In a smart move that integrates its Windows 8 mobile software division with a full-fledged hardware design team, Microsoft Corporation (NASDAQ:MSFT) has decided to acquire the handset arm of phone maker Nokia Corporation (ADR) (NYSE:NOK) — along with a 10-year lease license on its patents — in a deal worth a whopping $7.2 billion.
Let’s look at how this move adds value to Microsoft Corporation (NASDAQ:MSFT)’s future prospects, and what investors can expect moving forward.
A time-tested strategy
Microsoft Corporation (NASDAQ:MSFT)’s newly acquired control over the Windows 8 mobile ecosystem means that the company can now respond faster to ever-changing customer demands by tweaking the design or software features of its phones. It’s a strategy that has worked for Apple Inc. (NASDAQ:AAPL), a company that’s perhaps the best example of how to integrate mind-blowing hardware with super-smooth software. Even Google realized the wisdom of such a strategy, as is evident in its $12.5 billion acquisition of Motorola Mobility.
A valuable buyout
Nokia Corporation (ADR) (NYSE:NOK) is a company that still has a rock-solid brand image and was the leader in terms of handset shipments as recently as 2012, when it fell behind Korean giant Samsung. Even at the end of June this year, Nokia Corporation (ADR) (NYSE:NOK) still had a sizable 14% global market share in terms of handset shipments.
Thanks to the deal, Microsoft Corporation (NASDAQ:MSFT) can now tap into newer smartphone markets that include countries Latin American countries Mexico, Chile, Brazil, Argentina, Peru, and Colombia.
Latin America is important to Microsoft Corporation (NASDAQ:MSFT), and for a particular reason. Recent data from research firm IDC reveals that the Windows 8 phone OS is now in second place after Google’s Android OS with 12% growth in market share in Mexico, Peru, and Colombia. It holds third position in Argentina, Brazil, and Chile. At the same time, the acquisition enables Microsoft Corporation (NASDAQ:MSFT) to directly sell its handsets in established markets for Nokia Corporation (ADR) (NYSE:NOK) such as China and India.
But everything may not be hunky-dory. Here’s the gaps in the bullish theory.
Microsoft’s plan to raise its overall smartphone OS market share to around 15% by 2018 — from a current 3.7% — seems a tad optimistic. The latest IDC data reveals that Google’s Android OS possesses a whopping 79.3% share worldwide, with Apple Inc. (NASDAQ:AAPL)’s iOS coming in a distant second at 13.2%.
Neither of these companies want to part with market share.