For those who might post comments - please remember (or new visitors, be aware) - I won't let this blog become a Wall Street stock market 'analysis' and arguments blog. So you may definitely discuss the 'valuation' of Nokia's parts, and for this blog entry, I'll allow Nokia historical views of its share price, but no speculation or debate about might Nokia share price go up or down in the near future. But yes, please go read the Seeking Alpha article, its short and sweet, explains EXACTLY why I still am convinced, Nokia will be sold (and soon).
@RottenApple
What is most fascinating about the various exploits of MS is they way they show that "The best X money can buy" is always of such low quality.
Whenever MS throw money into a pet project, Bing and WP are good examples, they come up with violently mediocre products.
Posted by: Winter | May 08, 2013 at 03:51 PM
Nokia just announced a new line of Lumia smartphones with great cameras.
It seems another great piece of hardware, as Nokia always did. It would be perfect, except for the software.
Now... just imagine what would have happened if Elop adopted Android instead of Windows Phone: they would have great software AND hardware.
I guess they would have more than 3% of market share by now.
Posted by: foo | May 08, 2013 at 04:17 PM
Hello Tomi & all! I think you ought to see this article about Microsoft strategy, especially if you are involved in or around Nokia business. The implications are more then important, even globally.
"(...) Microsoft’s Pivot — A Plan to Dominate “Devices and Services”
We are currently witnessing a major pivot in Microsoft’s core business model. It is starting to become clear that — as Steve Ballmer recently announced — Microsoft is deadly serious about becoming a global leader in consumer “Devices and Services.” Successful execution of this strategy will require the company to control everything from manufacturing, distribution logistics through to retail.
The company appears to be focused on executing a ‘Leader’ strategy in the devices business which would give them even greater control than Apple famously does over the end user experience. In addition the company is likely to repurpose its online service investments to add value to this new device-led strategy. A-la Apple, consumers will have no choice but to use Microsoft own services when using a Microsoft mobile device and competition authorities will be powerless to prevent it.
If correct, this pivot will has profound implications for the structure of the company, shareholder value and for the entire mobile technology industry.
In the beginning…
I was reminded recently by a couple of former Microsoft colleagues about a presentation Steve Ballmer gave to the sales force several years ago. It was Steve’s keynote at the annual sales meeting and it was one of the more emotional presentations by Steve that I or any of the other attendees had witnessed. The theme of Steve’s presentation was Muhammad Ali’s legendary ‘Rumble in the Jungle’ with George Foreman. In his presentation Steve — a huge sports fan — analogized Microsoft to Ali — an underdog in the fight of its life against younger, fitter and more agile competition. Ali of course won the fight supported by 60,000 fans chanting “Ali, bomaye! Ali, bomaye!”, “Ali Kill Him.” You can picture Steve energetically bounding around the stage screaming “Microsoft Bomaye!” getting 15,00 Microsoft sales staff wound up into an enthusiastic frenzy.
On face value this revving up of the sales team was vintage Ballmer, ever the master salesman himself, getting the troops pumped up to go do battle with the enemy. But recent conversation have caused me to suspect that there was a much more important hidden message. Ali did not enter the ring in Zaire to fight Foreman without a plan. Far from it. In fact Ali was very clear before the fight that his strategy would be to absorb all of Foreman’s punishment in the early rounds, tire him out and then land a killer knockout blow. That’s exactly what he did.
I now suspect that Steve came to that annual sales meeting with a long-term strategic plan already developed. Steve was pumped up because he realized that Microsoft would need to live through a punishing period where everyone would write-off the company, competitors would land punishing blows and eventually — when the time was right — Microsoft would — like Ali — deliver a knockout blow.
After years of punishment by the likes of Google and Apple we may now be approaching the point where — at least in Steve’s view — Microsoft is about to land a killer punch.
