There is an interesting rumor in the market, which says that Microsoft- the software giant is all set to buy the handset business of Nokia and hence would license its patents for around 5.44 billion Euros or 7.2 billion dollars. This deal would change the nature of both these companies, now Nokia being a mobile phone company would transform into network equipment maker, whereas Microsoft Corp. the software giant would enter into a different domain. The official of both the companies are calling this deal as the moment of reinvention. However, the analysts are now very much sure about its prospects, hence this merger of two companies will emerge out a new competitor is really doubtful.
The share course
As per the reports, Microsoft Corp. would pay 3.79 billion Euros to Nokia for its devices unit whereas the remaining 1.69 billion it will pay for the patents. Nokia climbed as much as 1.44 Euros to 4.40 Euros and would trade 45% higher at 4.30 Euros in Helsinki, which helped the company getting a market value of 16.2 billion Euros. There are certain speculations about this deal, which claims that whether the two companies would weigh each other down or simply prop each other. However, the other recent significant move by Microsoft in the hardware domain with products like the Surface tablet was seen selling out with some below expectations, which means the company will have to take charge to write down inventory last quarter.
After the deal
This deal will change a lot of things. Though the Microsoft Corp. would become a big hardware player, however, Nokia would be seen with a new paradigm shift, wherein it will shift its focus to software and technologies. After the final deal, Nokia has its own plan wherein the company would be focusing over its three current businesses, which all happen to be a pioneer in enabling the mobility in the relevant market segment. The NSN happens to be a pioneer in network infrastructure and services, the second one is HERE, which is a leading group in mapping and location services while the last one Advanced Technologies is among the top group in technology development and licensing domain. Once the deal is closed, the financial position of Nokia is likely to improve, which will eventually help in shagging the future investments of all these three businesses.
The Breakeven Point
Microsoft would require Nokia to sell out around 50 million smartphone devices on an annual basis. Currently Nokia is seen having a run rate of around 30 million units. This agreement would allow the software giant Microsoft to pump in more amount of money of 40 dollars a unit for each smartphone device as compared to the 10 dollars in gross profit, which the company is getting for each and every windows based phone. As per Microsoft, this deal would simply add to their earnings, which comply with the generally accepted accounting principles in the upcoming fiscal of 2016. The company therefore expects to have huge annual cost synergies of around 600 million dollars around 18 months after this deal finally closes. The officials from Microsoft are calling this deal as a win-win phenomenon for consumers, shareholders and the employees of both the players.