Buying a burning platform
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Nokia has “collapsed into the arms of Microsoft,” Reuters writes, in a deal to sell its handset business for $7.2 billion. (Here’s the official Microsoft release, and the official strategic rationale PowerPoint deck.) The purchase will be paid for entirely from Microsoft’s $60 billion tax-advantaged overseas cash hoard, Heather Timmons says.
For Microsoft, the reviews of the purchase ranged from meh to grim. Will Oremus says the move helps Microsoft “cement its status as an also-ran in the smartphone marketplace.” Microsoft, David Pierce says, has essentially paid $7 billion to become the “devices and services” corporation Ballmer mentioned in his recent retirement memo. Pierce also suggests Nokia’s low-priced Windows Asha phone could be a way to jump-start Microsoft’s mobile market share in developing countries. Benedict Evans notes that Nokia is still a ways off from producing the number of phones Microsoft will need to break even — Nokia is currently some 20 million units a year short.
Whether it’s worth still investing in the Windows phone platform, however, is another question. Felix says “there is really zero consumer demand for an alternative smartphone OS” beyond Google’s and Apple’s. Ashlee Vance says the deal reflects “the terror that Apple and Google have struck into the hearts”of Nokia and Microsoft over their success in the mobile market. Ben Thompson, who says the deal just doesn’t make any sense, adds:
The tragedy in the deal, as I hinted at earlier, is that I think Microsoft ought to abandon Windows Phone. The war is over, and iOS and Android won. It would be far better for Microsoft to focus on serving and co-opting those devices, instead of shooting the most promising parts of their business in the foot for the sake of a platform that is never going to make it.
For Nokia, the reviews of the deal were more positive. Christopher Mims notes “this deal probably saved the company.” As Kevin Delaney puts it, Nokia’s “share of the global smartphone market has fallen from 34.2% in 2010 to just 3%” in the first half of this year. CEO Stephen Elop’s 2011 memo to employees warning that Nokia was “standing on a burning platform,” it seems, was exactly right. Nokia’s shares were certainly on fire after the announcement today; they were up as much as 48%. Microsoft’s shares, meanwhile, ended the day down 4.5%. — Ryan McCarthy
On to today’s links: