Cutting Room: Microsoft’s silent takeover gets noisy

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Nokia appears to have been priming itself to be sold to Microsoft for the past three years and according to Paul Withers, it is the best result for both parties 

Microsoft buying Nokia’s devices and services business for £4.6 billion offers obvious benefits for both, but you can’t help feeling the IT giant has been pulling the strings all along.

Exactly three years ago, in September 2010, current Nokia executive VP of devices and services Stephen Elop moved from Microsoft to become the manufacturer’s CEO.

Five months later Nokia, struggling in the smartphone space with Symbian, shook hands on a strategic deal with Microsoft to adopt the Windows Phone operating system on its handsets.

A week before that deal was signed, Elop compared the manufacturer to a man standing on a “burning platform”. It all seemed very convenient.

Since then, Nokia as we knew it has become almost a shell of its former self. Changes were vast: since Elop’s tenure began, more than 40,000 jobs have been cut from the business, with a strict restructure put in place aimed at generating annual savings of around $3.8 billion (£2.4 billion).

Other areas of the business, presumably seen as unwanted by Microsoft, were also cut, such as its luxury brand Vertu in October, which was sold to private equity firm EQT VI for an undisclosed sum.

Two months later it sold its head office in Finland to software consultancy firm Exilion for €170 million (£143 million), which then leased it back to Nokia. Again, it all sounds too convenient.

Financial losses continued, but this year Nokia appears to have shown signs of turning the corner. In July, even though it reported a loss of €32 million (£27 million) in its mobile business for Q2, crucially Lumia smartphone sales picked up, surging 32 per cent to 7.4 million units.

The time seemed perfect for a sale, and it duly arrived.

Microsoft was always in a position of strength when it came to Nokia, after all it turned over enviable revenues of more than $77.85 billion (£50 billion) in its last annual financials – with a net income of $21.86 billion (£14 billion) and 97,000 staff.

The relationship never quite added up as two separate entities. While Nokia remained monogamous to Microsoft with Windows, the feeling wasn’t mutual, with Samsung, LG, Huawei, HTC among the other manufacturers joining the ever-lengthening Windows Phone conga.

Nokia’s commitment was great for its marketing, but there wasn’t and still isn’t enough to really suggest any great allegiance.

That, presumably, will change – but to what extent remains a mystery. Microsoft is under no greater pressure, Nokia’s sales are growing, but if it wants to be able to compete with and usurp the likes of Apple and Samsung, like it says it will, well that’s a big ask.

The quality of Nokia devices has rarely been in question – design-wise, there are few better in the market.

But the market has shown it’s not about what the device can do, but how well its marketed.

Manufacturers, including Nokia, have spoken openly about how they cannot compete with the financial clout of the likes of Samsung and Apple when it comes to marketing.

Microsoft certainly doesn’t have that problem and while it may have held back on pushing Nokia – after all, why should it? – you can assume this will change drastically when the deal goes through.

Question marks remain over the strength of the Windows Phone operating system, but its market share is expected to grow.

And Nokia, perhaps unsurprisingly, is the out-and-out leader in terms of Windows handsets with 81.6 per cent of the market, with Samsung commanding 11.5 per cent.

The industry has shown change can happen. If – and it’s a big if today – Microsoft can somehow convince the public to make Windows Phone their operating system of choice, Nokia’s sales will surge.

Then, just maybe, Nokia can go full circle and achieve its goal of reclaiming the position of leadership it held for so long – even if it’s thanks to a rich sugar daddy in Bill Gates.

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