1. Motives why Microsoft acquires Nokia.
Window Phone is gaining a growth in market share. Microsoft is the Window Phone operating system provider in the market which licenses it to Window Phone hardware maker like Samsung, HTC and Huawei. By acquisition of Nokia by Microsoft, vertical integration between software and hardware companies will take place to assure of dependable source of supply of each other. Microsoft which owns Window Phone operating system would need a hardware manufacturing company to manufacture Window Phones to compete better with Apple’s IOS and Google’s Android. Microsoft has recently started a shift moving to manufacturing its own hardware for Surface tablet but reported losses due to high costing and inefficient management. Nokia has its expertise on hardware design which can help Microsoft to gain more market share in the smartphone industry. Growth motive
OEM is Original Equipment Manufacture which means company that manufactures its own products. With this acquisition, Microsoft can make a transformation beyond software and PCs. Nokia has more than 80% of its production volume for Window Phone. Nokia Device and Services division can bring many key capabilities into Microsoft. For example, great device design and engineering, distribution and sales, globally scaled supply chain, mature operational processes and systems, operator sales and support and Window Phone which can help Microsoft to achieve scale of economic. Moreover, Microsoft started to have a hardware shift by manufacturing Surface tablets with its own hardware. Microsoft can operate its own OEM for Window Phone with the least friction by acquisition of Nokia because it can save up the transaction cost of opening a new hardware manufacturing division. Instead of looking for window phone makers for its OS, Microsoft can now have its own phone manufacturer and OS. Synergy motive
Intellectual property is important element in smart devices business. Nokia’s portfolio has approximately 30000 utility patents and patent applications. These two portfolios is relevant to wireless connectivity which provide huge value to Microsoft existing PCs and tablets business by this acquisition. Nokia also assign its existing license with Qualcomm and the right under agreements with IBM, Motorola Mobility and Motorola Solutions to Microsoft. Microsoft can combine the new Nokia license and these assignments with its existing patent agreement with Samsung, Apple, LG, Nortel, Kodak and other at no additional cost. At this point, Microsoft can have the most cost effective patent arrangement for smart devices. This acquisition also included a strong execution plan which has brought a team of Nokia into Microsoft to Devices and Services division. This will help in better supply chain management, R&D of devices and marketing management.
2. How these motives can serve Microsoft interest
To accelerate the window phone share in the market
Under the strategic partnership between Nokia and Microsoft in year 2011, Nokia had adopted Microsoft’s Window Phone operating system into its principal smartphone strategy to replace Symbian and MeeGo. Hence, Nokia came out with Nokia Lumia series to compete with Apple’s IOS and Google’s Andriod. According to International Data Corporation (IDC)’s number, Window Phone shipment grew from 4.9 million in the 2nd quarter of 2012 to 8.7 million in the same quarter for 2013. Based on recent smartphone sales data from Kantar Worldpanel ComTech for 3 months, Window Phone is seeing market share gains and we believe it could grow even better in the future. The acquisition could accelerate the growth of its share and profit in mobile devices through faster innovation, increased synergies and unified branding and marketing of both companies. The joining of Nokia key leaders like Nokia CEO, Stephen Elop and the combination of research, manufacturing, and marketing efficiencies will let it...
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