Out of Advertising
At another annual sales meeting a few years after “Microsoft Boomaye!” my team met with Steve to discuss a number of technology policy challenges we were facing. We felt there was an opportunity for Microsoft to take the high-ground on personal data privacy issues as a competitive position against Google. Steve agreed that this was clearly an opportunity but while sympathetic to taking that position he was not yet ready to support it. He felt that putting a stake in the ground at this stage would be premature. Once the company committed to a policy position it needed to stick with that position. Steve felt that putting a stake in the ground on consumer privacy before the online advertising market had matured might unnecessarily limit the company’s future options.
Three recent announcements clearly indicate that Microsoft is now ready to put that stake in the ground and that the company’s experiment with an independently targeted advertising based revenue model is over.
The company’s write-off of the $6,2 Billion investment in aQuantive was the first indicator. Microsoft made than investment as a competitive bulwark against Google and now its being written off. In effect the online advertising business — at least in its current form — has been judged to not be core to Microsoft long-term strategic success. This not to say that the company will withdraw from the advertising business altogether but I believe Steve and Co. have a different and more focused model in mind.
Microsoft’s May 2012 announcement that the next version of Internet Explorer would enable “Do Not Track” by default has caused outrage across the advertiser community. That is certainly one very large and very clearly marked stake in the ground. In the most direct way it can Microsoft is saying to advertisers that they are no-longer perceived as important to the company’s long-term success.
Finally, The company’s announcement this Monday (October 22nd 2012) — clarifying that it will not use consumers personal data for targeted advertising- is a final nail in the coffin for the once imagined head-to-head battle with Google for advertiser’s dollars. That game is over and Microsoft is moving on with what it believes is a far more compelling advertising augmented revenue strategy.
Into Devices
Steve Ballmer’s recent announcement that Microsoft should now be considered a “Devices and Software” company was met with derision by the digerati and commentariat. The company’s track record in devices — beyond keyboards, mice and the XBox — is lamentable. Zune players anyone? Even XBox — a huge success by any criteria — had its share of manufacturing problems which have not exactly burnished Microsoft’s hardware credentials. But what if everything to date was — as they say — a learning opportunity?
It famously takes three version for any Microsoft product to reach its full potential. Its quite possible that version three of “Microsoft as a device manufacturer” is about to be unleashed on the world. The evidence for this can be pieced together from a number of moves over recent years. Apple’s acquisition of Intrinsity — an ARM processor design company — in 2010 generated a huge amount of commentary but — strategically — not such a surprising move by a hardware company. What might be more surprising is knowing that Microsoft established a Silicon Architectures “SiArch” team long before Apple got into that business and has been hiring some top chip design talent.
In July 2010 Microsoft signed a new “Architecture” license with ARM. This license gives Microsoft the rights to design its own processors based on the ARM architecture. Just the sort of thing you would need if — like apple — you want to be in the business of creating differentiated processor capability for your own range of devices.
This week saw the publication of a story claiming that Microsoft was manufacturing the new surface tablets in its own manufacturing facility in China. The tenuous nature of the sourcing for this story lead many to question its validity. I’m surprised by that reaction because Microsoft confirmed that they has dedicated manufacturing capabilities back in 2007.
From what I can piece together I suspect the company’s manufacturing capability has advanced significantly over the last five years. It would not surprise me to learn that Microsoft has invested in the level of massive dedicated manufacturing capability that would enable it to compete as a global device manufacturer. Anything less than that would be a ‘follower’ strategy and I don’t think the Microsoft leadership team see themselves as followers.
I believe that the pivot towards a “Devices and Services” business strategy is premised on the company becoming a category leader, not a follower. If that is the case then they would want to have much more control over supply chain and distribution logistics than even Apple achieves. Instead of merely assembling components a truly agressive ‘Leader’ strategy would have the company moving upstream into component production. We already know that the company has the ability to create custom processor designs. Are those really nice surface tablet displays also designed and perhaps even manufactured in house?
