A rumor today that Microsoft was buying Nokia, or at least Nokia’s phone business, turned out to be just that, a rumor. Still, would such a move make sense? Surprisingly, it just might.
Nokia’s otherwise moribund stock spiked upwards this morning on rumors that it was about to be acquired by Microsoft. As is usually the case, this rumor was indeed false, dismissed quite rapidly by a Nokia official. But I think such an acquisition might indeed make sense for Microsoft, although, depending upon the actual price, such could be a long shot no matter what.
But think about it. What business is Microsoft really in? Proprietary, captive software. That’s the bulk of the revenues and profits. And what’s the outlook for proprietary software alone going forward? Not good. Welcome to open-source era, Steve B. Get yourself a copy of Ubuntu and tell me that Windows is still relevant, except to application vendors also pushing the rapidly-fading proprietary-software model. Ditto for Windows Phone. Why would anyone add cost to their handset that really doesn’t need to be there?
So Microsoft either has a dying business or a lot of locked-up value that won’t see the light of day unless radical steps are taken. And what might such a radical step be? The answer is easy – look no further than Apple.
Back when they were Apple Computer, that firm used to describe the company as a “software business that just happens to make the hardware that that software runs on”. Clever, cute, sure, but also wonderfully successful. Just compare Apple’s stock price over time to Microsoft’s and you’ll see what I mean. Compare the satisfaction of users of Apple products to those of Microsoft, and, well, a trend emerges. And Apple still sells mountains of proprietary software today.
But suppose Microsoft brought in a management team that really could manage, got their product-definition and product-quality acts together, and put that new technology into cellular-handset and related products of its own manufacture? Imagine a Microsoft Phone sold like the iPhone. Nokia could provide much of what’s needed here, plus a global brand, plus a lot of happy users, plus carrier relationships, plus, plus plus. And such a combination could also go some distance towards solving Nokia’s problems as well.
As I write this, Nokia’s market cap is up around $25B, so maybe $19B for the phone business is perhaps reasonable (and, since Nokia is in deep doo-doo WRT sales and profits, a number in the $12-14B range might attract their attention regardless). That’s not chump change, but an easy buy for Microsoft. Anyway, the net result of such an acquisition – properly managed, and that’s what makes this a long shot – might yield real returns, and therefore should not be dismissed out of hand.
