consulting project nokia's acquisition by microsoft
TRANSCRIPT
2
Agenda
Consulting Project | Microsoft reaping synergies from Nokia acquisition
IV
II
Breaking down the Problem I
III Microsoft Restructuring - Nokia Acquisition
V Forecasts for the Multi-Screen Market – Key Takeaways
Financial and Operational Synergies
Overview of the Multi-Screen Market
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Agenda
Breaking down the Problem
IV
II
I
III
V
Microsoft Restructuring - Nokia Acquisition
Forecasts for the Multi-Screen Market – Key Takeaways
Overview of the Multi-Screen Market
Consulting Project | Microsoft reaping synergies from Nokia acquisition
Financial and Operational Synergies
4
Microsoft bought Nokia Devices & Services business seeking a stronger position in the Multi-Screen market
Microsoft aquisition of Nokia created new business opportunities
Microsoft needs to integrate Nokia resources and products within his strategy
How can Microsoft work to develop the Multi-Screen market with Nokia assets?
The new Microsoft structure and other strong indicators show that Microsoft can have an important role on the Multi-Screen Market
Problem Breakdown I
Consulting Project | Microsoft reaping synergies from Nokia acquisition
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Agenda
IV
II
I
III
V
Breaking down the Problem
IV
II
I
III
V
Microsoft Restructuring - Nokia Acquisition
Forecasts for the Multi-Screen Market – Key Takeaways
Overview of the Multi-Screen Market
Consulting Project | Microsoft reaping synergies from Nokia acquisition
Financial and Operational Synergies
The Multi-Screen market mainly integrate Pc/laptops, smartphones and tablets allowing the creation of a wider strategy including all of them
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Devices usage
> Productive and informed > Office or home use > Requires time and focus
> Keep us connected and organized > On-the-go and at home > Short bursts of time
> Entertainment > Home use > Unbounded sense of time
Source: Google - The New Multi-Screen World
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Consulting Project | Microsoft reaping synergies from Nokia acquisition
Microsoft may respond new trends implementing changes in the approach to the Multi-Screen Market
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Market Trends
Source: Google - The New Multi-Screen World
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Consulting Project | Microsoft reaping synergies from Nokia acquisition
Simultaneous usage Use of multiple devices simultaneously such as smartphones with tablets or PC/Laptops Multi-tasking Different purposes on the usage of each device at the same time (Example: Playing games and Social Networking) Complementary usage Usage might start in one device and then change to another while fulfilling the same task Example: Managing Finances can be done using different devices from home-banking in Pc/Laptops to payments via smartphones
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8 Source: NetMarketShare Market Share Reports
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Microsoft leads the Computer Operating Systems Market with more than 90% of Market Share Overview of the Computer Market
Consulting Project | Microsoft reaping synergies from Nokia acquisition
1,1%
6,8%
92,0%
Linux
Mac OS
Windows
> There are only three players in the computer operating systems market
> Microsoft Windows is the market
leader with a gap of more than 85% to Apple Mac OS
Desktop Operating System Market Share |2012; Market Share|
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Overview of the Smartphone Market
Top Smartphone Vendors Worldwide |2012; Market Share|
41,1%
4,6%
4,9%
19,1%
30,3%
Others
HTC
Nokia
Apple
Samsung
> Almost half of the market is concentrated in two players with a combined market share of 49,4%
> Altough Nokia is third in Market
Share there is a gap of 14,2% to the second player
Source: IDC Worldwide Mobile Phone Tracker
II
Consulting Project | Microsoft reaping synergies from Nokia acquisition
Nokia was the third worldwide top vendor of smartphones in the year of 2012 in a market where Samsung and Apple are the market leaders
Top Smartphone Operating System Worldwide |1Q 2013; Market Share|
Microsoft Windows Phone was the third Smartphone Operating System in the market on being a recent business for Microsoft
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4,5%
3,2%
17,3%
75,0%
Others
Windows Phone
IOS
Android
> The market is mostly controled by two players with a combined market share of 92,3%
> Microsoft Windows Phone is third
player in Operating System with a gap of 14,1% to the second player
Source: IDC Worldwide Quarterly Mobile Phone Tracker
II
Consulting Project | Microsoft reaping synergies from Nokia acquisition
Overview of the Smartphone Market
Microsoft is the fifth vendor of Tablets worldwide while as operating system holds the third position while both represent a new business
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Top Tablets Vendors Worldwide |1Q 2013; Market Share|
31,5%
1,8%
3,7%
5,5%
17,9%
39,6%
others
Microsoft
Amazon.com Inc.
