Microsoft Acquires Nokia's Handset biz

Microsoft needs no introduction. This report about to be filed or which you are reading just now has found its present form thanks to this software monolith. With a whole lot of progress that it has registered in its core business, it does make sense for it to be diversifying into other areas as well. It is precisely with this in mind that the company has bought over Nokia's handset unit for USD 7.2 billion. Microsoft would pay USD 5 billion for holding the ownership of Nokia's Device and Services segment while another USD 2.2 billion would be invested for licensing its patent. Here onwards, Nokia would continue with its networking and other businesses. 

Before we go to the importance of this acquisition for Microsoft, let’s understand the Nokia side of it. Nokia is more or less a drowning ship. Its total sales declined by 66% to USD 39.8 billion since Android was launched by Google in 2008 and the company is bleeding, having suffered operating losses to the tune of USD 3 billion as at the end of 2012. It has three main business verticals, Devices and Services, HERE (formerly Location and Commerce) and the Nokia Siemens Network. With this deal, Microsoft would have complete control on the Devices and Services vertical and they will continue to keep 32000 employees on the payroll including its CEO Stephen Elop who was previously employed with Microsoft.

As per the current market scenario, global market share of Windows-enabled handsets is around 4%. Nokia is the biggest client for Microsoft which provided Windows-enabled Smartphones. HTC and Samsung are the other two hardware partners of Microsoft who sell Windows based phones. But, since the launch of Android, these two players too have shifted their operating system to Google's Android. 

Currently in India, Samsung leads the Smartphone market with around 26% market share while Micromax and Karbon hold the second and third place with 22% and 13% of market share respectively.  All the three market leaders favour the Andriod system for their mobile devices. 

Globally, the market share of Android-based phones stands at 79%, whereas for Windows based phones it is 4%. Moreover, Samsung leads the global market as well with a 39% market share followed by LG and Lenovo which hold a 7% and 6% market share of the global market.

This deal would add to the hardware and software facilities of Microsoft for mobile devices and would also provide a good opportunity in adding features to its phones business. This would also lead to a decline in per unit cost of production, and in turn help the company launch more cost effective Smartphones.  Moreover, it will also help the company in garnering a complete control of the customers experience for the the entire system. One negative would be the tough challenge it will still face from its competitor Google's Android platform as well as from cell phone manufacturing companies like Samsung who is also developing its own operating system called Tizen OS. Microsoft and Nokia both were strategic partners before, which hardly benefited them. This acquisition by Microsoft may improve the market share of the Windows-based phones, but we don't expect any surprising growth in the near future.