Microsoft: Economics make Nokia a ‘smart acquisition’

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Microsoft’s gross margin from royalties on Windows Phones sold by Nokia is less than $10 per unit, but the margin will be more than $40 per unit once Nokia’s Windows Phone business is brought in house as part of Microsoft’s $7.2 billion acquisition of the Nokia Devices & Services business.

That’s one of the financial details disclosed in an extensive slide deck published by Microsoft tonight to make the case for the landmark acquisition, in which Microsoft is acquiring its biggest smartphone partner. The deck describes the deal as a “smart acquisition.”

The company says it expects the Nokia deal to start having a positive effect on Microsoft earnings, excluding acquisition and integration expenses, starting in fiscal 2016.

Here’s a link to the full slide deck.

  • Andrew Hime

    Windows Phone will still be a thing in 2016?

  • Khan

    What I find absurd is implied argument made on slide 15, which I’ll paraphrase as “the PC business is built on top of the tablet business, is built on top of the mobile phone business”.

    Yes, Apple saw a halo effect (the iPod led to the iPhone, then the iPad, leading to record sales for the Mac) that arrow moves in one direction, and even for Apple, that’s ultimately led to cannibalization of Mac sales (which they can stomach because tablet sales continue to be brisk as they continue to get market share by attracting former PC buyers).

    Meanwhile Microsoft seems to be living in a world where, somehow, the Nokia smartphones they sell are somehow going to result in a halo for in tablets, which is somehow going halo into PC sales… Step 1, buy Nokia. Step 3, PC business makes a miraculous turnaround. Please, what’s Step 2?

    • Guest

      There’s nothing controversial about saying success in phones is important to success in tablets. That’s self-evident today. Or even that success in tablets will help PCs. Chromebooks are an example of the latter. You seem to confuse “help” with “turnaround”, which is your absurd misinterpretation, not theirs.

  • kcnickerson

    You should not have to script the slides “smart acquisition” if it really is one – MicroKia!

    • Guest

      Dude, weren’t you fired in like 2000 or so? Get over it.

      • kcnickerson

        Dear Mr. Guest (If that’s your real name), your intrepid reporting is factually vacant. After nine years, I resigned from Microsoft on 02/12/2000. The point I was trying to make was, during the 90s, Microsoft was the so-called “thought-leader” and if we did something it was presumed “smart” and therefore redundant in this case. Mr. Guest, when you are making factual or perceived factual claims, it’s not necessary to salt-the-mine with aphorisms to convince others, or worse… yourself.

  • http://www.intrinsicstrategy.com/ FrankCatalano

    Wonder what this acquisition means for a global initiative Nokia has for delivering education materials to schools and students via mobile phone, the Nokia Education Delivery System. It’s done by Nokia in partnership with Microsoft already, and is implemented in Africa, Asia and Latin America (for back story, see http://www.cio.co.ke/news/main-stories/nokia-launches-education-delivery-system-in-kenya). Perhaps,if it’s part of the deal, it’s another way for Microsoft to penetrate the growing non-US education technology market, in a manner other than simply giving away or discounting Surface RT tablets, as it’s done in the here in the US.

  • Mike Christensen

    So, Microsoft spent $7.2B on Nokia so they could make $40 off each phone rather than $10. Great, now they just need to sell 240 million phones (roughly the same number of iPhones sold to date) to make up the cost.

    • Guest

      There’s also the incremental royalty from Android devices which infringe patents formerly owned by Nokia.

      • Guest

        I thought so too. But MS only licensed those. They didn’t buy them. Pretty silly really. They could have bought the whole company a couple years ago for less than they’re paying now.

  • Guest

    Yes, I’m sure this will prove to be just as sound financially as aQuantive, Skype, Danger or a dozen others. These guys are a joke. Overpay, overpromise, fail, repeat.

  • eia1805

    Maybe, just maybe the actual reason for the purchase is, because without them the market share of their OS would crater. They needed Nokia to at least say they had a presence in the market. Anyone with basic knowledge of business knows that margin is only part of the picture. Without sales, margin means nothing. Unless MS is going to try and sell a single phone for 8 billion..

  • Alex

    Whats about smart watches from nokia?