2. 2
Agenda
Consulting Project | Microsoft reaping synergies from Nokia acquisition
IV
II
Breaking down the ProblemI
III Microsoft Restructuring - Nokia Acquisition
V Forecasts for the Multi-Screen Market – Key Takeaways
Financial and Operational Synergies
Overview of the Multi-Screen Market
3. 3
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. 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
5. 5
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
6. The Multi-Screen market mainly integrate Pc/laptops, smartphones and
tablets allowing the creation of a wider strategy including all of them
6
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
II
Consulting Project | Microsoft reaping synergies from Nokia acquisition
7. Microsoft may respond new trends implementing changes in the
approach to the Multi-Screen Market
7
Market Trends
Source: Google - The New Multi-Screen World
II
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
✔
✔
✔
8. 8
Source: NetMarketShare Market Share Reports
II
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|
9. 9
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
10. 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
10
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
11. Microsoft is the fifth vendor of Tablets worldwide while as operating
system holds the third position while both represent a new business
11
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
II
Consulting Project | Microsoft reaping synergies from Nokia acquisition
Overview of the Tablet Market
12. Only Microsoft and Apple offer a full product range while other players
focus on Smartphones and Tablets
12
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. 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. 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
15. Microsoft bought Nokia to Devices & Services business for EUR 5.44
billion all-cash transaction inserted in the new strategy
15
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
✔
✔
✔
✔
Source: Nokia’s announcement presentation
III
Consulting Project | Microsoft reaping synergies from Nokia acquisition
16. Nokia Acquisition was also an integration of hardware knowledge and
expertise with Microsoft software background
16
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. 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. 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
19. Nokia Acquisition aims for a better financial performance with increased
profitability per unit
19
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
20. Long Term Value Creation for Financial gains are based on the growth of
the Smartphone Business
20
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
21. Nokia acquisition brings some Key capabilities to Microsoft and
empowers growth in potential markets
21
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
22. Most of the Key capabilities will be responsible for reducing Microsoft
cost structure and enable better geographical reach
22
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
✔
✔
✔
23. 23
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
24. 24
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
IV
Consulting Project | Microsoft reaping synergies from Nokia acquisition
25. 25
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
26. 26
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. 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
V
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
28. 28
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
29. 29
• 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
30. 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
30
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
IV
Consulting Project | Microsoft reaping synergies from Nokia acquisition