Merger acquisition between microsoft and nokia

CONTENT
INTRODUCTION...........................................................................................................................2
CHAPTER 1: INTRODUCE TO MERGERS AND ACQUISITIONS (M&A).............................3
1.1 Definition:..............................................................................................................................3
1.2 Comparison Merger and Acquisitions....................................................................................4
1.3 The types of Merger...............................................................................................................4
1.4 The type of Acquisitions........................................................................................................5
CHAPTER 2: COMPANIES OVERVIEW.....................................................................................6
2.1. Nokia company.....................................................................................................................6
2.1.1. Strengths of Nokia..........................................................................................................6
2.1.2. Weaknesses of Nokia......................................................................................................7
2.1.3. Opportunities..................................................................................................................8
2.1.4. Threats............................................................................................................................8
2.2 Microsoft company.................................................................................................................8
2.2.1 Strengths of Microsoft.....................................................................................................8
2.2.2 Weaknesses of Microsoft................................................................................................9
2.2.3 Opportunities.................................................................................................................10
2.2.4. Threats..........................................................................................................................10
CHAPTER 3: M&A REASON......................................................................................................10
3.1. Why Did Microsoft Buy Nokia?.........................................................................................11
3.2. Why Did Nokia Sell To Microsoft?....................................................................................13
Chapter 4: Process and Result of M&A between Nokia and Microsoft........................................14
4.1. The process..........................................................................................................................14
4.2. The result.............................................................................................................................16
CHAPTER 5: ASSESSMENTS....................................................................................................17
CONCLUSION..............................................................................................................................20
REFERENCES..............................................................................................................................21


INTRODUCTION
In the recent years, Mergers and acquisitions are at an all-time high. M&A’s are an

exciting time for organizations. Deals create a lot of heightened expectations for shareholders,
customers, and employees. However, what looks good on paper doesn’t come to life all too
often.
In the last 100-odd years, there have been six waves of rapid merger activity in the U.S.
At the turn of the 20th century, horizontal mergers, which united companies in the same industry
(such as steel or oil) and formed monopolies, were common. Another wave, this one in the
1960s, saw companies trying to diversify, with mergers that created conglomerates such as
General Electric, which had businesses ranging from manufacturing equipment, to television,
and even financial services. In the 1990s, deregulation and globalization led to another wave, one
that was heavily concentrated in the banking and telecommunications industries. Many people
now think the economy is squarely in the middle of a seventh wave. According to data from
Thomson Reuters, 2015 is set to be the biggest year ever in worldwide deal-making, with $4.7
trillion in announced mergers and acquisitions—up 42 percent from 2014, and beating the
previous record of $4.4 trillion in 2007.
However, Mergers and acquisitions should never be taken lightly. Not only are you
asking two companies to integrate under one corporate mission, but you are bringing together
large groups of people with their own personalities, ambitions, behavioural traits and ways of
working. The complexity ramps up when multiple branch offices, cross-border IT infrastructure
and financial regulation are included. Without a clear strategy, effective project management and
open communication between stakeholder groups, the merger or acquisition will struggle to
deliver the desired results.
In 2013, Microsoft announced it was buying Nokia for $7.2 billion. Microsoft Corp
bought Nokia's phone business and license its patents and changed its name to Microsoft Mobile
in order to increase Windows Phone market share compare to iOS and Android by Apple and
Google respectively. This is a huge deal and have many effects on the mobile market. For this
reason, the authors chose the topic: “” to analyze this acquisition and its result.


The research paper provide from general to specific views on Mergers and acquisitions . As
consequences of that, the paper might be useful and valuable to some extent for international

trade in general and Vietnamese Mergers and acquisitions in particular.
On the basis of logic of solving problems reliant on theoretical framework and actual state, the
paper is divided into two chapters:
Chapter 1: Introduce to Mergers and acquisitions (M&A)
Chapter 2: Companies Overview
Chapter 3: M&A Reason.
Chapter 4: Process and Result of M&A
Chapter 5: ASSESSMENTS

