Money Matters - Simplified

Will Microsoft and Nokia Agreement of $7.2 billion be profitable?

The Finnish multinational company,Nokia Oyj, has wrapped up its handset business that it once ruled and dominated. Recent updates from the company's arena is that Microsoft Corp. is in a deal with Nokia to buy NOK1V's handset business for 5.44 billion euros ($7.2 billion).

The companies unveiled to the media at a news conference that the deal encapsulates paying of five billion $US for the devices unit and two billion one hundred seventy-six million US dollars for patents.

Following this development, Nokia's CEO Elop would be moving to Microsoft Corp. As soon as the deal would be closed, Nokia board chairman Risto Siilasmaa will take over CEO duties and the firm would be looking at a new CEO.

Steve Ballmer, chief executive officer of Microsoft Corp., was found saying on a blog, “Today marks a moment of reinvention. With the commitment and resources of Microsoft to take Nokia’s devices and services forward, we can now realize the full potential of the Windows ecosystem, providing the most compelling experiences for people at home, at work and everywhere in between.”

According to Paul Budde, a Sydney-based telecommunications consultant, “Both Nokia and Microsoft really missed the boat in terms of smartphones, and it is extremely difficult to claw your way back from that. The question is whether combining two weak companies will get you a strong new competitor. It’s doubtful.”

This April-June Quarter, Q3, had turned out to be bad for the revenues of Nokia. Its N9 project with MeeGo that had already stopped its sales in Finland and Sweden decided to close the project recently. Codenamed as Lankku, Nokia N9 that was highly regarded and profitable, unfortunately could not claw its way back.

Focusing on selected markets and curbing the sales efforts is not usually termed as the best policy. Here I would like to quote Paul Harvey by saying, "Marketing executives who stop advertising to save money are like people who stop the clock to save time." Probably Nokia failed to learn lessons from Motorola and Palm!!

Undoubtedly, the company has fought for its existence as the cash-flow challenges had surged because of the narrow demand of its handsets in the market. Nokia's sales of handset plummeted by 27 percent in the second quarter. It lost 5 billion euros in nine quarters.

Another weak company that is involved in the deal, Microsoft Corp., could not grow with the changing times. The consumers were seen switching from using its core Windows software to PC, and then mobile services. The wheels were seen to fall off from Microsoft as the iPods transformed the media industry, iPads gushed with the wind, and iPhones touched the horizon.

From a customer point of view I would like to witness the change that this moment of reinvention, as mentioned by Steve Ballmer, would result in.