so hard for Microsoft. There is just no room to squeeze in. As an ex-Microsoft guy I can get Windows phone for almost nothing but instead, I pay $200 to upgrade to the next Android device. I love my phone and see no need to learn something else when that something else has holes in its app catalog.

With a long horizon, Microsoft may make headway. Question is, how to do that while carrying the weight of 32,000 (!) Nokia employees.

 

[FrantzM]

Hi

Seeing mobile as entertainment is wrong. The next step in communications and computing is mobility. Mobility is not even demanded: it is expected. MSoft must have a sound and long term strategy, leveraging their position on the desktop and in the server room/data center. it will take some times but it could work. The devil is in the details .. Execution is key.

 

[JackD201]

I'm going by what's being downloaded and used most at both Apple's and Google's stores by smartphone owners. Gates was right in his 2007 interview (only one with Jobs), he said five years from then he sees people with two devices a smartphone and and hopefully a tablet (he was the one that was really pushing it not Jobs). Laptops and netbooks are as mobile as one can get with productivity from code, spreadheets and word processors to even formerly desktop only applications like CAD and non-linear music and video editing. The desktop Jobs added will turn into the hub. He was right too, albeit laptops have now assumed that role for many as well. That's the bulk of the 1.5B.

Gaming on PC was eclipsed by consoles years ago. Mice, trackpads, trackballs etc along with keyboards are still needed because these darn fangled touch keyboards eat up so much screen space and remain prone to erroneous entries. A phone even the size of a phablet would be much less a good tool than a laptop on both the screen size and interface front. They can do all the best implementation on the interface front but when it comes to screen size the limit is not in technology but in our biology. Short of VR goggles there's not much that can be done on that front.

A tablet will still be a better tool for enterprise sales too. Different tools for different jobs. We have to face it. Smartphones are used for SMS, browsing (social networking included), mail and casual gaming even more than they are used for voice. Microsoft knows this.

Nokia on its own made actual game phone models with controls similar to that of consoles at the height of Nintendo's DS dominance. Lack of titles killed them. I surmise for the simple reason that they are not and have never been both a hardware and a software company. Nintendo was and remains so. Nokia's first smartphone/PDAs were beat by Symbian and Palm OS so they bought Symbian IIRC. This in turn eventually got clobbered by Win so they migrated. iOS and Android came along then they fell out of the race.

There is only one thing that can lure third party developers en masse and that is lots and lots of devices in the market and in use. In apple's case as well as google's it was their respective suites of apps especially the ability to seamlessly sync with the customer's respective hubs. No more manual simcard copying. There is the quandary for the 1.5B. Many were using G services NOT microsoft's own suites. Google beat Microsoft to Microsoft's own base! RIM was in my opinion the best at productivity/work phones and services albeit Samsung is really close now, maybe even better. Where RIM got clobbered was in their lack of entertainment features. BBM is no longer what it used to be in the eyes of even their faithful.

Question is, does Winkia want to be the next RIM or the next Apple and Google?

 

[amirm]

Bill Gates was a huge advocate of tablets. In almost every meeting with him we would get beat up for not doing more to optimize their design. I am talking circa 2000 to 2005. Alas, Sinofsky came to power and demoted and pushed out the VP that was in charge of that area. Perils of putting a pure software guy in charge when devices were rising in importance. Alas, Bill definitely was ahead of his time due to hardware being nowhere ready to be so thin, light and portable.

 

[JackD201]

Yup and Jobs and company broadened the market by ignoring the tablet's inherent productivity vs size and weight limitations by churning out a limited capability one targeted squarely at entertainment. Apple had been burned with Newton which tried to do everything but didn't do anything well. The Galaxy is way ahead of the iPad when it comes to art and text creation with their styli but really, that still can't compete with a notebook much less a dedicated render station with surfaces and big screens. There are a whole lot of products that try to turn an iPAD into a baby desktop or laptop. I don't think these are doing particularly well. You still have to carry them with you. If you are traveling and you need to do more than just read and answer a few emails or log onto a forum now and then might as well bring a laptop to go with your iPhone or whatever smartphone you choose.