CHAPTER 1: INTRODUCE TO MERGERS AND ACQUISITIONS (M&A)
1.1 Definition:
Mergers and acquisitions (M&A) is the area of corporate finances, management and strategy
dealing with purchasing and/or joining with other companies.
One plus one makes three: this equation is the special alchemy of a merger or an acquisition. The
key principle behind buying a company is to create shareholder value over and above that of the
sum of the two companies. Two companies together are more valuable than two separate
companies - at least, that's the reasoning behind M&A
-

Acquisition:

When one company takes over another and clearly establishes itself as the new owner, the
purchase is called an acquisition. From a legal point of view, the target company ceases to exist,
the buyer’s stock continues to be traded.
-

Mergers:

A merger happens when two firm agree to go forward as a single new company rather than
remain separately owned and operated. This kind of action is more precisely referred to as a

“merger of equals”. The firms are often of about the same size. Both companies’stocks are
sureendered and new company stock is issued in it place.
1.2 Comparison Merger and Acquisitions
Although they are often uttered in the same breath and used as though they were synonymous,
the terms merger and acquisition mean slightly different things. When one company takes over
another and clearly established itself as the new owner, the purchase is called an acquisition.
From a legal point of view, the target company ceases to exist, the buyer "swallows" the business
and the buyer's stock continues to be traded.
In the pure sense of the term, a merger happens when two firms, often of about the same size,
agree to go forward as a single new company rather than remain separately owned and operated.
This kind of action is more precisely referred to as a "merger of equals." Both companies' stocks
are surrendered and new company stock is issued in its place. For example, both Daimler-Benz
and Chrysler ceased to exist when the two firms merged, and a new company, DaimlerChrysler,
was created.
1.3 The types of Merger
There are various types of Mergers:

 Horizontal merger:
-

This kind of merger exists between two companies who compete in the same industry
segment. (say, if McDonald's were to merge with Burger King).

-

The amalgamation of Daimler-Benz and Chrysler is a popular example of a horizontal
merger.

 Vertical merger:
- Vertical merger is a kind in which two or more companies in the same industry but in different
fields combine together in business. One such merger occurred between Time Warner
Incorporated, a major cable operation, and the Turner Corporation, which produces CNN, TBS,
and other programming.
- Vertical merger may take the form of forward or backward merger. When a company combines
with the supplier of material, it is called backward merger and when it combines with the
customer, it is known as forward merger.


 Conglomerate merger:
- It is a kind of venture in which two or more companies belonging to different industrial sectors
combine their operations
An example of a successful conglomerate is General Electric, popularly known as "GE." General
Electric, formed by Thomas Edison in 1890, began as a lighting business and has since
transformed into a conglomerate that is more synonymous with "general" than "electric."
1.4 The type of Acquisitions
Acquisition usually refers to a purchase of a smaller firm by a larger one. Sometimes, however, a
smaller firm will acquire management control of a larger and/or longer-established company and
retain the name of the latter for the post-acquisition combined entity. This is known as a reverse
takeover.
Another type of acquisition is the reverse merger, a form of transaction that enables a private
company to be publicly listed in a relatively short time frame. A reverse merger occurs when a
privately held company (often one that has strong prospects and is eager to raise financing) buys
a publicly listed shell company, usually one with no business and limited assets


CHAPTER 2: COMPANIES OVERVIEW
2.1. Nokia company.
Nokia is a Finnish technology and multinational communication

company. It ‘s headquartering in Espoo, Uusimaa. In 2014 Nokia
employed 61656 persons all over the world. It reported annual revenues of around £12.73 billion
by conducting sales in more than 151 countries. Being a pubilc limitted liability company, listed
on the Helsinki Stock Exchange and NYSE, it became the world’s 274 largest company
measured by Fortune Global 500 in 2013
2.1.1. Strengths of Nokia


Brand: The biggest strength of the company is their brand name. Many consumers often
opt for Nokia more than any other brand because of the reliability, durability, and
creativity their phones provide. Nokia has experience of 142 years of history for Nokia –
Nokia has a fantasic history behind it and it was one of the top brands selling in the
market before the launch of Android or IOS Smartphones.



Marketing strategy: Nokia has marketing strategies and its thickness, small professional
to each poster, always evaluate
and listen customer needs to
provide

different

segment

product.

