Microsoft buying Nokia makes perfect sense

Ballmer pumped

Despite the weakness in Microsoft'southward stock price today (information technology's down nigh five%), I think their decision to buy Nokia's hardware and services business concern is admittedly the right move. And it really shouldn't be much of a surprise. When Stephen Elop made the gutsy decision to kill Symbian and bet entirely on Windows Phone, most people correctly had a strong sense that this would eventually happen.

Simply Wall Street isn't likewise excited at the notion of Microsoft spending over $7 billion in cash to double down on its smartphone bet. And that's understandable. Information technology'due south a lot of coin for a potential failed deal. I think information technology probably volition finish up existence successful for Microsoft. They've already climbed up to the #3 position in the smartphone market, having overtaken BlackBerry. If they can achieve this while having to balance the growth objectives of two split companies, so I think it should but become easier for them equally a combined entity.

Equally a long-term BlackBerry user I always hoped the Canadian competitor would cement its #3 position in the market. But they haven't been able to practice so. And I think Microsoft'south push to become more than apps on its platform has been ane of the driving forces behind its success. BlackBerry didn't dump enough money (in a smart enough style) into programmer recruitment. I remember when I'd visit the website for pretty much any pop app and I'd meet little advertisement for both the iTunes App Store and Google Play. At present I'thou seeing more situations when Microsoft is mentioned. Microsoft says that it is outselling BlackBerry in 34 markets around the world. They've got some decent momentum happening.

$five billion of the deal is attributed to Nokia'southward hardware business. It'south widely reported that Microsoft was bringing in less than $10 of revenue per handset sold, but will now bring in about $forty per unit. Let'southward assume internet profit tin can be half of this, or $20 per telephone. If Microsoft can maintain a solid #3 position in the marketplace it isn't crazy to think of them selling 250 million units over several years. This could bring in $5 billion of boosted income based on my quick math. In other words, I don't think Microsoft is overpaying here.

In reading the report from Kantar Worldpanel from yesterday I call up it'due south interesting how Microsoft has been successful in gaining market share by disarming get-go time smartphone buyers to endeavour Windows Phone. The loftier end of the marketplace is dominated by Samsung and Apple. But well-nigh half the planet is still buying impaired phones, and this is bound to change. Nokia was successful with the Lumia 520, and it seems that under Microsoft's ownership the Windows Telephone Os will build disquisitional mass as Lumia penetrates the lower stop of the marketplace. Not anybody wants to purchase cheap Android phones. BlackBerry'due south legacy Bone isn't compelling and the company has been also tedious to bring BlackBerry 10 to emerging markets. Apple hasn't attacked the lower cease of the marketplace at all yet. That leaves a lot of opportunity for Microsoft. And I'thou non proverb Microsoft has to compete only at the low stop. That's just where they get their critical mass. From in that location, they tin fight for customers in the entire spectrum of toll points.

As for Nokia? This sale is exactly what they needed. They were not big enough (whatsoever more) to guarantee themselves success, but they were besides big to fail. They will now have a hugely stiff balance sheet with which to invest in wireless infrastructure and location based services.

(Chris Umiastowski is a contributing financial writer to the Mobile Nation network. You can see the rest of his posts at AndroidCentral, iMore and CrackBerry.)

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