How does Microsoft's $7.2 billion purchase of Nokia stack up to other similar deals?

Sue Marek

Microsoft's (NASDAQ:MSFT) $7.2 billion purchase of Nokia's mobile phone business as well as a license to its patents and mapping software caught many in the wireless industry by surprise when it was announced late yesterday.

The deal includes much of Nokia's Lumia smartphone and Asha feature phone business. In addition, Microsoft will acquire around a third of Nokia's roughly 88,000 employees. The companies expect the deal to close in the first quarter of next year.

Many analysts are praising the deal as a logical way for Microsoft to get into the mobile device business quickly. The move is also seen as a way to get Nokia CEO Stephen Elop back at Microsoft particularly now that Microsoft CEO Steve Ballmer has announced his plans to retire.

But as analyst Jack Gold of Gold Associates notes, it's interesting that Microsoft did not just buy all of Nokia outright and then spin off the divisions it doesn't want. He hinted that this may be an indication that Nokia was in deep distress and its device sales were not strong enough to keep it viable in the smartphone business for much longer.

Can Microsoft save Nokia's smartphone business by buying it? I'm not sure it can. If history is any indication, it's clear that even when the strongest companies acquire weaker ones, it doesn't spell instantaneous success.

Microsoft's purchase of Nokia's handset business is not the first of this type of deal. Over the past few years there have been similar tie-ups between software and hardware companies. Microsoft itself recently purchased video software provider Skype for $8.5 billion.

With that in mind, I've compiled a rundown of some of these past deals to see if they have paid off for the purchaser and the acquired company.

Google buys Motorola Mobility
$12.5 billion was the price Google paid for Motorola Mobility in August 2011. The transaction included the transfer of Motorola's 17,000 patents and 7,500 patent applications to Google, which Google said it would use to protect Android licensees from patent lawsuits. Google said it intended to run Motorola as a separate entity and break out the results separately. Motorola CEO Sanjay Jha left the company after the acquisition closed.

Although Google purchase a hardware manufacturer, the company pledged to continue to license Android and keep Android as an open source platform. The company went to great lengths to reassure its OEM partners such as HTC and Samsung that it would not give Motorola preferential treatment when it came to licensing Android.

Initially, many industry insiders were skeptical about Google's ability to run Motorola as a separate business. However, many experts say the strategy has worked, and use the newly launched Moto X as an example of the company not playing favorites with Motorola. Motorola's Moto X was released in August sporting the Android 4.2.2 version, even though Android 4.3 had been released to all of Google's Android partners.

Did it pay off? 
Financially, Google's acquisition of Motorola has not been a winner for the company. In the second quarter of 2013, the Motorola business unit lost $342 million. This was an even greater loss than the previous year, when the Motorola unit lost $199 million.

Google hopes that the newly released Moto X will help it turnaround those losses but it's unlikely that the smartphone can do that. The Moto X will compete with the next-generation of the iPhone that is expected to be announced next week as well as the Samsung Galaxy S4 and the HTC One. Verizon Wireless (NYSE:VZ), AT&T Mobility (NYSE:T), Sprint (NYSE:S), T-Mobile US  (NYSE:TMUS) and U.S. Cellular (NYSE:USM) are all offering the Moto X in the United States.

Microsoft buys Skype
$8.5 billion was the amount Microsoft paid to snap up Internet telephony services provider Skype in May 2011. Microsoft said the deal would allow it to offer real-time video and voice communications across platforms including Windows Phone, Xbox and Kinect. Similar to Google's purchase of Motorola, Microsoft said that Skype would continue as a business unit within the company, with CEO Tony Bates assuming the title of president of Microsoft Skype Division.

Did it pay off?
Skype has continued to be a leader in the VoIP market. Analyst firm Analysys Mason estimates that 79 percent of VoIP app users use Skype. In addition, Microsoft continues to offer Skype across iOS and Android as well as its Windows Phone and Windows 8 platforms. Indeed, Skype for Android is installed on more than 100 million devices worldwide.

Hewlett-Packard buys Palm
$1.2 billion was the price Hewlett-Packard paid for Palm in April 2010. HP bought Palm intending to use the company to expand its own mobile strategy as well as benefit from Palm's intellectual property and team. During a conference call with analysts after the deal was announced, HP executive Todd Bradley said that HP would leverage its distribution channels and financial strength to help expand Palm's webOS platform. He said HP expected to take webOS beyond smartphones, possibly to tablets and netbooks for both consumers and enterprise users.

Did it pay off?
Unfortunately HP's vision never came to fruition. Although HP did release the Pre3, the Veer and the TouchPad, the first webOS tablet, the company failed to garner significant sales. Shortly after the release of the products, HP confirmed it was negotiating with a number of companies to license its webOS software platform. Just a few months later, Hewlett-Packard discontinued its webOS devices business. As for the webOS platform, that too has atrophied, but LG earlier this year said it licensed webOS for use in its smart TVs.

In a subsequent interview with FierceWireless in June 2013, former Palm chief Jon Rubenstein said he had some regrets about selling Palm to HP. "Well, I'm not sure I would have sold the company to HP," he said. "Talk about a waste."

These are just a few recent deals that came to mind when Microsoft announced its plan acquisition of Nokia late yesterday. Like any acquisition, it will take some time to integrate the companies, the cultures and, of course, the products. Perhaps Microsoft's strategy with Nokia will be a winner. I certainly would like to see the iconic Nokia brand maintain some stature in the wireless industry. Let me know your thoughts. --Sue

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