Therefore,

Nokia's

products

are

suitable

and

friendly to each customer


User friendliness – Till date
Nokia is remembered with
fondness because it was the
first mobile phone for many
people and it was very user friendly. It was durable too.



Nokia is top spender in R&D


Research and development is the most important department if you want innovative
products – it’s where tech breakthroughs are made. So, how much a company spends on
R&D should be a clear indicator of how much “innovation” each company has. The
analysts at Bernstein Research reckons that the Finnish company spent $3.9 billion, or
nearly three times as the competitors spend on average.


Largest network of selling & distribution. It has fantastic distribution and reach across
countries.



Strong customer relation



Wide range of products for all class



High Resale value compared to other competitors



Durability



Long battery life



User friendly



Global Expansion

2.1.2. Weaknesses of Nokia
The next part of SWOT analysis of Nokia is their weaknesses:


Nokia Corporation has very weak presence in the United States’ cellular market.
Nokia has remained the largest mobile carrier in the world, the brand Nokia is also just
behind Google and Coca Cola but in the US market, Nokia has remained a strange name
of telephone sales in global consumption. There is a survey which indicates that in the
area of downtown of San Francisco, there is no one model “senior” of Nokia appeared in
stores. At its stores telecom AT & T, the most advanced smartphone that Nokia distributed
just E71 with full querty keyboard with just 50 USD price. Additon, at the Verizon shop,
the largest telecomunication company America absolutely no presence of Nokia.
In Japan, domestic seller such as Panasonic, Fujisu, Sharp and NEC mainly drives the
cellular market growth and Nokia has very fragile position.



Low sensitivity to industrial changes – they are not very much sensitive and responsive to
the new changes to user expectations. Some other drawbacks are: Poor designed
smartphones; Low performance of smartphones; Poor after-sell service


Slow reaction to the competition – in the growing marketplace, they are very slow to take
an initiative to be more competitive.

2.1.3. Opportunities
After discussing the internal factors of SWOT analysis of Nokia, let’s shift our focus towards
external factors:


Growing Mobile Market – the mobile market is growing vastly day by day.



Faster growth of demand for smartphones

2.1.4. Threats
The final part of SWOT analysis for Nokia is the threats:


Competitors are becoming stronger. Samsung and Iphone – Both of them had wiped out
Nokia in 2014 and they will again challenge the phone in 2016 as well. China mobiles –
It has made exact copy of several Nokia phones, literally pushing the phone out of
market. Cheap & wide range models from various Smartphone manufacturers –
Smartphones are the trend right now and Nokia needs to go along with the trend.



New entrants are there, there are many new and strong competitors are emerging, so the
market is becoming more competitive.

2.2 Microsoft company.

This SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) should provide some
insight into how Microsoft’s future might turn out.


2.2.1 Strengths of Microsoft


A Huge Worldwide Reach: Microsoft has been producing quality products for over 40
years, and have built themselves a name doing so. Their computers and software appear
in almost every household, showing their immense popularity. With this, they have a
great (and often loyal) customer base and a platform for advertising, through their
existing products. Just look at Windows 10, which they promoted in older versions of
their popular operating systems. It has already reached over 200 million install.
Source: />


Plenty of Capital: That Microsoft is 5th when it comes to the world’s largest companies
shows just how much money they must have to spend. With this, they can adopt much
more aggressive marketing strategies and invest more time and money into developing
great products.



A Good Track Record: With great power comes great responsibility. Microsoft may not
produce much free software, but they do offer plenty of customer support options and
have a line of products which generally work as advertised.



Strong distribution channels. The company works with all the major computer hardware
producers such as Lenovo, Dell, Toshiba and Samsung and major computer retailers to
make sure computers would be sold with already pre-installed Windows software. The
company also invested in Dell and Nokia to tighten its relationships with these
companies.

2.2.2 Weaknesses of Microsoft

Although they have a few very important strengths, Microsoft also have some weaknesses, listed
below:


High Price Point: When you take into account the fact that there are desktop publishing
suites like OpenOffice or operating systems like Linux available for free, you begin to
realise how much Microsoft really charges. While this allows greater revenue, it certainly
deters customers and could be a growing problem.