Becoming A Consumer Business
I have been a long and constant critic of the Microsoft management team for their lack of focus and obsession with becoming a consumer company. I would not be the first to suggest that — over the last 10 years — Microsoft has become the ‘Rodney Dangerfield’ of the technology industry: Unable to get respect from anyone.
The reality is that by revenue and profitability measures alone Microsoft is quite clearly an enterprise software company — not a consumer products company. The evidence presented indicates that the company maybe getting ready to finally bring clarity to its schizoid business model with a massive pivot towards a “Devices and Service” consumer facing business model. That pivot would require very significant investments in an end-to-end value chain.
We know that Microsoft has device design and manufacturing capability. We also know that the company has invested in its own retail presence over the last few years. That was viewed as an attempt to mimic Apple. But what if this retail strategy had always been about creating a storefront for the company’s own manufactured devices. Such a strategy would allow Microsoft to by-pass traditional low-rent — but margin eating — outlets such as Best Buy.
If the company is focused on becoming an end-to-end device manufacturer then the retail strategy takes on a much larger significance. With in-house manufacturing capability at one and and retail distribution at the other Microsoft would need to join the two. A ‘Leader’ strategy would require the company to take far greater control of distribution logistics. A ‘Leader’ would not sub-contract logistics to a 3rd party but rather would build an end-to-end managed distribution network from manufacture to consumer hands.
If Microsoft is committed to taking control of its own distribution network then hiring of Kevin Turner — a former senior WalMart executive — makes a lot more sense. Turner was viewed as a ‘square peg in a round hole’ overseeing Microsoft’s — core — enterprise sales business. During my time with the company Turner was widely disliked by Microsoft’s enterprise sales staff and was viewed as ‘Not getting it’ or understanding what was required to meet enterprise customer’s expectations.
What Turner does understand — from his years at WalMart — is consumer retail and supply chain management. These are just the skills to have on hand if Microsoft’s is about to pivot it’s business model towards a consumer “Devices and Services” company.
Serving The Device
Microsoft’s moves to put a stake in the ground regarding online consumer data protection change the company’s calculus about advertising as an intrinsic revenue stream.
The company clearly sees an opportunity to put Google on the back-foot. Microsoft can position itself a champion of consumer data protection and rights while placing Google in the uncomfortable position of either defending its agressive monetization of consumer data or backing away from its current business strategy. Neither of those are palatable outcomes for Google and the latter is certainly untenable given how dependent Google is on it’s advertising revenue stream.
To say that Microsoft has not performed in online consumer services would be a gross understatement. Bilions and billions and billions of dollars have been invested over many years with the company gaining almost zero traction in any meaningful service category. The investment in Bing search and the partnership with Yahoo have hardly yielded the type of market redefining results both company’s had hoped for. If the company is in the midst of pivoting its business model towards a consumer devices-led strategy then expect the company’s online services to be re-focused and re-purposed to that end.
Under this new device-led strategy online services would become value enhancers for devices rather than stand-alone businesses in their own right. Today services like Bing have to compete in an open market where consumers have choice. When a consumer is using a Surface device then the only search, maps or music service they will have access to will be those provided by Microsoft.
Microsoft has had its fair share of anti-trust problems with both the United States Department of Justice and with The European Commissions Competition authorities. In each case Microsoft was judged to have mis-used its monopoly position in the market for PC operating systems. No such claims will be possible against the company when it enters the device business for two reasons. Firstly, Apple and Google already dominate the market for mobile devices. Microsoft quite clearly would not have a monopoly to abuse. In addition Microsoft has rather cleverly cleaved its operating system strategy.
Win8-RT is an entirely different operating system from classic Windows. If Microsoft ties its own services to Win8-RT then competiton authorities are going to have a hard time make any abuse of monopoly case stick.
Wither the OEMs
In a recent article I concluded that Microsoft’s ambitions to be an true consumer products company would remain an expensive fantasy until Steve and the management team were willing to “Throw the OEM partner community under the bus.” It now appears that the company is ready to do just that.
