BRIE-ETLA Seminar talk, Berkeley (CA), September 6th, 2013

1. Microsoft’s Acquisition of
Nokia’s Phone Business
marks “the failure of
both companies”
International Herald Tribune, 4 Sep 2013, p. 16
Petri Rouvinen, ETLA, www.etla.fi
Chaos or Turbulence in Digital Ecosystems
BRIE-ETLA Seminar, Berkeley, 6 Sep 2013

2. 1998:
Gates in
talks w. Nokia Jan 2013:
MS-Nokia
talks
2006:
Nokia & Siemens
merge network
businesses
2008/9:
Google
Android
Feb 2011:
Platform
burns
Feb 2011:
Windows
Phone in
MeeGo out
Jan 2007:
Apple iPhone
Sep 2010:
Elop, Nokia’s CEO
Jul 2013:
Nokia buys
Siemens out
of NSN for $2.21bn
Aug 2013:
Ballmer’s
step down
announced
3 Sep 2013:
MS’s acq. of
Nokia devices

3. Preceding rocky rides of
Microsoft & Nokia

4. 0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2008 2009 2010 2011 2012
Source: Gartner.
Market Shares of Mobile Smartphone Operating Systems
Android
Google
iOS
Apple
Symbian
Nokia
RIM
Blackberry
Other
Windows

5. 0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Sources: Business Insider, Gartner, IDC, Strategic Analytics, company filings
PC, Smartphone and Tablet
Operating Systems Together
Android
Apple
RIM
Other
MS Windows

6. -10
0
10
20
30
40
50
2008 2009 2010 2011 2012 2013
Source: Company releases.
Operating Profit Margins, %
Nokia
Samsung
Apple
Microsoft
Google

7. -10
90
190
290
390
490
590
690
2007 2008 2009 2010 2011 2012 2013
Source: Company releases. End of the year except for 2013, which refers to Sep 2nd
Market Value, $bn
Nokia
Samsung
Apple
Microsoft
Google

8. MS-Nokia
Deal

9. Microsoft pays
$5bn for Nokia’s devices unit &
$2.18bn to license IPRs Nokia retains
Rougly what Microsoft paid for Skype in 2011 or
Nokia for Navteq in 2007; under 10% of MS’s cash
Current Nokia split to half – New Nokia:
NSN, location-based services (Here), IPRs

10. Employment
Jun 2013 Q1/2013
Jun 2013 Q1/2013
Jun 2013 Q1/2013
Jun 2013 Q1/2013
Nokia, Global Microsoft, Global
Nokia, Finland Microsoft, Finland
NSN:
50,476
NSN:
50,476
Other:
37,295 5,295
99,139
131,139
NSN:
5,800
NSN:
5,800
Other:
5,100
400
300
5,000
32,000

11. -10
0
10
20
30
40
Aug 30 =
100
Sep 5 close
Aug 30 = 100
Daily close prices at Nasdaq (MS) & NYSE
Sep 5 Close
+41% Nokia
-6.5% Microsoft
Stock market reaction
Nokia gets out of its cash crisis &
is left with a solid network eq.
business
Microsoft positions itself to burn
cash in an effort to make
its ecosystem fly

12. Why?
Nokia
• Cash crisis
• Windows ecosystem not
gaining ground
– No improvement in the
short or medium term
• No ability to jump
the MS ship?
Microsoft
• Mimicing Apple & Google
• Windows ecosystem not
gaining ground
– HW-SW integration
– Avoid double margins
in Windows phones
– All-in cash burning
• Nokia made >80% of
Windows phones &
was at a fire sale price

13. Viable next steps
• Microsoft might
– Sell Nokia factories (18,000 employees)
– Leverage licensed Nokia brand in
urging feature phone users to Windows
– Discontinue headquarter functions &
feature phone development in Finland
– Retain 80-90% of its Finnish employment
– Replace Ballmer with Elop
• Nokia might
– Concentrate primarily to network eq. & services
– License/sell IPRs (w. reduced focus on related R&D)
– Narrower focus in location-based services
– Be engaged in further M&A action

14. Ultimate outcomes?
• Microsoft: Renewed hope for the ecosystem
but slim chances of success
• Nokia: Nicely pooring business after a rocky ride
• Industry: None?
• Finland: Mentally a shock, but economically neutral?
• Conspiracy theory: After exiting Windows & filling its
coffers, Nokia re-enters phohe business

15. Thank
You!
fi.linkedin.com/in/petrirouvinen/
Petri.Rouvinen@ETLA.fi
 +358–50–3673474