Plenty of Competition: While this will be discussed further under the topic of ‘Threats’,
it’s worth mentioning now that Microsoft has plenty of competitors in the technology


space. Of the four largest companies above Microsoft on the list which was mentioned
early, two of them (Apple and Google) are also multinational technology companies
battling Microsoft. Plenty of alternatives exist to the products that Microsoft offer.
2.2.3 Opportunities


Making the most of their current standings: As mentioned, Microsoft seems to have
plenty of money lying around. They have a great opportunity to develop the world’s best
software with their talented programmers and large chunks of money to invest.



Fully harnessing the power of their customer base: Microsoft is widely accepted by
customers, so if they can bring some dynamic to the status quo, then there is plenty for
them to earn. In essence, Microsoft has the ability to convert their existing customer base,

who typically pay for expensive products only every few years, into more active
spenders.

2.2.4. Threats
What with all the technology companies out there, there are quite a few threats to Microsoft:


Losing out on new markets: Let’s face it, Microsoft was late for the mobile revolution .
Companies like Apple saw opportunity in this, and managed to capitalise on it. If
Microsoft doesn’t manage to stay current, its products will quickly grow out of date, and
as a company they will be pushed aside.



Static pricing models: Microsoft products are typically big, expensive purchases that
consumers only consider every few years. Microsoft doesn’t really offer any particularly
cheap products, and so lose out on market share. Unless they change this to a more
modern system, they might lose out to the microtransactions other companies already
employ today.

CHAPTER 3: M&A REASON.
Microsoft’s acquisition of Nokia’s Devices and Services business looks like it will be the billion
dollar plan that pushes Windows Phone into the big leagues. In an email to staff Microsoft CEO
Steve Ballmer has described the move as “a bold step into the future” and this ‘transformation’,
turning Microsoft into a ‘devices and services’ company, is key to the company's continuing


survival, and would be impossible without Nokia. There are two questions for us to answer to
find out the reason for this M&A.
3.1. Why Did Microsoft Buy Nokia?

Firstly, Microsoft needed to keep its momentum. Recent figures have shown Microsoft’s
Windows Phone 8 posting its highest ever market share (8.3%) and become the third-most
popular globally.

Nguồn: statista.com
This means that Windows Phone only holds 3.7 per cent of the global market – a tiny figure
compared to Android (who currently have a 65 to 80 percent share depending on which data you
use) but still a significant amount of growth considering the entrenched ecosystems Microsoft
are in competition with.
Meanwhile, figures note that over 80% of all Windows Phone sales coming from Nokia
hardware. So if Microsoft want to keep this momentum, small though it is, then assuming direct
control of Nokia’s resources was the best way to go.


Secondly, Microsoft want to unify hardware and software. Apple is the best example of this
approach to the mobile industry as they keep the production of both hardware and software inhouse. This kind of approach has many benefits. This benefits developers by creating consistent
hardware specifications thus programmers don’t have to code their software to work on many
different systems and it boosts security by encouraging users to update to the latest version of the
software; and it means that the user-experience is generally more consistent, leading to greater
trust in the brand.
Thirdly, there is a huge potential landgrab for Microsoft. Because market for high-end
devices becomes saturated, a smart move for manufacturers is to produce cheaper handsets. Midrange Lumia devices such as the 520 have been great in attracting first-time smartphone users.
The handsets are cheap but durable, and Windows Phone 8 has been optimized beautifully to
work fluidly even on lower-specced hardware. The design language of colourful contrasts, tiles
and fonts looks good even on a low-resolution screen and design flaws that might deter powerusers will go unnoticed by those new to smartphones.
More importantly than this though, the purchase of the larger Nokia brand is perfect for targeting
‘the next billion’ of users to access the web. Microsoft purchase also includes a ten-year license
to use the Nokia brand on feature phones, and simply by maintaining the Finnish manufacturer’s
high standards they will have an easier task of persuading customers to transfer to the Windows
Phone ecosystem over the next decade.

