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

1998: Gates in

talks w. Nokia Jan 2013: MS-Nokia

talks

2006: Nokia & Siemens merge network

businesses2008/9: Google Android

Feb 2011: Platform

burns

Feb 2011: WindowsPhone 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

Preceding rocky rides of Microsoft & Nokia

2008 2009 2010 2011 20120%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Market Shares of Mobile Smartphone Operating Systems

Source: Gartner.

AndroidGoogle

iOSApple

SymbianNokia

RIM Blackberry

OtherWindows

2009/1

2009/2

2009/3

2009/4

2010/1

2010/2

2010/3

2010/4

2011/1

2011/2

2011/3

2011/4

2012/1

2012/2

2012/3

2012/4

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

PC, Smartphone and Tablet Op-erating Systems Together

Sources: Business Insider, Gartner, IDC, Strategic Analytics, company filings

Android

AppleRIM

Other

MS Windows

2008 2009 2010 2011 2012 2013

-10

0

10

20

30

40

50 Operating Profit Margins, %

Source: Company releases.

Nokia

Samsung

Apple

Microsoft

Google

2007 2008 2009 2010 2011 2012 2013-10

90

190

290

390

490

590

690 Market Value, $bn

Source: Company releases. End of the year except for 2013, which refers to Sep 2nd

Nokia

Samsung

Apple

MicrosoftGoogle

MS-Nokia Deal

Microsoft pays

$5bn for Nokia’s devices unit &

$2.18bn to license IPRs Nokia retains

Rougly what Microsoft paid for Skype in 2011 orNokia for Navteq in 2007; under 10% of MS’s cash

Current Nokia split to half – New Nokia:NSN, location-based services (Here), IPRs

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

4,700

Aug 30 = 100 Sep 5 close

-10

0

10

20

30

40

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

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

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

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

ThankYou!

fi.linkedin.com/in/petrirouvinen/Petri.Rouvinen@ETLA.fi +358–50–3673474