Blog: Never Count Microsoft Out: Microsoft-Nokia Acquisition Analysis (September 2013)

By Mary Monahan, Javelin Strategy & Research

Microsoft’s canny purchase of Nokia for the bargain price of $7.2 billion reopens the rumors that Stephen Elop’s move to Nokia was a Trojan horse, intended to open the doors to the announcement last week. Nokia’s share of the handset market under Elop shriveled, while its stock price dropped more than 60 percent, allowing Microsoft to swoop in for the killer deal. While it’s doubtful Elop’s performance at the helm of Nokia could be considered praise-worthy, he was quick to expound when he took over that he was at the helm of a “burning platform” in his now infamous memo to employees.

Currently, Elop is slated to move to the position of executive vice president of devices and services to minimize conflict of interest issues while the deal is closing, with the idea that he’ll be moving to Microsoft as the executive vice president of devices. But the CEO search at Microsoft is sparking speculation that Elop is the leading successor. Outgoing CEO Steve Ballmer said, “Stephen will go from external [candidate] to internal. The board will continue [to look at] all appropriate candidates through that process.” Will Elop end up in the open Microsoft CEO position? Expect to hear more of Mr. Elop in the future.

The market reacted with displeasure, shedding $12.66 billion of Microsoft market capitalization as the news was disseminated (from Friday’s close to Tuesday’s close). Nonetheless, Microsoft must change or move into irrelevance. This is a good vertical integration deal for Microsoft, following in the footsteps of Apple and Google, capturing its biggest OEM. It is slated to move its gross margin take from smartphone sales from less than $10 to more than $40. The deal further solidifies Microsoft’s current run to become the third player to break into the Google-Apple duo’s dominance of the smartphone/tablet market.

Javelin’s latest poll of the smartphone market share in July shows that Microsoft is still head to head with Blackberry holding onto just 5 percent of the primary consumer smartphone market. Microsoft’s stated strategy of building a family of devices and services fits nicely with this acquisition. With Apple Passbook’s slowness to embrace payments, Microsoft has an opening to move ahead with Nokia’s NFC capabilities. And similar to the messaging during the Google-Motorola purchase, Microsoft is reassuring its other OEMs that this move will not affect their relationships.

Meanwhile BlackBerry retains a solid hold on third place in the business segment of the smartphone market, and is looking for a suitor. Could lightning strike twice?

Mary Monahan is executive vice president and research director of mobile for Javelin Strategy & Research, where she oversees and tracks mobile banking initiatives, mobile infrastructure to support mobile banking, mobile marketing and mobile imaging trends. Monahan will be providing additional insight on mobile payments issues at the upcoming Money2020 conference. She can be reached at [email protected].

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