Even big firms should reinvent themselves. Nokia, after all, was once a paper-maker. And entrenched oligopolies, like those of Apple, Samsung and Google in the global smartphone market, must be challenged - if Detroit still dominated automobiles, the world would have been poorer for it. But the $7.2 billion buyout of Nokia's loss-making handset business by Microsoft is nevertheless being panned and praised across the Atlantic. Two slipping but still famed tech brands coming together will hardly challenge Apple's coolness or Android's omnipresence in the over billion-units-a-year world smartphone market, say critics of the all-cash deal. Supporters, meanwhile, say that the consummation of the two-year strategic partnership that shifted Nokia's phones from its Symbian operating system to Windows Mobile heralds a software-hardware marriage - so integral to survive in a model-a-fortnight market that's littered with once-bright, now burnt-out stars, like BlackBerry.
The shift to smartphones will be accentuated with the launch of fourth-generation telephony in India, Africa and other countries where millions are yet to embrace the digital lifestyle. Clearly, Microsoft wants to be ready to catch this as it unfolds. The Nokia deal, it envisages, will catapult it from its anaemic under-4-per cent share of the market to over 15 per cent in the next two years. "It's a big transformation," said Microsoft's outgoing chief executive and the main architect of the deal, Steve Ballmer. Especially as, in its desire to become a serious player in the devices market, the company has been unlucky so far. And not exactly because of lack of trying - the Zune music player and the Surface tablet both failed to make an impact.
But was this the best way to spend cash it had earmarked for the still-growing smartphone market? True, the $7.2 billion it will pay to take control of Nokia's handset business is just a tenth of its huge, over $70 billion offshore cash reserves. And Nokia's bottom-of-the-pyramid innovation in low-cost feature-rich Asha phones and its strong brand connection with consumers will come in handy when the iPhones and the Galaxies try moving into the under-$100 smartphone market. But over $5 billion of the deal goes into buying nuts-and-bolts manufacturing facilities (the remaining $2 billion-odd goes for patent licences). Yet that's so easily outsourced to Chinese players like Foxconn as Apple, or closer home Micromax, has so ably demonstrated. So why tie the firm down with a legacy business that will drain cash, shaving off earnings of almost 18 cents a share this year and the next? And why face the nightmarish prospect of integrating an additional 32,000 people in the merged entity?
It could have returned that money to shareholders, and got a valuation boost. Instead Microsoft saw its value fall over $12 billion the day the deal was made public. It could also have used the $5 billion as a patent-proofing war chest, the way Google did its $12.5 billion purchase of Motorola Mobility in 2011 - protecting its Android platform against attacks from iOS and Windows. Or, for that matter, it is apps that get and retain smartphone buyers; but Windows Mobile is still relatively weak on these, compared to iOS and Android. Microsoft could have used part of that $7.2 billion to kick-start a virtuous developer-app cycle for itself. Making mobile handsets is hardly likely to play to Microsoft's strengths as the world's biggest software maker or a street-smart marketer.
