Sunday, September 15, 2013

What Microsoft Actually Bought

Officially, Microsoft is buying Nokia’s “Devices and Services” business unit. That simple designation is the whole hog: everything from manufacturing and distribution, design, operations, sales and marketing teams and related support. That business unit comprises of approximately 32,000 people that will become Microsoft employees when the deal officially closes. More specifically, Microsoft is buying Nokia’s Smart Devices unit. This includes the Lumia brand of smartphones running the Windows Phone operating system. Nokia shipped 7.4 million Lumia smartphones in the second quarter of 2013. The Smart Devices unit includes the manufacturing and design of the Lumia line along with the distribution, sales and marketing teams. Microsoft didn’t just buy the Lumia brand, it bought the people that actually put it together. This is extremely important for Microsoft because it could not possibly think to create its own manufacturing processes and supply chain on its own and hope to make a significant dent as a “devices” company any time soon. In this case, the processes that Microsoft is getting from Nokia are as important as the resources (the sales and revenue of Nokia phones). Nokia’s Mobile Phones business unit is also part of the deal. This is Nokia’s still robust (but shrinking) feature phone business and includes Nokia’s Asha line of cellphones. Nokia’s feature phone business sold 53.7 million units in the second quarter, second to Samsung worldwide.
Nokia Lumia 920 Microsoft could have done without the feature phones business unit of Nokia. Yet, to buy the manufacturing processes of Nokia, it had to take the feature phone and Asha units along with the smart devices unit. Microsoft sees the feature phone unit as a way to expand Microsoft services to millions of Nokia users worldwide as a way to “on-ramp” users to Windows Phones. Microsoft will be able to use Nokia’s brand on feature phones for 10 years. The acquisition is also a bit of a talent acquisition for Microsoft, as it is bringing in most of Nokia’s executive leadership team, including Nokia CEO Stephen Elop who will transfer to being Microsoft’s head of its Devices unit. Elop is still considered a candidate for the CEO role of Microsoft. In addition to Elop, Microsoft is will bring in Jo Harlow to continue leading Nokia’s Smart Devices team, Juha Putkiranta to lead the Nokia integration into Microsoft, Timo Toikkanenen to lead the feature phone Mobile Phone division and Stefan Pannebecker to lead the device Design team. Chris Weber, Nokia’s marketing head and former head of all of Nokia’s U.S. sales, will come to Microsoft and continue his role as Nokia sales chief. Microsoft also bought the rights to license Nokia’s robust patent portfolio for 10 years. Microsoft is specifically buying 8,500 of Nokia's design patents, and will also make its patents available to Nokia for its HERE Maps unit. Nokia will also transfer its patent licensing agreements, including its big one with chipmaker Qualcomm, to Microsoft. Other patent agreements transferred to Microsoft includes those with IBM, Motorola Mobility (owned by Google), Motorola Solutions. Nokia also passes on patent agreements with Apple, LG, Nortel and Kodak to Microsoft.

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