NOKIA AND MICROSOFT

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NOKIA AND MICROSOFT
News from Microsoft -1.28% in the last few days – 4Q14 earnings, an announcement of 18,000 layoffs, and the release of a memo from Microsoft’s EVP of devices Stephen Elop about rightsizing – has brought about a clearer picture of Microsoft’s plans for Nokia Nokia’s phones, which it acquired in April for $7 billion.
Nokia was one of many cellphone manufacturers that struggled as Apple -1.13%’s iOS and Google GOOGL -1.92%’s Android gained dominance of the smartphone market and displaced cellphones and other smartphones. Rumors of Microsoft’s buyout interest, or lack thereof, in Nokia circulated for years before an alliance shifted to an acquisition. But when Microsoft announced the acquisition last year, the natural question was how the software company planned to generate profits from a cellphone maker that was bleeding money.
Nokia’s still bleeding money, and cost Microsoft 8 cents from its earnings per share last quarter. But strength from Microsoft’s cloud computing and the sense that CEO Satya Nadella, who replaced Steve Ballmer in February, is containing Nokia’s losses has impressed analysts. Microsoft expects Nokia to break even by 2016, said Amy Hood, CFO of Microsoft, during the earnings call on Tuesday.
Daniel Ives, managing direct at FBR Capital Markets, said after a decade of missed opportunities, Nadella seems like he’s taking an honest look at Microsoft and “skating with the puck” in front of him. “He’s playing a long game,” said Ed Maguire, senior analyst at CLSA, leveraging the cloud and Nokia as a way to sell applications.
Despite being obtuse to the suffering of 12,500 former Nokia employees set to lose their jobs while he praised his business unit, Elop laid out a framework for cost cuts in a memo to employees on July 17. Devices would focus on high and low cost Windows smartphones, suggesting a phasing out of feature phones and Android smartphones. Two business units, smart devices and mobile phones, would become one, thereby

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