With Nokia mobile phones, Microsoft wanted to take the lead in the smartphone war. But the equipment remained in the shop. Now thousands of employees had to vacate their desks. For Microsoft, it is an end with horror.
With the brightly coloured Nokia mobile phones everything should become better. When Microsoft took over the Finnish traditional manufacturer last year, it was a challenge for Apple and Samsung to dominate the smartphone market at will. But the takeover of Nokia’s mobile phone division became a monumental flop for Microsoft. The devices are on the shelves like lead, the mobile operating system Windows Phone is still struggling with puny market shares and many renowned manufacturers such as LG, Sony or Samsung turned their backs on Microsoft.
Now Microsoft boss Satya Nadella finally pulled the plug: The Windows giant writes the enormous amount of 7.6 billion dollars (converted 6.9 billion euro) on the Nokia deal. That is twice as much as the original purchase price of $3.8 billion. In addition, 7800 employees lose their jobs. This conversion will cost up to another 850 million dollars. All in all, the Nokia deal opens up a hole of almost 9.5 billion dollars in the company’s coffers.
Billion errors with consequences
Microsoft had big plans: The idea behind the Nokia deal was that you could be as successful with software and hardware from a single source as Apple was with your iPhone. There, the sale of equipment and software is mutually beneficial.
However, Microsoft did not achieve the sales surge it had hoped for. Smartphones with Google’s Android mobile operating system have a market share of up to 80 percent. Apple comes to around 15 percent and is highly profitable. 89 percent of all worldwide smartphone profits end up in Cupertino. Microsoft’s Lumia smartphones, on the other hand, account for only a few percent of the market, although sales have increased recently – but primarily in the low-cost, unprofitable segment. Even at peak times, the devices never sold as well as Nokia would have needed.
The dismissal of 7800 employees and the write-off of billions of euros is the temporary end of a serious billion-dollar mistake. A year ago, Microsoft had already announced the reduction of around 18,000 jobs, which had hit former Nokia employees hard. According to original announcements, more than 30,000 Nokia employees should switch to Microsoft at the time of the acquisition. Finnish Finance Minister Alexander Stubb warned in an initial reaction that the restructuring could have an impact on the state budget.
Microsoft continues to build smartphones
However, Microsoft does not want to withdraw completely from the smartphone business: CEO Satya Nadella emphasizes that Microsoft will continue to offer smartphones. However, he announced a much smaller range of models and said in euphemistic business speech: “In the short term, we will offer a more efficient and focused portfolio of mobile phones and retain the capacity to reinvent ourselves in the mobility sector in the long term. In the future, the focus will be on three areas: the low-end market, where some successes have recently been celebrated, the business sector and high-priced flagship models.
At the same time, Nadella explained that Microsoft no longer wants to operate its own mobile phone business. The mobile phones are probably only developed by Microsoft and built by other manufacturers. Google has a similar approach to its Nexus devices. Microsoft clearly acknowledged that the outlook for the devices was below expectations. The division was recently merged with the Windows area. The former Nokia boss Stephen Elop was also sung. He had gone from Microsoft to Nokia, made the deal with his former employer and then took over the management of the merged appliance division.
The takeover of Nokia mobile phones was still being negotiated under the long-standing head of Microsoft, Steve Ballmer. He wanted to position Microsoft at any price as a successful device manufacturer. However, his successor, Nadella, made no secret of his opposition to the Nokia takeover – and has adopted a completely different strategy since he took office. He opened his own software for other systems – including the office software Office365 and the clouds storage OneDrive – and also offers the programs for iOS and Android. In addition, it is concentrating much more strongly on the cloud business. Nevertheless, he will not get around forging new partnerships with other manufacturers if he wants to pull the rudder around in the mobile sector in the long term.
The end of an era
For Nokia, recent events are virtually the end of a spectacular descent from world market leader in mobile phones to insignificance. In the era of modern smartphones, the traditional Finnish company had lost its connection to the competition with the launch of the iPhone.
A course setting at the beginning of 2011 could have been decisive: When the development of a new operating system took a long time, Elop opted for Microsoft’s Windows Phone instead of Google’s Android. Next year Nokia plans to make a smartphone comeback. But perhaps it is already too late for that.