Sept. 4 (Bloomberg) -- Microsoft’s “transformational” deal to buy Nokia’s phone business may enable the software maker to create a third “mobile-phone ecosystem.” Verizon’s complete takeover of its wireless business from Vodafone, meanwhile, “will enhance value across platforms” for the U.S.’s largest mobile-phone carrier.
So goes the business-school jargon from Wall Street analysts and technology executives. There are, unsurprisingly, more prosaic -- and comprehensible -- reasons for the two technology deals announced last weekend.
The most likely explanation may be as a reaction to the single scariest word in the high-tech lexicon these days: BlackBerry. Neither Microsoft Corp. nor Verizon Communications Inc. wants to be known as the next BlackBerry Ltd., which stood still for too long and is now on the corporate equivalent of a death watch. Nokia Oyj, like BlackBerry, has stumbled badly in recent years. With its sale to Microsoft, Nokia joins mobile-phone pioneers Motorola and Ericsson in giving up their independence, or just giving up.
Perhaps the starkest example of failure to adapt is Eastman Kodak Co., the photography pioneer that declared bankruptcy last year. Kodak sold the first consumer camera 125 years ago. It invented film, leading to the development of the motion-picture camera. Kodak even invented the digital camera -- but failed to commercialize it.
Both deals also show how U.S. fiscal and monetary policy can affect corporate behavior. Microsoft will pay for its $7 billion purchase from a pile of unused cash sitting overseas. Like many other U.S. companies, Microsoft won’t bring its money back onshore unless Congress cuts tax rates on repatriated earnings.
Verizon will need to borrow heavily for its $130 billion purchase, and hopes to take advantage of low interest rates, compliments of the U.S. Federal Reserve. Once the central bank begins scaling back its bond purchases, possibly as early as this month, rates will rise and the Vodafone Group Plc acquisition will be more expensive.
The deal also implicates another policy dispute: the so-called patent wars. Microsoft gets a trove of mobile-technology patents, allowing it to follow in Google Inc.’s footsteps. Google paid $12.5 billion last year for Motorola Mobility, and got an arsenal of intellectual property with which to battle patent owners and potential licensees, including Apple Inc.
In the context of U.S. policy, the two deals make eminent sense. Yet if Congress fixed corporate-tax laws so that companies didn’t feel the need to stockpile cash offshore, and if patent laws encouraged innovation over litigation, these deals might have been less enticing. To truly reward shareholders and create wealth, though, the companies will have to think and act more strategically.
Those excitable analysts aren’t wrong when they say that smartphones are the future. Yet Microsoft and Nokia missed the smartphone revolution. They were essentially MIA as tablets and touch screens transformed the consumer market. Now they are betting that they can help each other with better integration between software and hardware, a strategy that has worked wonders for Apple.
As for Verizon, it needs huge investments to upgrade networks to cope with growing demands for data for everything from this week’s viral video to tomorrow’s self-driving cars.
The truth is, the Next Big Thing in technology is only obvious in retrospect. Even as they strive to emulate the success of Apple, Google or Samsung Electronics Co., Microsoft and Verizon must take care not to model themselves too much on their rivals.
Maybe they can take heart in the story of one company that emerged this week from Chapter 11 proceedings with a new business strategy -- as a commercial-printing company hoping to take advantage of the 3-D revolution. Its name may be familiar: Kodak.
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