Somehow, trudging along like this adding 10 million or so users per quarter seems an implausible way to build a “viable third ecosystem.” On a quarterly basis, Android is adding about 135 million users, and iOS is adding about 50 million. The goal of sustainability is not really a fixed number like 100 million users. It’s a vision of mobile ecosystem vitality that is pulling away into the distance, even as Nokia Corporation (ADR) (NYSE:NOK) and Microsoft Corporation (NASDAQ:MSFT) struggle to keep up.
Clearly acceleration is needed, and that acceleration can’t really come at the expense of the cash flow of Nokia or Microsoft’s other Windows Phone partners. Nokia badly needs to get off the low-cost, emerging market treadmill and move up-market. The Nokia 1020 seems something of a Hail Mary pass in this regard. The 1020 offers exclusivity through a 41 Mpixel camera, a first for any smartphone. But the rest of it is generic Windows Phone. Like every other Windows 8 Phone, it uses the same tired old QUALCOMM, Inc. (NASDAQ:QCOM) Snapdragon S4 processor.
But it’s clear that that Nokia Corporation (ADR) (NYSE:NOK) doesn’t expect profitability to come easily, or soon, and it is in this context that the Nokia Siemens Networks (NSN) buyout is to be understood.
Nokia had already announced that it was buying the Siemens stake in the joint venture for $2.24 billion. $1.58 billion of this will come from secured bank loans and Siemens will issue Nokia a note for the rest, due in a year.
So Nokia bolsters its cash position by gaining full access to NSN’s net cash of $1.9 billion, as well as a cash cow it intends to squeeze hard in the coming year, judging by the restructuring it is undertaking at NSN. NSN had already reduced its work force by 12,900 employees compared to Q2 2012, and planned cash outflows due to restructuring are expected to be $924 million for 2013.
The NSN buyout is also consistent with the rumors of negotiations with Microsoft Corporation (NASDAQ:MSFT) to sell it the Devices and Services business. In this scenario, Nokia Corporation (ADR) (NYSE:NOK) becomes a wireless networking equipment and services company. Still a tough competitive business, but not as tough as the end-user equipment business.
Given Google Inc (NASDAQ:GOOG)’s experience with buying Motorola, I’m not sure why Microsoft would want Nokia’s Devices and Services division, and I’m sure that Microsoft is better off without it for the time being. While trying to reshape itself as a devices and services business, the task of managing Nokia Corporation (ADR) (NYSE:NOK)’s devices and services business would probably be more than Microsoft could handle.
The article Nokia’s Long March to Profitability originally appeared on Fool.com and is written by Mark Hibben.
Mark Hibben has no position in any stocks mentioned. The Motley Fool owns shares of Microsoft Corporation (NASDAQ:MSFT). Mark is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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