The "new Nokia" (NYSE:NOK) that will be left after Microsoft takes over (NASDAQ:MSFT) the iconic handset maker's devices and services unit will be an infrastructure vendor and patent licensor with a growing presence in the cloud and network virtualization.
Microsoft's decision to pay around $7.2 billion for Nokia's handset business and a license to its patents and mapping software excluded Nokia Solutions and Networks, the infrastructure business that was formerly known as Nokia Siemens Networks. Nokia's move to buy out Siemens' stake and take full ownership of NSN last month was obviously a precursor to Nokia's plan to sell off its struggling devices business.
The Microsoft-Nokia transaction is expected to close in 2014's first quarter. New Nokia will hold onto NSN; HERE, its location and mapping business; and Advanced Technologies, its R&D arm, which also manages Nokia's massive patent portfolio.
Long considered a problem child, NSN's restructuring and revised business focus helped it achieve underlying profitability for five consecutive quarters. At the end of June 2013, NSN had 50,500 employees, meaning that business will comprise the bulk of new Nokia's remaining 56,000 employees, excluding the 32,000 who will be moving to Microsoft. However, in early August, Bloomberg reported that NSN is considering slashing 8,500 more jobs by the end of 2014 in a new round of cost-saving measures.
Addressing the Microsoft-Nokia deal, NSN downplayed the impact on its own activities. "For NSN, it is business as usual. We remain focused on executing our strategy, completing our restructuring and delivering industry-leading innovation to our customers every day," commented NSN CEO Rajeev Suri.
Yet the transaction will positively impact NSN. For one thing, NSN's parent Nokia will be able to focus on infrastructure and cloud-based services without the distraction of a faltering handset business.
Dean Bubley, founder of Disruptive Analysis, wrote on his blog that NSN is "reinvigorated" and "facing the shift to NFV/SDN." By getting rid of its "stuffy old phone business," Nokia will be able to "concentrate on the cloud, where all the action is going to be," he wrote.
Indeed, Nokia said web and cloud technologies are among the areas that will be targeted by its new Advanced Technologies unit.
Daryl Schoolar, principal analyst, network infrastructure, at Ovum tweeted that with the $7.2 billion influx from the sale of Nokia's devices business, "NSN could be the real winner" of the Microsoft-Nokia deal.
"The new Nokia isn't sexy and won't have spectacular growth, but it won't suffer from spectacular failures either," said Daniel Lacalle, a senior portfolio manager at Ecofin, who was quoted by Bloomberg. "Nokia will be much more competitive as it won't waste money anymore," he noted.
With a robust war chest available for acquisitions, Nokia could bolster its infrastructure business by taking over unprofitable Alcatel-Lucent (NYSE:ALU) and combining it with NSN. The Wall Street Journal reported that "one person close to Nokia" said such a deal could eventually make sense but is not currently on the table.
Bubley noted that Microsoft has decided against following Oracle--which acquired Acme Packet and Tekelec--down the trend toward "IT-isation of the network" by leaving NSN out of the Nokia deal. However, he added that it "wouldn't surprise me to see IBM or HP step up to the plate, though."
Bubley predicted the revamped Nokia will have lots of new prospective clients for its remaining business endeavors, including its HERE navigation and location-based services unit. One potential client is Apple (NASDAQ:AAPL), which Bubley wryly observed "could use some decent maps."
For more:
- see this NSN statement
- see this Disruptive Analysis blog entry
- see this Wall Street Journal article
- see this Bloomberg article
- see this VentureBeat article
Related articles:
Microsoft to acquire Nokia's phone business for $7.2B
Report: Cisco, NSN well-positioned in growing SDN market
NSN reportedly eyeing 8,500 more job cuts
Huawei's reported interest in Nokia could give it control over NSN
NSN records operating profit, but Q2 sales fall 17%
Nokia 'buys a future' with NSN, but does that future include devices?