Asus
Samsung
Apple
Top Tablets Operating System Worldwide |1Q 2013; Market Share|
> Apple, Samsung and Google are the major players across the Tablet Market
> Microsoft have the possibility to increase market share both as a
Vendor and as an Operating System following the same path of the smartphones market
0,2%
3,7%
39,6%
56,5%
Others
Windows
Apple iOS
Google Android
Source: IDC Worldwide Tablet Tracker
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Consulting Project | Microsoft reaping synergies from Nokia acquisition
Overview of the Tablet Market
Only Microsoft and Apple offer a full product range while other players focus on Smartphones and Tablets
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Microsoft is the Market leader for Computer Operating Systems
Microsoft is trying to increase penetration in both markets in Hardware and Software
Google Android is the market leader for Operating Systems in Smartphones and Tablets
Apple have the wider range of products from Hardware to Software in all the three devices markets and is positioned within the top players
Samsung is within the top two players in hardware for both devices market
PC/Laptop Smartphone Tablet
Microsoft and
Nokia
Google Android
Apple
Samsung
• Microsoft is turning its focus to other devices than computers
• Those markets have already strong players such as Google, Apple and Samsung
• It is important to create an offer that covers the full range of products
II
Consulting Project | Microsoft reaping synergies from Nokia acquisition
Overview of the Multi-Screen Market
13
Agenda
IV
II
I
III
V
Breaking down the Problem
IV
II
I
III
V
Microsoft Restructuring - Nokia Acquisition
Forecasts for the Multi-Screen Market – Key Takeaways
Consulting Project | Microsoft reaping synergies from Nokia acquisition
Overview of the Multi-Screen Market
Financial and Operational Synergies
14
Microsoft Strategy aims for innovation by working as One Microsoft with a single core strategy Microsoft Restructuring
“We are rallying behind a single strategy as one company — not a collection of divisional strategies. Although we will deliver multiple devices and services to execute and monetize the strategy, the single core strategy will drive us to set shared goals for everything we do. We will see our product line holistically, not as a set of islands. We will allocate resources and build devices and services that provide compelling, integrated experiences across the many screens in our lives, with maximum return to shareholders.”
Microsoft, CEO Steve Balmer
III
Source: Microsoft - Internal Email Consulting Project | Microsoft reaping synergies from Nokia acquisition
Microsoft bought Nokia to Devices & Services business for EUR 5.44 billion all-cash transaction inserted in the new strategy
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Nokia Acquisition
What the business includes Mobile Phones and Smart Devices business units as well as the design team, operations including production facilities, sales and marketing activities and support functions Human Resources transferral Approximately 32,000 people are expected to transfer to Microsoft at closing Patents Included 10 year non-exclusive license to Nokia patents with reciprocal rights to utilize Microsoft patents in Nokia HERE services. Option to extend the mutual agreement to perpetuity Total purchase price The purchase price had two components: EUR 3.79 billion relates to the purchase of the Devices & Services business and EUR 1.65 billion relates to the mutual patent license agreement and future option
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Source: Nokia’s announcement presentation
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Consulting Project | Microsoft reaping synergies from Nokia acquisition
Nokia Acquisition was also an integration of hardware knowledge and expertise with Microsoft software background
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Companies Backgrounds
Specialized in Software Computer Operating Systems
Worldwide Market Leader
computer operating systems In 2012
Specialized in Hardware Mobile Phones and Smart devices
Worldwide Market Leader
Mobile Phones Until 2012
Software and Hardware background experiences together for a more competitive Microsoft
III
Consulting Project | Microsoft reaping synergies from Nokia acquisition
17
Agenda
IV
II
I
III
V
Breaking down the Problem
IV
II
I
III
V
Microsoft Restructuring - Nokia Acquisition
Forecasts for the Multi-Screen Market – Key Takeaways
