By Pradyut V. Hande:
In what many industry watchers believe was a plausible development in the offing, Microsoft Corporation is in the final stages of purchasing the mobile handset business of the now beleaguered Finnish company, Nokia. The deal valued at over 5.4 billion Euros is expected to be formally completed by early 2014, subject to approval by Nokia’s shareholders and completion of other regulatory formalities. This promises to add yet another dimension to the ongoing global smartphone war which has borne witness to proactive competitors engaging in the development of a sustainable differential advantage on the cutting edge of technological and marketing innovation.
Nokia that once stood head and shoulders above its closest industrial rivals till the early 2000s has gradually seen its strong market position whittle away in the face of mounting competitive pressure across various platforms; most notably the smartphone segment. It’s failure to suitably respond to rapidly evolving consumer sensibilities and changing market realities coupled with the strong emergence and subsequent establishment of rivals such as Samsung, Apple, HTC, LG and off late even Google have collectively eroded its market share and brand credibility. However, despite all criticism; Nokia did valiantly attempt to stem the rot by bringing on board Microsoft’s Stephen Elop on board as CEO in 2010 who embarked on turning around the ailing company by first discarding its Symbian operating system in favour of a potentially beneficial partnership with Microsoft and then channelling its energies and resources behind the Lumia range of smartphones in 2011. The move although prudent at the time has produced mixed results globally as the Microsoft Windows Mobile platform still trails Google’s Android and Apple’s iOS powered smartphones significantly.
Microsoft’s purchase of Nokia is being viewed as an attempt to keep up with its industry rivals such as Google which purchased Motorola last year. Seamless software integration amplified by a wide variety of apps on a robust hardware mainframe is critical for any company’s success in this sector. The acquisition would provide Microsoft the opportunity to singularly manufacture, manage and control an independent product range; thereby, furthering the aforementioned agenda in an increasingly competitive environment.
At the other end of the spectrum, the sale of its mobile handset division will offer Nokia the chance to focus its attention on its network systems division where its primary competitors include the rapidly emerging Chinese company in Huawei and the increasingly sluggish Swedish giant in Ericsson. If Nokia can suitably leverage its advantage after buying out Siemens’ 50% stake in the successful Nokia Siemens Networks (NSN) joint venture, then it can undermine the strengthening market position of Huawei. A measure of NSN’s consistent performance since its inception in 2007 can be gauged by the fact that it made a profit of 8 million Euros during the second quarter of the current financial year while Nokia’s mobile handset business accrued losses worth 227 million Euros in the same period. From a purely financial point of view, given the fact that capital is scarce to begin with; offloading a loss making venture to protect the overall bottom line makes sense.
Nokia’s mobile division acquisition by Microsoft throws up myriad technological and leadership oriented implications. Many believe that Stephen Elop who will be absorbed by the Silicon Valley giant along with 4,500 odd Nokia employees; is being groomed to succeed Microsoft’s current CEO, Steve Ballmer. Having worked extensively first at Microsoft and then in a major leadership role at Nokia, Elop could play a pivotal role in the strategic alignment of both companies down the line. Integrating Nokia into its organisational framework whilst restructuring the company will prove to be an immediate challenge.
It may have been on the cards, but the alacrity with which Microsoft has wrapped up the deal has taken many by surprise. For Nokia, the fall from grace has been quite spectacular. From being the leading mobile handset manufacturer for 14 years to drastically falling behind agile competitors to surrendering its Numero Uno global position to Samsung in 2012 and eventually tasting capitulation and selling out to its close ally in Microsoft. In an industry driven by constant innovation and hyper-competition, Nokia committed the cardinal sin of taking its dominant market position for granted instead of improving its value proposition to increasingly fickle target consumer segments. One false step can snowball into a series of costly blunders which can make recovery next to impossible. Whether Microsoft benefits from Nokia’s acquisition remains to be seen. However, what can be said with certitude is that the global smartphone war has just gotten that much hotter.