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On Tuesday, Microsoft MSFT announced that it is buying Nokia NOK ’s device business and also licensing certain intellectual property from Nokia. There has been much negative commentary. For example Morgan Stanley MS downgraded Microsoft, and investors voted with their money by selling shares, with Microsoft stock trading nearly 7% lower than it did before on Friday before the deal was announced.
It’s hard to blame investors. In 2007, Microsoft spent $6.3 billion on online advertising outfit aQuantive, but last year wrote down the value of the acquisition by $6.2 billion. Despite the reflexive distaste of the market and the foibles of the recent past, I believe that there is long-term value in this transaction.
Here are seven reasons why Microsoft buying Nokia’s device business is a brilliant move.
Transform Or Perish
Microsoft is facing a stark choice between major transformation or perishing as a growth entity in its current form. Microsoft has chosen to go the route of transformation. The other route, not chosen, would have been breaking up the company between consumer and enterprise segments and then milking the cash cows of existing software products.
Microsoft has traditionally been a software company, but a number of major trends have made its traditional model obsolete. Such trends include rapid proliferation of mobile devices, cloud, software as a service, decline of the PC, and tighter integration between hardware and software on the lines of the Apple AAPL model.
Microsoft has embarked on a difficult major transformation to become a devices and services company. To date, Microsoft’s device business has been limited to Xbox and Surface tablets, quite small in comparison to the total scope of the company…Read more at Forbes