The fourth reason is related to “Halo Effect”. By building up Windows Phone though,
Microsoft are doing much more than simply giving life to an ailing operating system: they are
setting out a clearer path for the whole Windows ecosystem.
The ‘halo effect’ is often referenced to in tech circles, referring to the cognitive bias that leads us
to judge an individual based on our overall impression rather than specific actions. Essentially,
by giving customers a good Windows experience via their phones, Microsoft are more likely to
keep people using their software in other devices.
This was made clear in a ‘strategic rationale’ Microsoft released to investors after the acquisition.
The document states how building the success of Windows Phone will help the company to
create “a family of devices with integrated services”. These include the likes Office, Skype,


Xbox Live, SkyDrive and Bing: services which are almost-globally familiar, and that can be
pushed to more users via mobile.
As the world goes mobile, Google and Apple are wresting more and more control away from
desktops as their services (everything from Google Maps to the App Store) become dominant
forces. Buying Nokia not only bought their manufacturing resources but also their mapping
services - a key point of entry for mobile users.
The last reason is competition between Microsoft and their huge rivals. Microsoft is facing
an ever-increasing competition from tech companies such as Google, Apple, Samsung and
others. The one thing common all of these tech companies have, is that, they manufacture
hardware themselves. And, having their own hardware is extremely important. That’s why
Google bought Motorola – it needed a hardware company.
That’s the reason why CEO Steve Ballmer was pushing for Microsoft to buy a hardware
company. And, as it turns out Nokia was the help line.
3.2. Why Did Nokia Sell To Microsoft?
The next question we should be asking is “why did Nokia sell itself to Microsoft?”. It’s a valid
question, considering Nokia sells millions of phones around the world and is a multi-billion
dollar company.
But if you are to look at the recent numbers regarding Nokia smartphones sold around the world,

then you would know that Nokia is in trouble. Nokia’s last quarter sales were down 24 percent
compared to previous year. The feature phones market, where Nokia has a stronghold also saw a
deep decline as Nokia sold 39 percent less phones. This shouldn’t come as surprising considering
many people are now opting for smartphones – where Apple and Samsung (Android) are
dominating the market.
Nokia needed an exit strategy – and, Microsoft was there to provide it.

CHAPTER 4: PROCESS AND RESULT OF M&A BETWEEN NOKIA AND
MICROSOFT


4.1. The process
One of the most influential people in the deal is Stephen Elop, a former employee of Microsoft,
became CEO at the independent smartphone-maker Nokia since September 21, 2010. He
described Nokia’s platform as “burning” the current development of its own platforms was too
slow and introduced Microsoft’s platform was considered the best choice.
In February 2011, Elop cut 4000 staffs and officially declared the death of Symbian platform to
shake hands with Microsoft and use the Windows Phone operating system. Justification for
action instead select Windows Phone Android, Elop only a single word, which is "the
difference". According to him, Nokia can not make a difference because they were slow on the
Android platform.
At that time, the relationship is limited to cooperate to develop a new product: Microsoftsoftware, Nokia- hardware. In November 2011, Nokia unveiled the first smartphone running
Windows Phone as Lumia 800, followed by advanced model - the Lumia 900. Windows Phone 7
when it is still very poor, not even support dual-core chip, but Nokia also managed to create a
certain impression. However, only a few months later, Microsoft introduced Windows Phone 8
platform and does not support the previous generation products. By this time, people realized,
Nokia has nothing more "fish on a chopping board," and move "offending users" of Microsoft is
nothing less than to "submerge" Nokia sank into crisis, to buy back the company with the lowest
possible prices.
The partnership of 2 companies was not integrative . The difference between their goals led them

to waste a huge amount of time and money to develop separate brands. Nokia gradually wanted
divestiture strategy for handset business. Microsoft was interested in diversification, they wanted
to enter into a new market with a new product.
In the period 2011 - 2012, Nokia cut more than 20,000 employees to restructure, sell luxury
phone brand Vertu, even selling are headquartered in Finland, then immediately leased back to
save cash. Nokia reported a loss in the successive of quarterly financial statements, an average of
up to a billion dollars per quarter. Until the first quarter of 2013, when Nokia has flourishing
business, the company is still losing about 150 million euros.


