Everything You Need to Know About the Nokia-Microsoft Deal
They were once the Titans of the industry. They made more cell phones than all the other companies combined and even now, having shipped around 250 million phones in 2013, they’re the second biggest manufacturer of mobile phones . From 1998 to 2011 this company was the undefeated champion. Nokia was a brand name trusted by all. This Finnish giant now sold its legendary (now struggling) mobile phones unit to the Microsoft Corporation in a $7.2 billion takeover.
As of 25th April 2014, Microsoft’s acquisition of Nokia has been approved by Nokia shareholders and by governmental regulatory agencies around the world. Under the Nokia-Microsoft deal, Microsoft will take possession of the Lumia smartphone brand, along with the company’s lower-end Asha phone line and the new Android-based Nokia X phones. With this, they will also inherited 25,000 new employees.
Windows Phone is the fastest-growing ecosystem in the smartphone market, and its portfolio of award-winning devices continues to expand. In the fourth quarter of 2013, according to IDC, Windows Phone reinforced its position as a top three smartphone operating system and was the fastest-growing platform among the leading operating systems with 91 percent year-over-year gain. Furthermore, Microsoft intends to target the affordable mobile devices market, a $50 billion annual opportunity.
This deal marks the death of a brand which had become synonymous with mobile phones in India. Even in the smallest villages, people took pride in owning a Nokia. To us, it sounds rather counter intuitive to get rid of a brand with such a strong identity. Now, everybody will have an eye set on how the Microsoft CEO, Mr. Nadella, and Vice President Mr Elop decide to take it forward.
The tech world is abuzz with all kinds of speculations about the proceedings of this deal. One of the most common assumptions is of a Machiavellian takeover by Microsoft, after the talks of Windows OS for Nokia broke down in 2009. Nokia intended to improve the functionality of the Symbian and were also working on the MeeGo OS. Nokia had made its disinterest in the Windows OS clear and that’s when Stephen Elop, a former Microsoft employee, went on to become the CEO of Nokia. Many critics, especially in Finland, started to speculate that Elop could be a Trojan horse, whose mission was to prepare Nokia for a future acquisition by Microsoft.
As seen from the graph above the company was on an incline throughout the last decade. Stephen Elop took the Chair of CEO Nokia on September 2010. The 3 years Elop was Nokia CEO, its revenues fell 40%, its profits fell 95%, its market share collapsed in smartphones from 34% to 3.4%, Nokia’s credit rating went from A to junk, it’s share price dropped 60% in value and Nokia’s market capitalization lost 13 billion dollars in value. For this exemplary work he was featured in the Worst CEO list. Not just that, towards the end Nokia was so strapped for cash that they had to sell their HQ in Finland and lease the premises. It seems like Elop came with a mission and accomplished it too.
It has also been observed by many that the Microsoft strategy of acquisition was almost similar to the 1.2 billion US dollars HP–Palm deal. Palm were smartphone manufacturers who were the creators of the cutting-edge webOS. The webOS was a mobile operating system which HP abandoned merely months after acquisition and a couple months after launching the WebOS based Mobile devices including Touchpad and Pre 3. LG later bought the OS in 2013 and is now inducting it into its Smart+ TV’s. This was a clear example of how multibillion takeovers are not always done for the best of reasons.
The most disappointing aspect of the demise of Nokia and several other major brands such as Motorola is the effective centralization of majority of innovation in the hands of a few large multinational corporations that lock knowledge in a safe. Competition is necessary for innovation. Accumulation of progressive ideas in the hands of the few would lead to monopolization and will be a major hindrance to development.
In terms of India, this deal is not good news for the employees of the Nokia facility in Chennai. This facility couldn’t be transferred because of the tax liens on Nokia property. According to the Nokia India Employees union, there are around 8,000 direct and over 20,000 indirect employees working for the manufacturing facility. The facility will work on contract basis for a limited period, without specifying any time frame, under present deal. Many of the higher level employees have decided to jump ships, while around 730 trainees have accepted the VRS scheme provided by Nokia. The VRS is opposed by the Union.
As Nokia loyalists, you wouldn’t have a lot to worry about. As a part of the transaction, Microsoft will honor all existing Nokia customer warranties for existing devices, beginning April 25, 2014. As the plans for the new brand are still in progress, we do hope that Microsoft builds upon the massive Nokia stable and give the users the same sturdy and trustworthy experience.
Hopefully, the second fiddle brands such as Micromax, Gionee and others will take charge of bringing quality innovation in the hands of the next billion before the hording multinationals get to it.