Nokia’s loss could be Microsoft’s gain as computer giant buys ailing mobile manufacturer

In what is likely to be Microsoft chief executive Steve Ballmer’s last significant move before his retirement, the tech titan has bought the mobile assets of Nokia, along with a licence to use its patents, for $US7.2 billion.

It follows on Microsoft’s 2011 partnership with Nokia to license its Windows Phone operating system on its Lumia line of smartphones.

In the statement announcing the deal, Ballmer spruiked the synergies that already exist between the two companies.

“Bringing these great teams together will accelerate Microsoft’s share and profits in phones, and strengthen the overall opportunities for both Microsoft and our partners across our entire family of devices and services,” he said.

Technology writer and analyst Paul Wallbank told SmartCompany the deal was likely prompted by Microsoft’s recent failures in launching its own mobile and tablet hardware devices, leading it to try to bring in Nokia’s proven expertise in launching these types of products.

“Microsoft is hoping that by taking over a devices business, it’ll give them those management skills to be able to execute,” he says.

The deal also signifies Microsoft trying to replicate strategy of Apple, Telsyte senior analyst Rodney Gedda told SmartCompany.

“If you look at Apple, and to a lesser extent Google [Android], they sell their own devices with their own operating system, tied together with their own app store.

“With this deal, Microsoft could stand equal from an architecture point of view with Apple and Google.”

This controlling of the entire supply chain is a hallmark of the post-PC era, according to Wallbank.

“Apple showed that not only should you control the supply chain, but that you can also control the distribution chain,” Wallbank says.

“This pays off. There was one technology commentator overnight saying that just licensing the operating system gives Microsoft $10 per Nokia device. Making the device would net them $40.”

However, Microsoft is a long way behind, Wallbank cautions. Apple in particular has been ruthless in building their supply chain capabilities, which means they can source components at price points that their competitors can’t. This has been less of a problem for Google, as their Android system is open source, and is offered by many other device manufacturers, including Apple component supplier Samsung.

For Nokia, the deal caps off years of declining sales and market-share. Until 2010 it was the world’s leading mobile phone manufacturer.

“It was death by two nails,” Gedda says.

“It boiled down to too little too late. Apple stormed onto the scene in 2007 and 2008, and took people’s attention away from Nokia with a better-executed product.

“Since then, you’ve also had Android moving in. Its success has been due to different suppliers being able to offer it – it’s open and available to any manufacturer, so it’s become the world’s dominant mobile operating system. That didn’t help Nokia. If people weren’t getting an iPhone, they were getting an Android.”

“Microsoft is willing to lose money when it enters a market for the growth of the overall vision – to be a major player in these areas.

“But the stakes are raised with this deal. It’s not clear whether other mobile phone manufactures would want to run the Windows operating system now that it’ll be competing against them with its own devices.”