In January, 2013, Microsoft first initiated acquisition talks with Nokia. However, this talk ends
with no agreement because protesting of the Nokia’s shareholder. 2 companies still keep the
partnership relationship. However, Nokia’s financial performance got worse as cash burning out
too quickly. The cut-throat competition in the market make Nokia was in critical situation and it
needed to renegotiate with Microsoft for further support and selling its handset division for cash.
In September 2013, Microsoft Corporation and Nokia Corporation announced that the Boards of
Directors for both companies have decided to enter into a transaction whereby Microsoft would
purchase substantially all of Nokia’s Devices & Services business, license Nokia’s patents, and
license and use Nokia’s mapping services.
From the time Elop to the position of CEO of Nokia until May 6/2013, its shares have fallen
85%. Full 20% of Nokia's market share decline occurred after the Feb, 2011.


In April 25, 2014, Microsoft announced it has completed its acquisition of the Nokia Devices and
Services business.
4.2. The result
According to statistics, Nokia received 3.75 billion EUR for the Device and services business;
1.65 billion EUR for the 10 year non-exclusive patent license agreement. Total is 5.44 billion
EUR equivalent to 7.2 billion USD from Microsoft.
Under the terms of the agreement, Microsoft will acquire substantially all of Nokia’s Devices

and Services business, including the Mobile Phones and Smart Devices business units as well as
an industry-leading design team, operations including all Nokia Devices & Services-related
production facilities, Devices & Services-related sales and marketing activities, and related
support functions. At closing, approximately 32,000 people are expected to transfer to Microsoft,
including 4,700 people in Finland and 18,300 employees directly involved in manufacturing,
assembly and packaging of products worldwide. The operations that are planned to be transferred
to Microsoft generated an estimated EUR 14.9 billion, or almost 50 percent of Nokia’s net sales
for the full year 2012.
Microsoft is acquiring Nokia’s Smart Devices business unit, including the Lumia brand and
products. Lumia handsets have won numerous awards and have grown in sales in each of the last
three quarters, with sales reaching 7.4 million units in the second quarter of 2013.
As part of the transaction, Nokia is assigning to Microsoft its long-term patent licensing
agreement with Qualcomm, as well as other licensing agreements.
Microsoft is also acquiring Nokia’s Mobile Phones business unit, which serves hundreds of
millions of customers worldwide, and had sales of 53.7 million units in the second quarter of
2013. Microsoft will acquire the Asha brand and will license the Nokia brand for use with
current Nokia mobile phone products. Nokia will continue to own and manage the Nokia brand.
This element provides Microsoft with the opportunity to extend its service offerings to a far
wider group around the world while allowing Nokia’s mobile phones to serve as an on-ramp to
Windows Phone.


Nokia will retain its patent portfolio and will grant Microsoft a 10-year license to its patents at
the time of the closing. Microsoft will grant Nokia reciprocal rights to use Microsoft patents in
its HERE services. In addition, Nokia will grant Microsoft an option to extend this mutual patent
agreement in perpetuity.
In addition, Microsoft will become a strategic licensee of the HERE platform, and will separately
pay Nokia for a four-year license.
Microsoft will also immediately make available to Nokia EUR 1.5 billion of financing in the
form of three EUR 500 million tranches of convertible notes that Microsoft would fund from

overseas resources. If Nokia decides to draw down on this financing option, Nokia would pay
back these notes to Microsoft from the proceeds of the deal upon closing. The financing is not
conditional on the transaction closing.
Microsoft also announced that it has selected Finland as the home for a new data center that will
serve Microsoft consumers in Europe. The company said it would invest more than a quarterbillion dollars in capital and operation of the new data center over the next few years, with the
potential for further expansion over time.