Microsoft’s public pronouncements about the importance of the OEM in the wake of the release of Surface are more than a little disingenuous. Microsoft finally does appear to have crossed the rubicon in regards to the long-term value of their OEM partners. The company appears to embarking on a strategy that — while accommodating the OEM channel — is not going to throw them a life raft. OEMs who do not already have an alternative business strategy when Microsoft becomes their largest and most agressive competitor are in deep trouble.
Ironically the OEM channel is about to commit collective suicide by enabling Microsoft to become their executioner.
Microsoft desperately needs the OEMs right now. They are needed because that’s the only way to get Windows 8 into the hands of hundreds of millions of consumers. But — wittingly or unwittingly — the OEMs are acting as the vector for the “Virus” that will ultimately kill them off. Once a critical mass of consumers have become hooked on Windows 8 Microsoft will have established the reach and credibility of the operating system that is required to execute the company’s devices strategy.
Once Microsoft has its own volume device capability it will have no strategic need for the OEM channel. Microsoft’s message to the OEMs can be summed up as “Enjoy the ride while it lasts.”
Nok Nok…
Perhaps the company most likely to be impacted by Microsoft consumer devices strategy is Nokia. I have absolutely no doubt that Microsoft is going to become a manufacturer of a full range of Windows 8 based smartphones. That is going to happen sooner rather than later. When Microsoft launches a ‘Surface Phone’ it is quite simply game over for Nokia.
Consumers already have a hard time choosing betweens phones running Windows Phone 7 and competing offers from Apple and the Android OEMs. If Microsoft comes to market with a range of world-class devices running Windows 8 and sells them through its own retail channel then I don’t see much opportunity for Nokia - or any other Win8 phone OEM for that matter.
Nokia’s strategic options are shrinking rapidly. It’s my view that when Microsoft enters the phone business with its own devices Nokia will have run out of time as an independent company. The most likely final chapter in its storied history sees Microsoft buying up Nokia’s sizable patent portfolio, its in-house design and engineering expertise and — perhaps — the brand rights. Perhaps Nokia’s CEO Stephen Elop will even rejoin the Microsoft leadership team to run the phone business. Alternatives to this outcome seem to be very few and far between.
Truly a sad end to a once dominant company.
Two OS to Rule Them All?
Can Microsoft maintain its current corporate structure if it successfully pivots its business model to become the leading devices and services company? I suspect not.
Successfully executing on the strategy outlined in this article would clearly give Microsoft a new lease on life. On growth prospects alone you would want to own the stock. However, effecting this level of radical change in strategy would amplify — rather than mitigate - the schizoid nature of the company’s operating model. Microsoft would become a company of two polar opposites: A defined, successful and moderate growth enterprise software company at one extreme and a very high growth devices-led consumer business at the other. A single stock ticker representing two such radically different business models makes little sense.
One of the many strategic issues posed when considering splitting up Microsoft has always been ‘What to do with the Windows business.’ It’s a relatively trivial exercise to bucket Microsoft’s business divisions into either the enterprise or consumer category. But the Windows division quite clearly serves both.If you were to split the company up then where would the Windows division end up?
The problem of where to put the Windows division would be made a lot easier if Microsoft had two operating systems, one consumer focused and the other designed for the enterprise. This realization puts a whole new spin on the Windows 8 strategy.
There are two versions of Windows 8 — one a direct descendant of Windows 7 designed for the Intel architecture and a second brand new ‘RT’ — version designed for ARM based devices. Initially this looked to be a retrograde step. The company spent years and billions of dollars trying to collapse it’s complex operating system portfolio down to single re-usable Windows code base. Now the company has gone in the opposite direction. Microsoft now has two versions of Windows; one enterprise focused and one purposefully designed for consumer devices.
Breaking the company up into independent consumer and enterprise focused entities would drive huge clarity and focus and unlock a lot of shareholder value. Having two distinct versions of Windows 8 aligned to each segment just made that a lot more straightforward.
