Microsoft paid Nokia over 1 Billion dollars for Nok-MS deal?

Bloomberg is reporting that Microsoft may have paid Nokia over 1 Billion dollars to secure the Nokia-Microsoft partnership.

That’s not exactly news because Elop himself have said the monetary value flowing to Nokia from Microsoft is in the B’s and not the M’s.

What’s a little more concerning is that it seems to just be…1 Billion dollars. Is this really enough? Considering that powerful swing factor Nokia is giving Microsoft? Considering MS would certainly be dead in the water without Nokia? Considering that Nokia are still going to be paying licence fees? Certainly, MS needs Nokia so much more than Nokia need MS?

Well, what has moved out to the billions in relation to Nokia? post announcement, Nokia has dropped 13 billion dollars in market cap value. (It’s a little bit more complicated than this, more a sign of doubt in the switch than Nokia’s actual worth).

WMPoweruser suggests that at a cost of licencing of 15 dollars per  Windows Phone handset, Microsoft would recoup this back in less than 70 Million handsets. However, Nokia will also be significantly cutting R&D costs yearly. It’s currently spending the most out of the European companies (though it’s worth noting Nokia is NOT just a maker of phones, it produces the infrastructure.)

From this post a while back, quote from @everythingblaxx again (referring to 2010 R&D numbers found by engadget):

• Nokia Siemens Networks accounts for $2 billion of their R&D spending
• Navteq another $400 million. Remove that $2.4 billion from the equation and now they’re below Samsung’s R&D spending.

According to bloomberg:

Nokia may cut its budget for research and development in devices and services by about a third from last year’s spending of about 3 billion euros, said Sami Sarkamies, a Helsinki-based analyst with Nordea Bank.

Cut a third? So that’s 1 billion euros saved? Yearly? But MS 1 Billion is just a one off? There were more reasons for Nokia to partner up with Microsoft than the direct cash value. Supposedly being able to differentiate better with Windows Phone, another reason was that going for Android would mean crowing it as the undisputed mobile OS king with no room for Nokia to ever make a comeback should it try again with their ‘next disruption’. Plus, possibly most importantly but missed out, there is the shared advertising revenue. As Janne says:

“…far more pressing than any single cash-payment (that is basically just money towards the transition), as mobile advertising is said to be the next big thing. In fact, I think it is the only thing really driving Google’s business with Android… Google and iOS have their ad systems, now Nokia gets into that game too.”

They said it is all about the ecosystem and ads are predicted to be a huge part of that. There was no ad-ecosystem for MeeGo, they would have had to build one.

Over 100 Million Symbian smartphones were sold in 2010 alone. The transition from Symbian to Windows Phone will not be easy. It’s expected the next two years will be transition years with Symbian holding on at least till 2013. This means that it may be highly unlikely for Nokia to convert those Symbian sales into Windows Phone sales.

Unlike current manufacturers of Windows Phone, Nokia has plans to push it to lower cost handsets too, thus taking over not just the high end smartphone space but the low-mid areas where Symbian once ruled. The very, very low end will be the “next billion” connected by S40. I’m concerned what Nokia’s profit margin would be on the lower end WP phones if approx 15 dollars already disappears to MS.

Thanks to Alberto for the tip!

Lastly, not sure if this is worth a mention by ‘die tyyli’ emailed us a story from Finnish news site kauppalehti.fi who claims that Nokia is a potential take over target. The article is in Finnish and the translation isn’t so good. Nokia’s take over from Microsoft has been predicted, rumoured and joked about for a while. Possible splitting from Nokia Siemens and Microsoft effectively taking over Nokia for 0 dollars.

Category: Nokia, Windows Phone