CHAPTER 5: ASSESSMENTS
Mergers and aquisitions is a good way to make profits, but is not always successful. An
important factor to assess if an M&A is successful or not is creating value. It's not clear how
Microsoft has benefited from its acquisition of Nokia. Finally, all the results people can see are:
-

Nokia – Microsoft has failed to gain a foothold in the smartphones market

-

Windows Phone 8 and later Windows 10 Mobile have failed to be an alternative to
Android and iOS


In the chart, despite of their efforts to spread Windows Phone’s market share, in 2014, the
statistic was deemed to be opposite. While Android took up 84.6% and iOS 11.9%, Windows
Phone only had 2.7%, it means 1/5 to iOS and 1/30 to Android.
Microsoft has wasted at least $8 billion on its failed Nokia experiment, including the costs of
restructuring and severance payments for thousands of employees. Microsoft originally hired
32,000 Nokia employees as part of its $7.2 billion acquisition of Nokia's phone business. But
after one year, Microsoft was shuttering down its Nokia phone business explained by its recent
7,800 job cuts announcement, its restructuring charge (expense) of about $960 million, and
impairment charge application of about $7.6 billion to the Nokia phone business. In 2016,

Microsoft is taking another almost $1 billion hit on its failed Nokia acquisition. The software
maker is "streamlining" its smartphone business, writing off $950 million and cutting 1,850 jobs.
Only a small number of former Nokia employees will remain at Microsoft, and the company's
consumer phone making days are over.
We might not ever know the true reasons for Microsoft's Nokia phone business acquisition, but
right now it's clear the company has wasted billions of dollars on a failed experiment to try and
claw its way back into the mobile market.


So, the question is, why this business transaction wasn’t successful? There are 2 main reasons:
-

Nokia's business and culture are entirely different than Microsoft's, and Nokia is
massive. Nokia has 35,000 employees, 32,000 of whom are moving to Microsoft.
Microsoft has 100,000 employees. So, "Nokians" will be fully a quarter of the new
Microsoft. Hardware manufacturing and distribution, meanwhile, is a completely
different business than enterprise and packaged software, and integrating cultures like
this is famously difficult.

-

The "low end of the smartphone market" is already well-served by Android and supercheap smartphone makers in China and Korea. Nokia is still the second-largest handset
maker worldwide because of its production of cheap feature-phones. Microsoft has said
that it wants to go after the low end of the smartphone market -- feature phone owners
who will buy smartphones -- and this segment is indeed where Microsoft has the best
chance of success. But this market is already very well served. And even Nokia's
manufacturing and distribution prowess will not likely be enough to derail the growth
of Samsung, LG, Xiaomi, and other cheap smartphone manufacturers, all of which are
already building Android phones. Futhermore, Even though Windows Phone is a wellregarded operating system, it faced a serious problems when it came to apps. Developers
don’t want to devote resources to a platform without a significant user base, but

consumers don’t want to invest in devices until they can offer a minimum threshold of
popular applications.

Microsoft's Nokia phone business acquisition was always tricky and risky, but it was a deal
organized by former CEO Steve Ballmer. It has been clear from the start that Satya Nadella,
Microsoft's new CEO, wasn't interested in running a phone business. Nadella announced
a strategy shift away from a "devices and services" focus just a couple of months after the Nokia
acquisition finalized, and in 2016

the strategy shifted even further away from producing

multiple handsets. In the end, Nokia hoped that Windows Phone would make it stand out in a sea
of Android and iOS devices — and it did, but not in the fashion it had wanted. Instead, Nokia
customers watched their once-mighty brand slowly fade into irrelevance, eventually getting
consumed by its ill-chosen partner.


CONCLUSION
Mergers and acquisitions all have one underlying motive: to protect or improve the strength
and/or profitability of the dominant company -- in other words, to maximize shareholder wealth.
Microsoft acquisition to Nokia may solve temporarily Nokia’s financial problem and Microsoft’s
ever-increasing competition, but it’s not a successful business transaction in long-term. Microsoft
shuttering down the Nokia phone business a little over a year into its acquisition might be a good
signal that Microsoft is smart enough to cut its losses early enough in order to forge ahead for
good. In addition, despite the difficulties the company faced leading up to its demise, Nokia are
making a comeback with a new smartphone line in 2017. The fact that the deal was bad does not
necessarily flaw the strategic plan of Microsoft and Nokia going forward, and it looks promising
for both companies in the future.

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