Evidence and Supposition
Whether Steve and the leadership team ever decide that Microsoft and its shareholders would be better served by a managed breakup of the company remains to be seen. What is clear from recent evidence is that the company is embarking on the biggest change in business strategy in Microsoft’s history. Their ambition is no less than to become a global leader in consumer devices and services.
Microsoft’s leadership team understands that the only way to be successful with this strategy is to take control of the entire end-to-end value chain and to do so in a deeper way than even Apple has achieved. Such a radical strategy would give Microsoft significant margin advantages over its competitors and would enable it to take complete control over the end consumer experience — something it has desperately lacked in its battle with Apple.
The re-alignment of Microsoft’s online services as value enhancers for a device-led strategy will also bring much needed focus to those investments and in doing so would enable Microsoft to take the high-ground on consumer privacy in their battle with Google.
If Microsoft pull this off then the consumer technology business — and the company’s stock — is in for a wild ride.
(...)"
Above article is from: Adamalthus, Technology, society and economics link: http://www.adamalthus.com/blog/2012/10/25/microsofts-pivot/
Posted by: previously Nokia devoted & loyal user | May 11, 2013 at 10:20 AM
@previously Nokia devoted & loyal user
good point and great text but as I said before the window of buying Nokia is closing fast the Lumia range is starting to sell better each quarter and also the revamped Asha platform that takes classic Nokia cues from Meego and the norwegian company Smarterphone will boost their sales against cheap android makers in developing markets and is starting to show in the stock market every time the share rises the more expensive the takeover will be. The summer of 2012 was the best time to buy Nokia but window is gone now unless something special come up
Posted by: Hansu | May 11, 2013 at 02:12 PM
@ Hansu: This is MS who gives cards to players on the table. First of all and in fact the only one factor that counts in this play is MS need, more precisely if Nokia have or is anything that MS think is needed. MS have bought already what they wanted to buy and when they wanted to buy - many many times, with many many companies smaller or greater. That is proven fact IMHO. I asked to myself why Nokia has sold to MS a bucket of patents. And after a time I think to myself that perhaps after having this patents MS has gained what they wanted the most. MS is patent troll company, and a company living from patents. Perhaps now Nokia without patents but with many employees which can't be fired just like that, then it can be a bucket of troubles, to manage to control to fulfil law requirements etc.etc.. Besides when they pay fees MS earns money and leave troubles behind the doors. And while this controlled by MS through person of Elop - then puzzles are on places and music plays nicely. Perhaps a kind of equilibrium has been obtained. When it will disappear we will see brutality and destruction. After buying Nokia MS will treat it as common commodity: logo and brand will go to US or China, some useful and humble staff also, realities are already sold. A new location for MS offices can be there etc.etc. But this will be after Nokia Maps will turn into MS Maps and so on. Time will tell. MS does not consider any window of opportunity, they only count what gives more benefits, just cold calculation, nothing more. Nokia is only one of many companies to overtake or to overuse. Nothing more nothing less, just cold ice from Queen of Snow, I think.
Posted by: previously Nokia devoted & loyal user | May 11, 2013 at 04:59 PM
@ Nokia devoted & loyal user Yes but if that is the case then yes but you have to remeber that MS has given Nokia billions what did get in return a couple of patents sure must be pretty good patents when you payed that much money for them. Micrsoft is a company with deep pockets and they could buy Nokia several times but the thing that bothers me is that MS and others had a golden opportunity to snatch up Nokia dirt cheap but they didn't and I dont understand why you would give Billions to a company then run stock down wait for it come up and then buy it for alot more money later altough you could have saved many billions just by picking the right time and as long as NSN and rest of Nokia is making cash..ish and every forecast is saying that Lumia sales will rise why wait nand pay a hell of alot money later it dosen't make any sense buy high sell low. MS could and almost should have bought Nokia last summer they would have got a great deal all the patents etc and the best assets dirt cheap and Nokia engineering now how to make the Surface phone.