Consulting Project | Microsoft reaping synergies from Nokia acquisition
Overview of the Multi-Screen Market
Financial and Operational Synergies
18
Main opportunities for Microsoft lead to an increase of competitiveness and challenges are based in the integration of all the new assets
Opportunities and Challenges
+ __ Opportunities Challenges
• Wider range of products
• Increase the chance of Innovation breakthrough
• Complementarity between products
• Increased costumer and company
benefits
• Placement for Nokia employees
• Integration between new teams and associated costs from managing all the process
• Competition (Samsung, Apple and Google)
IV
Consulting Project | Microsoft reaping synergies from Nokia acquisition
Nokia Acquisition aims for a better financial performance with increased profitability per unit
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Financial Synergies
Acquisition
ü Smart Device Gross Margin (> $49 per unit)
ü Integrated Hardware
R&D and design ü Focused marketing
investment
Current Partnership
ü Windows Phone royalty gross margin (< $10 per unit)
ü Platform Payment
Support ü Marketing Investment
• Improved unit economics by owning gross margin and synergies
• Improving investments in
innovation and marketing
IV
Source: Microsoft’s Strategic Rationale for deal announced with Nokia Consulting Project | Microsoft reaping synergies from Nokia acquisition
Long Term Value Creation for Financial gains are based on the growth of the Smartphone Business
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Financial Synergies
Smartphone Revenue Opportunity
2018E Worldwide Smartphone Shipments
Assumed Market Share
Annual Revenue Approx. $ 45 Billion
1.7 Billion
Net Present Value
Assumed Operating Margin
Annual Operating Income
NPV
5%
$ 2.3 Billion
$ 15 Billion $ 30 Billion
$ 4.5 Billion
10%
15%
• Synergies between Microsoft and Nokia show potential Financial gains
• Smartphone Business growth
has a great influence on this results
IV
Source: Microsoft’s Strategic Rationale for deal announced with Nokia Consulting Project | Microsoft reaping synergies from Nokia acquisition
Note: Dates are not given by Microsoft
Nokia acquisition brings some Key capabilities to Microsoft and empowers growth in potential markets
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Operational Synergies
Source: Microsoft’s Strategic Rationale for deal announced with Nokia
IV
Consulting Project | Microsoft reaping synergies from Nokia acquisition
Device design and engineering
Key Capabilities
Device Distribution and Sales
Globally scaled
supply chain
Operator sales and support
Mature operational processes
and systems
Most of the Key capabilities will be responsible for reducing Microsoft cost structure and enable better geographical reach
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Operational Synergies
Source: Microsoft’s Strategic Rationale for deal announced with Nokia
IV
Consulting Project | Microsoft reaping synergies from Nokia acquisition
Mature Operational processes and systems Consolidate Nokia mature processes and systems with Microsoft existing integrating the expertise in producing hardware Device Distribution and Sales Using Nokia distribution channels to better reach target costumers and develop the Multi-Screen Market Globally scaled supply chain Increasing Microsoft reach across different geographical regions
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Microsoft Restructuring empowers Software and Hardware Teams to reap synergies between their vision and expertise along with Nokia assets
Operating Systems Engineering Group
All OS work for console, to mobile device, to PC, to back-end systems
Devices and Studios Engineering Group
All hardware development and supply chain from the smallest to the largest devices
• Synergies from Microsoft and former Nokia employees will come from working together in the same team (Hardware)
• Integration by Software and Hardware enables innovation in each area
• One Microsoft also enables horizontal communication between both teams leading to product complementarity
Operational Synergies
Source: Microsoft - Internal Email
IV
Consulting Project | Microsoft reaping synergies from Nokia acquisition
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The Marketing team will be able to ensure a wider communication for Microsoft single core strategy and product integration
Marketing Group
Broad view of marketing strategy Newly centralized advertising and media functions.
