Nokia Chief Executive Stephen Elop (R) stands with Steve
Ballmer, Chief Executive Officer of Microsoft,
during the introduction of the new Nokia Lumia
920 and 820 Windows smartphones on September
5, 2012 in New York City. (Image credit: Getty
Images via @daylife)
About a week after Microsoft
MSFT +0.08% announced plans to replace
CEO Steve Ballmer the company
announced it will spend $7.2B to buy
the Nokia phone/tablet business . For
those excited about possible big changes
at Microsoft this was like sticking a pin
in the big party balloon!
Everyone knows that Microsoft’s future
is at risk now that PC sales are declining
globally at nearly 10% – with developing
markets shifting even faster to mobile
devices than the USA . And Microsoft has
been the perpetual loser in mobile
devices; late to market and with a
product that is not a game changer and
has only 3% share in the USA.
Microsoft keeps trying to change the market
with Windows 8
Despite the grim reality, by buying Nokia
NOK +0.61% Microsoft has doubled-down
on its Windows 8 OS strategy, and
continues playing “bet the company”.
Nokia’s global market share has
shriveled to 15% (from 40%) since
former Microsoft exec-turned-Nokia-CEO
Stephen Elop committed the company to
Windows 8. Because other Microsoft
ecosystem companies like HP, Acer and
Dell DELL -0.04% have been slow to bring
out Win 8 devices, Nokia has 90% of the
miniscule market that is Win 8 phones.
So this acquisition brings in-house a
much deeper Microsoft commitment to
spending lots of money on its effort to
defend & extend its declining O/S
products.
As I predicted in January , the #1 action
we could expect from a Ballmer-led
Microsoft is pouring more resources into
fighting market leaders iOS and Android
– an unwinnable war. Previously there
was the $8.5B in Skype and the $400M
in Nook, and now we have $7.2B for
money-losing Nokia. And as 32,000
Nokia employees join Microsoft losses
will surely continue rising. While
Microsoft has a lot of cash – spending it
at this rate, it won’t last long!
This acquisition does not make Microsoft
like Apple AAPL -1.26%
Some folks think this acquisition will
make Microsoft more like Apple , because
it now will have both hardware and
software which in some ways is like
Apple’s iPhone. The hope is for Apple-
like sales and margins soon. But,
unfortunately, Google bought Motorola
months ago and we’ve seen that such
revenue and profit growth are much
harder to achieve than simply making an
acquisition. And Android products are
much more popular than Win8. Simply
combining Microsoft and Nokia does not
change the fact that Win8 products are
very late to market, and not very
desirable.
Stephen Elop is the wrong person to head
Microsoft
Some have postulated that buying Nokia
was a way to solve the Microsoft CEO
succession question, positioning Mr. Elop
for Mr. Ballmer’s job. While that
outcome does seem likely , it would be
one of the most expensive recruiting
efforts of all time. The only reason for
Mr. Elop to be made Microsoft CEO is his
historical company relationship, not
performance. And history makes Mr.
Elop exactly the wrong person for the
Microsoft CEO job!
In October, 2010 when Mr. Elop took
over Nokia I pointed out that he was the
wrong person for that job – and he
would destroy Nokia by making it a
“Microsoft shop” with a Microsoft
strategy. Since then sales are down,
profits have evaporated, shareholders
are in revolt and the only good news has
been selling the dying company to
Microsoft! That’s not exactly the best
CEO legacy.
Mr. Elop’s job today is to sell more Win8
mobile devices. Were he to be made
Microsoft CEO it is likely he would
continue to think that is his primary job
– just as Mr. Ballmer has believed.
Neither CEO has shown the ability to
realize that the market has already
shifted, and that there are two leaders
far, far in front with brand image,
products, cloud services, apps,
developers, partners, distribution,
market share, sales and profits. It is
impossible for Microsoft to now catch
up.
Investors and analysts know big strategic
change is necessary
It is for good reason that short-term
traders pushed down Microsoft’s share
value after the acquisition was
announced. It is clear that current CEO
Ballmer and Microsoft’s Board are still
stuck fighting the last war. Still trying to
resurrect the Windows and Office
businesses to previous glory. Many
market anallysts see this as the last great
effort to make Ballmer’s bet-the-
company on Windows 8 pay off . But
that’s a bet which every month shows
longer and longer odds.
Microsoft is not dead. And Microsoft is
not without the ability to turn around.
But it won’t happen unless the Board
recognizes it needs to steer Microsoft in
a vastly different direction, reduce
(rather than increase) investments in
Win8 (and its devices,) and create a
vision for 2020 where Microsoft is highly
relevant to customers. So far, we’re
seeing all the wrong moves.
No comments:
Post a Comment