Microsoft, Nokia and the rape of Europe
Microsoft’s purchase of Nokia’s devices and services division, announced today, is the culmination of a long-term strategy that began with the arrival of Stephen Elop at the Finnish giant and that comes to an end with his return to Microsoft as one of the candidates most likely to take over from Steve Ballmer.
Along the way, the company that was once the pride of European technology has been stripped of its assets. When Elop arrived, Nokia was Europe’s largest company by market capitalization; since then, its share price has fallen from 11 cents to four cents as part of a process of value destruction that seems designed to have enabled Microsoft to acquire it for a song. In 2007, Nokia’s market share in the nascent smartphone sector was 49.4 percent. That figure had fallen to 4.3 percent by the end of last year.
For the company that was once the biggest manufacturer of phones in the world, abandoning its R+D activities to enter into an alliance with a Microsoft whose likely future CEO was its own former head was a gamble: had it opted for Android, it may have gone down the same road as Samsung, today the market leader. Elop’s February 2011 decision meant that a major manufacturer did not join Android’s ranks, instead going for the newly launched product of his former company, and in so doing, he turned himself into some sort of rock star with the hardest memo in corporate history, and he readied his return to Redmond at the highest level.
The conspiracy theory that Stephen Elop was a mole sent by Microsoft to take control of Nokia, suggested by many in 2011 when the alliance was announced, now seems credible. Even after signing the alliance with Nokia, Microsoft’s involvement was never seen as total by many in the company, who complained that Microsoft was spending more money on advertising devices made by HTC or Huawei than Nokia.
The 7.2 billion dollar operation gives Microsoft the lion’s share of Nokia for little more than chump change: it is paying 5 billion dollars for the division, and 2.8 billion dollars for a 10-year deal giving it the rights to technologies and patents that still remain in the company; technologies and patents that still remain in the company; its network equipment, patent portfolio (8,500 design patents and 32,000 utility and application patents), as well as the geopositioning division Nokia Here. As with its purchase of Skype, for which Microsoft paid 8.5 billion dollars in May of 2011, the money has been found from the company’s operations outside the United States, money that would have been subject to taxes had it been repatriated.
Microsoft will take on 32,000 Nokia employees, of which 18,300 are directly involved in manufacturing, and 4,700 are in Finland. What’s left of Nokia—to which Microsoft can pretty much help itself—there is a workforce of some 56,000. With this acquisition, Microsoft consolidates its hardware business, following the steps of its would-be competitors: Apple and Samsung, which have the same supplier, and Google, whichbought Motorola Mobility in August 2011 for 12.5 billion dollars. It remains to be seen whether, as Vic Gundotra famously said in a tweet about the 2011 Microsoft-Motorola deal, “two turkeys do not make an eagle”.
Microsoft will continue licensing Windows Phone to other suppliers such as HTC, Samsung or Huawei, with which it will try to maintain a similar relationship to Google’s with the rest of its ecosystem following the acquisition of Motorola, but will now obtain more than 40 dollars per device its sells via Nokia, compared to the less than 10 dollars before the purchase.
For Microsoft, the deal is doubtless advantageous: it sent in a director to Nokia, destroying the company’s value, and then buying the company for peanuts while holding on to its manufacturing capacity and getting access to its patents. For Nokia shareholders, this is a temporal trap: the deal allows them to obtain a reasonable share price for their actions at today’s prices. This of course avoids the question of what their shares would have been worth if Stephen Elop had not taken over and made decisions that to many would have made more sense… but that remains in the slippery land of economy-fiction.
The most important and symbolic division of a European technology company is now in US hands following an operation that is questionable from many perspectives, but without doubt advantageous. Business is business, and has no flag… or does it?
