At the very last minute, as the Microsoft purchase of Nokia’s Device and Services activities is about set to close, some questions remain about what will happen with Nokia’s manufacturing capacity in India. The factory which employs about 7500 workers is facing an unknown fate. The Indian Govt. has accused Nokia of manufacturing phones for export for which taxes were not paid. The demand is for a tax assessment of more than $ 4 billion. To put that into perspective, Microsoft is stealing the money losing Nokia Device and Services business for $7.2 billion. The plant was built for about $500 million and when it opened, was viewed by locals as a terrific employment opportunity. Now Nokia is retaining the plant but it appears on the surface that it is doing so rather against its wishes. Microsoft had no interest in assuming such a sizeable tax assessment as it wends its way through the court system. It’s hard to blame them.
One prospect is that Nokia will operate the plant in Chennai for another year as a contract manufacturer for Microsoft while it continues to work at resolving the tax mess and while it works through its one year non compete period. In the meanwhile, workers have been offered a voluntary retirement scheme (VRS) in which they can elect to receive 3 months pay for each year of employment up to a max of five years compensation, according to a local Indian newspaper. Local accounts say that workers have been unable to get a clear read on whether the factory will stay open or not. If it will, most would rather retain the full employment option.
Apparently when it comes to branding, Microsoft will be using the Microsoft Mobile brand name. In the deal, Nokia is retaining its brand name for itself so that if it decides to reenter the mobile device market with a new offering, perhaps not even based on Windows, it can do so with its highly popular brand in that part of the world. Americans think that because Nokia has had such a tiny market share in the U.S. in recent years that it has no brand equity in other locales. That is simply not true.
Microsoft said little in its Q1 call about its plans for its new acquisition. It will move Microsoft into the hardware business which enjoys much lower margins and it will absorb over 30,000 workers around the world under its umbrella.
Nokia has reinvented itself before, not the least of which was when it entered mobile telephony decades ago. Because of this deal, it will have received redemption from having missed totally the arrival of Apple on the scene a few years ago. Nokia was not alone in that. Some believe that Stephen Elop was the biggest winner in his decision that Nokia was standing on a burning platform and had to go into entirely new directions. There is a point of view that he should have embraced Google’s Android platform at that time instead of Windows. That forgets that there was extensive funding from Microsoft that helped support Nokia during the development stage. Frankly, it is hard to know why Nokia wouldn’t have just been another Android player duking it out with Samsung now. Elop left to return to Microsoft with just over a $25 million pay package and he is now set with a big job at Microsoft. The huge pay package was paid 70% by Microsoft and 30% by Nokia.
As a Lumia owner who loves my phone, there is another point of view that by going in a totally new direction with a sturdy, attractive device with a spectacular camera and long battery life, it wasn’t a bad choice. It is worth noting that others ho chose to make Windows phones faded quickly in the face of the excellent offering Nokia produced. It will be interesting to look back on this transaction in five years and see what became of both Nokia with its new found cash and of Microsoft as a device manufacturer.
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