Microsoft's Acquisition of Nokia: Will the Gamble Work?

Microsoft's Acquisition of Nokia: Will the Gamble Work?
Case Code: BSTR455
Case Length: 21 Pages
Period: 2011 - 2013
Pub Date: 2014
Teaching Note: Not Available
Price: Rs.500
Organization: Microsoft Corp., Nokia Corporation
Industry: Smartphones
Countries: Global
Themes: Acquisition
Microsoft's Acquisition of Nokia: Will the Gamble Work?
Abstract Case Intro 1 Case Intro 2 Excerpts


In September 2013, US-based computing major, Microsoft Corp. (Microsoft) and Finland-based communications company, Nokia Corporation (Nokia), announced that both companies would enter into a transaction where Microsoft would acquire Nokia's Devices & Services segment, license Nokia's patents, and license and use Nokia's mapping services, for US$ 7.2 billion. According to Bloomberg, the Microsoft-Nokia deal was the largest in the wireless devices segment after Google Inc.'s (Google) acquisition of Motorola (Motorola) in 2012. Earlier in February 2011, Nokia had entered into a strategic alliance with Microsoft in a bid to combine the traditional strengths of the two companies and thereby create synergies. With the acquisition of Nokia, Microsoft aimed to build on its partnership with the former by accelerating the growth of its share and profit in mobile devices through faster innovation, increased synergies, and unified branding and marketing.

By acquiring Nokia's Devices & Services segment under the deal, Microsoft aimed to gain a stronger foothold in the hardware devices segment. The software giant would license Nokia's patents and mapping services and also acquire Nokia's Asha and Lumia brand of smartphone series. The Lumia series was hugely successful with sales of 7.4 million units for the second quarter (Q2) of 2013. For Nokia, the acquisition was expected to significantly increase its earnings, strengthen the company's financial position, and provide a basis for investing in future businesses.

Analysts felt that Microsoft's acquisition of Nokia was a good move as the former lacked a successful product in the rapidly growing mobile phone segment. Industry watchers noted that the deal was a bid by Microsoft to gain ground against Apple Inc., and Google Inc., in the intensely competitive smartphone market. According to analysts, the deal would make Microsoft a hardware and software services player and allow it to be in a better position to compete with global as well as local rivals. For Nokia, the deal was a good move since its devices business was experiencing a steep decline with the takeoff of Apple's iPhone and Google's Android, analysts said.

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