 

[FrantzM]

Hi

Computing is moving away from in-device processing power to mobility and the cloud. The mobile terminal only needs to be ergonomic at this point in time. A tablet with the appropriate input devices (read, not the stupid screen keyboard I am typing on this very moment ) can tap into the virtually infinite power of the Cloud. You will see more people and companies using this model. It has been imperative for MSoft to be in the mobile space. Nokia is good as any inthe mobile space and I will not discount windows as a potential attractor in this space. I would bet that more applications exist in windows than In all other OS combined.

 

[Keith_W]

(Fictional account of how Elop came to join Nokia from the point of view of Steve Ballmer, original link here):

--- --- --- --- ---

"Bring me Elop."

It was April, 2010. Nokia was in turmoil. Everyone was. Everyone, that is, except Google and Apple. The iPhone's share of the smartphone market was shooting ever higher, and Google was out there just giving its mobile platform away. For free! For fu-...this wasn't how it was supposed to be. We were supposed to be able to sell the code. No manufacturing costs, minimal physical supply needed. It was brilliant. Why would you go and throw that dream away for advertising money? It's ridiculous.

Can't think about that now, though. We've got a war to win. Apple's not going to be a problem. You can't build a dominant platform if you're the only one building the hardware. But Google? If they keep this up, they might actually be able to corner the mobile market. Control the platform by inserting yourself in the middle. Let the builders build, but make them need you.

Bill would have seen it coming. It was his move.

Windows Phone won't be ready until the year's almost over. By that time, Android will be huge. Way bigger than Windows Mobile. If I could stop it, I would, but that's not possible right now. No, we need to think longer-term. We need the platform and we need the hardware. If we can't sell software, we need to control the stack from top to bottom. What we need is someone we own.

"Mr. Ballmer. What can I do for you?" Stephen Elop asks as he walks into my office.

This guy. Brought him in two years ago and he's already raking in cash. Office 2010 is set to blow up when it comes out in a couple months. Brilliant hire. I need more from him, though. If this goes as planned...

"You hear about Nokia? Crazy ****, am I right?"
"Yes sir. Apparently they're looking for a new CEO. Can't say I blame them. Kallasvuo took over the biggest phone manufacturer in the world but can't even manage to dent the US market. Pretty lousy management, if you ask me."
"Oh, sure. Not like you, right? You just came on board, what? Two years ago?"
"Yes sir, two years ago in January."
"Cut the 'sir' ****. No need for that here. And yeah, two years. Yet, you took Office and showed folks what a real manager can do. You know our analysts expect to make roughly a **** load off 2010, right?"
"Yeah. About $18b in revenue for the launch quarter is what I heard."
"Damn right."
"Thank you."
".....Which is why I'm firing you."

His eyes widened. He's angry. He'll calm down in a minute, but man this **** is too funny. He knows he's a money maker and he knows I'd be stupid to let him go. Of course that joke would make him furious.

But he has to go. I need him elsewhere.

"But-"
"Well, not 'firing', per se. But you have to leave Microsoft. For a bit, at least."
"I don't understand. We're-"
"It's Google. It's Apple. The landscape is changing. We can't continue to charge hundreds of dollars for software that everybody else is giving away for free. They fucked the market on this one. We need a hedge. Right now, we control the world's PCs. Which is awesome. Just awesome. But Windows Mobile is tanking, and Apple's iPad crap is doing better than I'd like. We're completely absent from key markets. We don't want to be IBM. We don't want to be sitting on the sidelines for the next phase. We need to be in this game."
"So, why does that involve me leaving the company?"
"Because the company...isn't complete."

I let him digest it for a second. He's a smart man. I need to know he can understand what I want. If he can't think like a Microsoft man, he's not the one I need for this job...

"We don't have phones," he says.
"Exactly."

He probably knows we're developing a new mobile OS. It's not part of his division, but it'd have been impossible for him to not hear a whisper of it somewhere. I can see him starting to understand, though. It's not just about the software anymore. It's the devices. It's the services.

"Nokia's wide open," Elop says, his eyes zipping back and forth. He's plotting.
"Yes, it is. Leadership is on its way out. If they're looking outside the company, you'd have a hell of a resume."
"Yeah, but Espoo's never hired a non-Finn."
"Then you'll be the first."
"And once I'm in?"
"What do you mean? You're talking like we're plotting something! No, no. You'd be the CEO of Nokia. You'd have to do what's in the best interest of the company. As much as I hate to lose you, you wouldn't be a company man anymore. You'd need to do what's best for Espoo."
"Uh-huh."
"Though, as a friend, if I may offer some advice: don't go the Android route. It's ugly, it's fragmented, and you'll have a hell of a time differentiating yourself. If I were you, I'd try to find a new, more modern platform to get on board with."

A smile starts to cross his face. He gets it. When Windows Phone comes out later this year, he'll be in that seat, ready to deliver to us the biggest smartphone manufacturer in history as a strategic partner.

Which gets our foot in the door.

"Of course, Elop...there are no guarantees."
"What do you mean?"
"I mean, Nokia is a struggling company. It would be great if you could turn them around by teaming up with the best mobile platform you can find. But...you know, manufacturing is a tough business."
"Yeah..."
"You'd need capital. Lots of it. Honestly, I'm not sure how much longer Nokia could hold on. Right now, they're worth, what? $45 billion? Even if you do everything perfectly, they'll plummet in value from killing Symbian alone. In fact, Nokia could end up dying off completely."
"That would be a shame."
"Wouldn't it? I mean, think of it. This company has been around for decades! And they could end up sold for a pittance in a few years."
"You know, when you say it like that, I'm not so sure I have much incentive to run the company. If nothing I do could save them, why would I want to be on a burning platform?"
"It doesn't matter if you're on the platform. All that matters is where you land when you jump off."
"And where would I land?"

He knows it's a bigger risk to him than it is to me. I want Nokia. I want their patents, their hardware, their camera tech. I want it all. Bill made this company great on the backs of PCs. I won't go down in history as the guy who ran it into the ground. I won't be around forever, but I need to know I can give Microsoft a future. I need to know that when I leave, Microsoft has something it can compete with for the next decade. Even if I have to pay for that future with...

"...My job."

 

[amirm]

That's a funny read Keith. I know nothing about Elop. He came to Microsoft right after I left.

 

[JackD201]

Hi

Computing is moving away from in-device processing power to mobility and the cloud. The mobile terminal only needs to be ergonomic at this point in time. A tablet with the appropriate input devices (read, not the stupid screen keyboard I am typing on this very moment ) can tap into the virtually infinite power of the Cloud. You will see more people and companies using this model. It has been imperative for MSoft to be in the mobile space. Nokia is good as any inthe mobile space and I will not discount windows as a potential attractor in this space. I would bet that more applications exist in windows than In all other OS combined.

For sure. Mobile games that leverage this are already in existence, Sky Gamblers (Muliplayer WW2 dogfights) comes to mind. Very little latency off WiFi and LTE. As connection speed continues to grow so will reliance on the cloud. I agree it is the natural evolution. Video conferencing, the (bane of every unfaithful spouse LOL!) will also rise dramatically as it has for VOIP. We'll be able to listen to our music at higher bit rates off the cloud too. Still, I contend that the uses will remain to be heavy on entertainment which outside of the Xbox is MS' present weakness. Early MS tablets made in-roads Doctors making rounds and industries that required a host of sales reps on the move. It didn't catch on much anywhere else until gaming first on the iPod touch and iPhone 1 then onto the iPad and iPad mini. Food for thought Angry Birds series which addicted even Stevie to find all the golden eggs was downloaded over 1 BILLION times. The only other game, one designed for 8-bit consoles then gameboys and now everywhere else with similar numbers is Tetris.

Yeah man, I hate the keyboard! Since I'm bilingual and local casual communication uses words from both languages, predictive text takes forever to save and use the filipino words. I'm a bad enough typer on a real keyboard as is.

A launch with these five franchises each with sales in the multi-millions, Forza, Call of Duty, Halo, FIFA and NBA*K would be huge. The first three have never been ported to mobile, the latter two are almost unplayable and are thus getting low ratings because of the poor gameplay afforded by the touch only interface. Now if a launch with "only" 20 million units in the first year isn't enough to get the attention of 3rd party developers, I don't know what will.