Nokia Corporation (ADR) (NOK): Microsoft Corporation (MSFT) Is Getting Serious About Hardware

What the acquisition means for Nokia

Without the same resources as Microsoft, Nokia would have had trouble absorbing continued losses from the phone division. The feature phone business, also going to Microsoft, has been declining for years, and Windows Phone volume hasn’t made up for the declines.

It’s becoming more difficult to be an independent phone maker, with the playing field largely leveled by common operating systems. Makers of Android phones face a constantly shifting market, with Motorola, HTC, and now Samsung all enjoying periods of success. Windows differentiated Nokia from the rest, but there was no real reason to believe that Nokia had any long term advantages.

After the sale is completed Nokia can focus on its three other businesses: wireless infrastructure, a location cloud platform, and technology and patents. The company will also have plenty of cash, allowing it to invest in its businesses.

Both the wireless infrastructure business and the location platform have positive operating margins, and the removal of the phone business should lead to a profitable Nokia after years of losses.

The bottom line

I think that this deal is not a bad one for Microsoft. The company gets to use a small part of its overseas cash hoard to seriously push Windows Phones, and the short-term hit on earnings isn’t very significant. If Microsoft can pull this off and make Windows Phones popular in the U.S. then $7 billion will look like a steal.

For Nokia, shedding an unprofitable division which was dragging down the company is a good idea. Prospering as an independent phone maker would have been difficult, and Nokia shareholders should be thrilled with the deal.

The article Microsoft Is Getting Serious About Hardware originally appeared on Fool.com and is written by Timothy Green.

Timothy Green owns shares of Microsoft. The Motley Fool owns shares of Microsoft.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.