Shares of Microsoft Corporation (NASDAQ:MSFT) were getting pounded in premarket trading this morning, falling as much as 5 percent. Investors were undoubtedly responding to the company’s announced acquisition of Nokia’s hardware division—and speculation that current Nokia CEO Stephen Elop could be Microsoft’s next CEO.
Why would Microsoft want Nokia?
This morning some analysts are suggesting that the main reason Microsoft wants to gobble up Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V)’s hardware division is because Windows Phone is in trouble. Nicholas Carlson of Business Insider points to comments made by two analysts who believe Nokia was about to stop making Windows Phones. Of course that would be the end for the mobile platform because Nokia’s handsets have been the main drivers of growth within it.
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Analyst: Nokia’s strategy with Microsoft was flawed
Ben Thompson of Stratechary said he has argued in the past that Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) made a major strategic error by opting to make phones on the Windows Phone mobile platform rather than Android. He said it would have been to Nokia’s benefit and also the benefit of everyone for the company to choose Android.
He suspects that either Nokia was going to switch to making Android or was about to go bankrupt. He believes the struggling company was almost bankrupt because part of the final deal includes €1.5 billion in financing, which Microsoft Corporation (NASDAQ:MSFT) will make available to the company immediately.
Also he points out that Microsoft had to take Asha but not the brand or Nokia’s Here maps. He believes this suggests that this would keep Microsoft’s purchase price as low as possible.
Microsoft didn’t have a choice
The analyst compares the Microsoft – Nokia deal to the one between Google Inc (NASDAQ:GOOG) and Motorola. He doesn’t think Google had much of a choice because Motorola threatened to sue other Android manufacturers. He also doesn’t think Microsoft Corporation (NASDAQ:MSFT) had much of a choice because Nokia—the only company that has been able to gain a foothold for Windows Phone in the operating system war—is going bankrupt.
Analyst Benedict Evans made comments that are similar to those made by Thompson, suggesting that either Nokia was going to switch or was almost bankrupt. He also notes that Windows Phone isn’t a complete failure but that something has to change. Although sales are “drifting slowly upwards” and the company is now ahead of BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) in some markets, the mobile platform is still far from break even.
Microsoft Corporation (NASDAQ:MSFT) said in its announcement that 50 million units is break even, although over the last 12 months, there were only about 20 to 25 million units sold. He notes that Microsoft has essentially solved Nokia’s problem of running out of cash while also managing to keep its mobile platform alive.