• A cohesive Marketing group can represent Microsoft single core strategy
• Integration and complementarity of Microsoft products can be more recognized by consumers
Operational Synergies
Source: Microsoft - Internal Email
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Consulting Project | Microsoft reaping synergies from Nokia acquisition
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Integration of Nokia executives in Key roles able Microsoft to better handle the synergies created with Nokia acquisition Operational Synergies IV
Consulting Project | Microsoft reaping synergies from Nokia acquisition
Assumed Key roles
Devices
Smart Devices
Mobile Phones
Design
Operations
Sales & Marketing
Source: Microsoft’s Strategic Rationale for deal announced with Nokia
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Agenda
IV
II
I
III
V
Breaking down the Problem
IV
II
I
III
V
Microsoft Restructuring - Nokia Acquisition
Forecasts for the Multi-Screen Market – Key Takeaways
Consulting Project | Microsoft reaping synergies from Nokia acquisition
Overview of the Multi-Screen Market
Financial and Operational Synergies
27
Mobile Phones and Tablets will continue rising sales while computers decrease sales widening the gap between the devices Forecast for the Multi-Screen Market
• Smartphones should continue increasing shipments during the next years while computers reduce over the same period
• The growth of Mobile phone shipments reflect that Microsoft acquisition of Nokia is a potential good transaction
• Also the growth in the Tablet Market is interesting for a further penetration in the hardware business
Source: Gartner
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Mobile Phone Tablet PC (Desk-based and Notebook) 341 315 302 272
116 197 266 468
1 746 1 876
1 950
2 129
2012 2013F 2014F 2017F
Worldwide Devices Shipments by Segment |Million Units|
Consulting Project | Microsoft reaping synergies from Nokia acquisition
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Microsoft Windows will maintain the direct competition with Apple across all the devices of the Multi-Screen market
Worldwide Devices Shipments by Operating System |Million Units|
• In the Multiscreen-Market Microsoft Operating Systems will continue in the second position overall
• As time come Microsoft would not be able to compete directly with Google Android
• Microsoft is expected to raise in
smartphones but is affected by decline in the computer market
Source: Gartner
V
497
861
1 070
1 469
346
354 398
571
213
293 359
504
2012 2013F 2014F 2017F
Google Android Windows Phone Apple iOS
Consulting Project | Microsoft reaping synergies from Nokia acquisition
Forecast for the Multi-Screen Market
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• It is expected that Windows Phone will remain as the third Smartphone Operation System by 2017
• Microsoft should reach 10% Market Share by 2017
• The gap between Microsoft and Apple should reduce from 13% to 7,7%
Source: IDC Worldwide Mobile Phone Tracker
Microsoft Windows Phone for Smartphones will have the highest market share rise within his competitors shortening the gap to Apple
V
2013F 2017F
16,9%
75,3%
3,9% 3,9%
17,9%
68,3%
10,2%
3,6%
Google Android Apple iOS Windows Phone Others
Top Smartphone Operating Systems Forecast |Market Share|
Consulting Project | Microsoft reaping synergies from Nokia acquisition
Forecast for the Smartphone Market
Internal
Costumer Oriented Costumers perception on Microsoft with a full range from entertainment to productivity
Market Opportunities Wider set of products, allowing Microsoft to compete for better market shares
External
Nokia acquisition will lead to several changes within Microsoft that contribute as increased benefits for the company and costumers
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Key Takeaways
Control Over Technology Being able to develop both hardware and software with integrated innovation
Increased Benefits
Better Cost Structure Vertical integration between Microsoft and Nokia structures
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Consulting Project | Microsoft reaping synergies from Nokia acquisition