Posted by: Hansu | May 11, 2013 at 07:57 PM
@Hansu I disagree. Nokia has different organisational culture then MS. To buy it mean to absorb it and put into MS structures which are differently managed, ruled, evaluated, leaded etc.etc. Nokia is not a startup of 5-20 persons with needed idea or piece of soft, which is easy to splash if needed. Nokia has its own identity/personality as the organisation. That could lead either to deviations in MS structures running or to kill Nokia creativity which is added value, and given to MS for nothing. MS knows perfectly what they are doing, in short, medium and long terms.
Besides overtaken Nokia would be a reason of many accusations for MS ad predator. Better is to lead Nokia to the stadium when they ask for this. Also Nokia this is people, I am not sure if would want to work for MS, and doubt if they would have any problems with new job offers. Also buying Nokia is paying for them as own staff. Now, if MS would want then they can break contract, leave Nokia with pants down and go away, but without paying damages to workers. And required by law of Finland retirments etc.
BTW.: Nokia has sold to MS a bucket of about 500 patents (5 hundreds). Not a few.
Posted by: previously Nokia devoted & loyal user | May 12, 2013 at 12:24 PM
any of you analysts actually used a lumia yet, I got one and I think it's an excellent phone, works smoother and more beautifully than iphone or android just my 2c
Posted by: sidiji | May 31, 2013 at 06:32 PM
I am not satisfied by the idea that Nokia will be sold of, as Nokia just needs to realize few things after which it will again get back to the track, there is a time they will realize for sure.
Posted by: krishna | June 15, 2013 at 05:16 AM
Yeah with the pace Nokia is going in the market, I am completely satisfied with the idea that Nokia will soon be not available.
Posted by: krishna | June 15, 2013 at 05:18 AM
Its still debate according to me, we can't say anything about it!
Posted by: Techzune | June 15, 2013 at 05:20 AM
Lately a friend showed me one of the mid-class Luminas.
In fact, it wasn't that bad. Quality of production seemed quite good, the Win 8 Phone is running smooth.
*** BUT ***
For me it seems they are *years* TOO LATE. It would have been interesting if they would have produced the phone 5 years ago, or even 3 years may have been enough to get some ground.
I do doubt, really, if they can build enough traction to sustain any marketshare above 2% - even Blackberry seems to get a better start with their new BB10?
Regards
Posted by: Lelala | June 15, 2013 at 12:11 PM
Since you have blocked me in Twitter, I simply have no chance to ask you questions there. But I'm so glad you have this channel as well.
Just few days back, must have been on June 14, you said in Twitter: "I am quite preoccupied with a little project you all will love. I hope to Tweet about it 'soonish' say in a few weeks".
Just to get this right, is this "few weeks" now the traditional "few weeks as Tomi Ahonen understands it"? To clarify, "Nokia will be sold within weeks" statement was made on July 17, 2012 - or in weeks, it was made about 50 weeks ago.
So, should I expect details on this project within weeks or sometime maybe in 2014?
Posted by: CN | June 18, 2013 at 09:15 PM
Huawei will free NOK from MSFT
Posted by: oli | June 18, 2013 at 09:20 PM
Well, Nokia was king in mobile industry before the announcement of iPhone. Now the future is of iPhone and Android
Posted by: Evasion Jailbreak | August 24, 2013 at 08:32 AM
Sold :(
Posted by: Emil | September 04, 2013 at 12:15 PM
There is any reasons behind the sale of Nokia. But we will miss the original Nokia Corp.
Posted by: Sanjeev | September 06, 2013 at 03:23 PM
Nokia maps was renamed to "here" and they made the interface look like Windows 8. This really suggests that they wanted to remove the Nokia badge so that it appears to come from Microsoft instead so the dismantling of Nokia had already begun.
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