Microsoft gutted Nokia and runs off with IP

Finns on lifesupport until MS hardware arrives

Nokia Logo 63x40 Microsoft gutted Nokia and runs off with IP

This is part 2 of 2. Part 1 can be found here, and discusses the funny money around the Nokia (NOK)/Microsoft (MSFT) deal, and how it is nothing like what the press reported.  We left off wonder how things could be any better for Redmond?

That is easy, but there is a back story there too. If you recall, Microsoft’s soft-spoken CEO, Steve Ballmer is a caring soul that is mostly interested in running a company well and making sure his employees are treated with respect and dignity. Oh wait, I am thinking about the old HP, Ballmer throws chairs across the room, bellows expletives, and threatens competitors with death.

How many times in the past few years has a high ranking MS exec defected to a competitor, be it Google or anyone else, and MS not thrown the proverbial hissy-fit? How many times has MS not sued the person, competitor, or any other entity that they could think of? Unless MS places a person at a competitor to essentially bring that other company in to the MS fold, for purchase or subsuming, there is a very public war.

With Elop going to Nokia, a high level defection to a direct competitor, one that is pushing Linux hard no less, you would have expected fireworks. The reaction from Redmond was shocking in it’s silence. There were no chairs flying out of windows, the physical ones, not the software, no expletives, no death threats, and no bellows of righteous rage. The silence was truly deafening.

This can mean only one thing, Elop was sent to Nokia by Ballmer. Not six months in to his tenure, Nokia directly dumps it’s entire OS, dumps Linux, and jumps in to bed with Microsoft for a worse deal than HTC, Samsung, and other are getting. I wonder what this means because no rational CEO would ever make such a deal. It is pretty clear that the same deal was floated to Olli-Pekka Kallasvuo, Nokia’s previous CEO, and it was rejected as laughable.

On the face of it, Mr Kallasvuo was likely removed by the board, and Elop put in to place as part of the deal with MS, finalized long before the hire. Officially, Elop says that WP7 was evaluated along with the other OSes, and decisions were made based on technical merit and potential. This story has far less credibility than Christopher Hitchens looking you in the eye and telling you to honestly believe in the tooth fairy.

MS placed Elop at Nokia with the blessing of their board to implement the WP7 deal, and justify it internally, or at least nullify resistance. It worked, the Manchurian CEO did his job, and Nokia is neutered, gutted, and left in the cold to die. They will. If you thought differentiating with Android was a tough job, try doing with WP7 while lacking any real R&D resources.

Why did MS do this? It wasn’t just to nullify a competitor or two, there was a much higher priority reason. In exchange for the paper $1 Billion, Microsoft got licenses to all the Nokia patents. Without those patents, there is no way you can make a phone at all, you pretty much have to be in a cross license deal with all of the big boys to break in to the phone game. With this license, MS got the last major player to give them the OK to make a phone.

Why does that matter? Microsoft is a software company, they make their money on high margin software and services, right? That was the case until Apple showed the world how to do it differently. Even a CEO as incompetent as Ballmer does occasionally get a clue driven into his cloistered world, and Apple overtaking Microsoft in value was undoubtedly enough to drive that one home. There probably wasn’t an upright chair within 37.2 miles of Redmond on that fateful day.

This is the long way of saying that Microsoft is making a phone chip. There are two things that point to that fact, the first is MS’s taking an ARM architecture license. This is not the normal core license, this is a very specific type of license that very few companies have, last time the author looked, the list was in the single digits. You do not take this type of license unless you want to design an ARM core, not simply use an existing one. There are hundreds of companies using existing ARM cores to make an SoC, Apple being one of them.

By taking this type of license, MS is saying in no uncertain terms that they are going to enter the phone hardware market, something they probably see as a necessity to gain any kind of future marketshare. MS is undoubtedly going to be making phone hardware in the near future, late 2012 or 2013 time frame, maybe a bit later if things don’t go perfectly.

The second reason that MS phone hardware is inevitable is that the author personally knows at least two people working on the project. Nokia may be using WP7, but in the foreseeable future, their hardware division will be subsumed too, leaving only engineers working on the daunting task of making case badges more streamlined. Nokia is over as a company, and it’s fall will coincidentally happen on the same schedule that Microsoft rolls out their hardware and software.

For Nokia, this will be spun as a huge win, they will save tremendous money not having to actually do any engineering on the hardware, and the software is done for them too. The cost of developing background images, ring tones, and amazingly flush-fitting case badges is minuscule compared to making a real phone. Luckily, MS is doing all that work for them, and Nokia’s margins will skyrocket. For the short term.

Elop is doing exactly what he was sent to do, secure the crown jewels at Nokia for MS to plunder, nullify internal resistance, spin to the dumb sheep in the press, provide Wall Street with palatable numbers, and keep Nokia alive long enough for MS to get their hardware out. At that point, Nokia will have nothing left, and may collapse, or may not, but that is entirely irrelevant.

MS will be on their own at that point, fully emulating the Apple model without the style, grace, elegance, control, or any clue where to go until Apple does so first. They will be the masters of their own unprofitable domain. Elop will ‘move on’ just before the excrement impacts the air movement hardware, and do so in ‘triumph’ just like Hurd and so many other corporate raiders. He is truly the Manchurian CEO.

For Nokia, it is already too late. The damage has been done, MS has the rights to the patents they need, and the software ecosystem around Symbian is irrevocably shattered. There is no going back at this point, even if the Nokia board has an unlikely flash of common sense, just the way the deal was engineered.

MS could not buy the company, so they destroyed it from within with the blessing of the board. Ironically, it was cheaper that way. Nokia is dead, MS has no more chance than they did a year ago, and the only losers are the loyal employees of a once great company and it’s stockholders. The only thing left to do at this point is to watch it unfold.S|A

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 Microsoft gutted Nokia and runs off with IP

Charlie Demerjian

Roving engine of chaos and snide remarks at SemiAccurate
Charlie Demerjian is the founder of Stone Arch Networking Services and SemiAccurate.com. SemiAccurate.com is a technology news site; addressing hardware design, software selection, customization, securing and maintenance, with over one million views per month. He is a technologist and analyst specializing in semiconductors, system and network architecture. As head writer of SemiAccurate.com, he regularly advises writers, analysts, and industry executives on technical matters and long lead industry trends. Charlie is also a council member with Gerson Lehman Group.