TELECOM :NOKIA FORCED MICROSOFT INTO DEAL...

Microsoft’s acquisition of Nokia was a defensive move to keep the Finnish phone maker from going under or falling into the hands of an Android-first rival, several analysts argued.

“Had Nokia abandoned Windows Phone, then Windows Phone would be dead,” an industry observer and independent analyst who writes on his Stratechery.com website, Ben Thompson said.

Thompson was one of several analysts who read between the lines of the Nokia deal and concluded that Microsoft’s hand was forced.

On Tuesday, Microsoft announced it will pay €3.79bn($5bn) for “substantially all” of Nokia’s Devices & Services business and €1.65bn ($2.17bn) to license Nokia’s patents.

Also included in the deal was a credit line of €1.5bn($2bn) that Microsoft will extend to Nokia in the form of convertible bonds that the latter can issue in €500m ($658m) chunks.

That Microsoft-funded financing was the clue Thompson seized on.

“Nokia was either going to switch to Android or was on the verge of going bankrupt. I suspect the latter,” Thompson said, pointing to the $2bn in instant credit.

Nokia was virtually the only smartphone vendor committed to Microsoft’s Windows Phone operating system, a move it made after Stephen Elop, previously a Microsoft executive, was named Chief Executive Officer of Nokia in 2010. Other handset manufacturers, including leader Samsung, had either given Windows Phone only lukewarm support at best, or had completely ignored the OS to focus on Android.

“Microsoft felt they didn’t have a choice,” Thompson said. It had to buy Nokia before someone else did, and either shuttered its handset production or converted its devices into another slice of the enormous Android pie.

According to research firm IDC, Android-based smartphones will represent 75 per cent of those shipped worldwide this year, while Apple’s iOS will account for 17 per cent and Windows Phone will come in a distant third at four per cent.

Other analysts saw the Nokia acquisition in similar terms.

“Microsoft announced that it was providing Nokia with €1.5bn in ‘unconditional’ financing, which means that Nokia was in significant financial distress,” a mobile technologies analyst who runs Tech-Thoughts.net, Sameer Singh, said. “If they couldn’t reach a deal with Microsoft, they would have to sell to another company at a far lower valuation or consider bankruptcy.”

William Stofega, who leads IDC’s mobile device technology and trends research, concurred.

“With Nokia’s stock price on a downward slide, rumors of a potential acquisition of the company by several OEMs began to circulate,” Stofega noted in a Wednesday note to clients. “An acquisition of Nokia by an OEM would have forced Microsoft to engage in an expensive bidding war for the entire company or continue to build a mobile business without the benefit of a hardware platform. Neither scenario would help restore confidence in Microsoft on Wall Street.”

All three analysts pointed out that minus Nokia, Windows Phone was dead in the water, as the Finnish firm’s handsets accounted for about 84 per cent of all Windows Phone shipments.

Microsoft’s CEO Steve Ballmer, who two weeks ago announced he would retire in the next 12 months, acknowledged Nokia’s importance to Windows Phone and the defensive nature of the acquisition.

“A very high concentration, over 80 per cent , of the Windows Phone business is already with Nokia,” Ballmer said in a conference call with reporters and Wall Street analysts on Tuesday. “And so in terms of evaluating paths that would ensure that we continue to see great Windows Phone devices from the Nokia team and in an attempt to really ask what’s the most sensible economic model, it made sense for us to go first party, have our own phones, to ensure Windows Phone presence.