Consulting project Nokia's acquisition by Microsoft

How will Microsoft reap the synergies from the Nokia acquisition?

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Agenda

Consulting Project | Microsoft reaping synergies from Nokia acquisition

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Breaking down the Problem I

III Microsoft Restructuring - Nokia Acquisition

V Forecasts for the Multi-Screen Market – Key Takeaways

Financial and Operational Synergies

Overview of the Multi-Screen Market

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Agenda

Breaking down the Problem

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Microsoft Restructuring - Nokia Acquisition

Forecasts for the Multi-Screen Market – Key Takeaways




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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


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Agenda

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The Multi-Screen market mainly integrate Pc/laptops, smartphones and tablets allowing the creation of a wider strategy including all of them

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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

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Microsoft may respond new trends implementing changes in the approach to the Multi-Screen Market

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Market Trends

Source: Google - The New Multi-Screen World

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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

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8 Source: NetMarketShare Market Share Reports

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Microsoft leads the Computer Operating Systems Market with more than 90% of Market Share Overview of the Computer Market


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|

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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

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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

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

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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

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Overview of the Smartphone Market

Microsoft is the fifth vendor of Tablets worldwide while as operating system holds the third position while both represent a new business

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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

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Overview of the Tablet Market

Only Microsoft and Apple offer a full product range while other players focus on Smartphones and Tablets

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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

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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

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Source: Microsoft - Internal Email Consulting Project | Microsoft reaping synergies from Nokia acquisition

Microsoft bought Nokia to Devices & Services business for EUR 5.44 billion all-cash transaction inserted in the new strategy

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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

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Source: Nokia’s announcement presentation

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Nokia Acquisition was also an integration of hardware knowledge and expertise with Microsoft software background

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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

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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)

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Nokia Acquisition aims for a better financial performance with increased profitability per unit

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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

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Source: Microsoft’s Strategic Rationale for deal announced with Nokia Consulting Project | Microsoft reaping synergies from Nokia acquisition

Long Term Value Creation for Financial gains are based on the growth of the Smartphone Business

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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

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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

Nokia acquisition brings some Key capabilities to Microsoft and empowers growth in potential markets

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Operational Synergies

Source: Microsoft’s Strategic Rationale for deal announced with Nokia

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Device design and engineering

Key Capabilities

Device Distribution and Sales

Globally scaled

supply chain

Operator sales and support

Mature operational processes

and systems

Most of the Key capabilities will be responsible for reducing Microsoft cost structure and enable better geographical reach

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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

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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


Source: Microsoft - Internal Email

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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


Source: Microsoft - Internal Email

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Integration of Nokia executives in Key roles able Microsoft to better handle the synergies created with Nokia acquisition Operational Synergies IV


Assumed Key roles

Devices

Smart Devices

Mobile Phones

Design

Operations

Sales & Marketing


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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

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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|


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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

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497

861

1 070

1 469

346

354 398

571

213

293 359

504

2012 2013F 2014F 2017F

Google Android Windows Phone Apple iOS


Forecast for the Multi-Screen Market

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•  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

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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|


Forecast for the Smartphone Market

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

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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

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Thank you