This column, the obvious post on Microsoft buying most of Nokia, is arriving later than I had hoped because we had an Internet failure today at our house on the side of a mountain in Sonoma County near Santa Rosa. We’re 15 minutes from town but the terrain is such that there’s no cellphone service from any carrier, we’re beyond the reach of DSL, there is no cable TV, so our only choices for Internet access are crappy satellite Internet or non-crappy fixed wireless, which we get from an ISP called CDS1.net. That connection is really good since the ISP’s tower in this part of the county is about 200 feet from my office window. It’s a pretty robust operation, too, with backup generators that also support the Sheriff’s radio network. So I was surprised when my Internet connection went down early Tuesday morning and dismayed when I realized that it was a single point of failure: I had no backup ISP and even my phones are all voice-over-IP. In order to report my outage I had to drive to town. There I learned that it was a router failure on the mountain so the prospect of using 200 feet of Cat5 to connect wasn’t an option. That’s why this column was written at Starbucks.
A good friend of mine called Microsoft buying Nokia “two stones clinging together trying to stay afloat.” I wouldn’t go that far but I don’t think the prognosis is very good. On the other hand, I’m not sure it has to be good for Microsoft to achieve its goals for the merger.
Huh?
This is why you come here, right, for my lateral thinking? I don’t think Nokia has to succeed in order for Microsoft to consider the acquisition a success.
This idea came to me as I was listening to the Jeep radio on my way into town to report my Internet outage. An editor from CNet was being interviewed about the Nokia acquisition on KCBS and he said Microsoft was “betting the company” on the deal. That sounded odd to me because $7.2 billion is a lot of money but Microsoft paid more than that for Skype. It’s something under a year of earnings for a company that has several such years stashed away. So why does this have to be Microsoft betting the company?
It doesn’t. The CNet guy is wrong.
The Nokia acquisition will have no impact on Microsoft’s Windows, Office, MSN, xBox, or server strategies. None of those operations will take a budget hit to pay for Nokia and none of them will be merged into the Nokia operation. So most of Microsoft (certainly all the profitable bits) will go on as though Nokia had never happened.
This doesn’t mean Nokia isn’t important to Microsoft, but it sets some bounds on that importance. It’s possible, for example, that Skype might be folded into Nokia somehow but I’ll be surprised if that happens.
So why, then, did Microsoft buy Nokia? The stated reason is to better compete with Android and iOS, furthering Ballmer’s new devices and services strategy, but I think that game is already lost and this has more to do with finance than phones.
Microsoft, like Apple and a lot of other companies, has a problem with profits trapped overseas where they avoid for awhile U.S. taxation. The big companies have been pushing for a tax holiday or at least a deal of some sort with the IRS but it isn’t happening. So Apple, sitting on $140+ billion has to borrow $17 billion to buy back shares and pay dividends because so much of its cash is tied-up overseas. But not Microsoft, which just bought Nokia — a foreign company — with some of its overseas cash. Redmond said so today. That makes the real price of Nokia not $7 billion but more like $4.5 billion, because it’s all pre-tax money.
Not only is Nokia cheaper than it looks, those 32,000 Nokia employees coming over to Microsoft transform the company into a true multinational with all the tax flexibility that implies. Microsoft may never pay U.S. taxes again.
I think a lot of those acquired Nokia employees won’t be around for long, either. Most of them are in manufacturing, remember. Nokia has factories but Microsoft doesn’t. Nor does Microsoft want factories. So over some period of time I’d expect most of those former Nokia factories and former Nokia manufacturing employees to be sold off, primarily to Chinese and Indian acquirers. And the cash generated by those factory sales won’t be counted as profits because at best Microsoft will get rid of them at cost (no capital gain and no capital gain tax). So what does that make Microsoft’s acquisition of Nokia?
Money laundering.
It’s also the acquisition of a global brand and a chance to keep Nokia from jumping into the Android camp.
But what of Stephen Elop, former Nokia CEO and now (again) a Microsoft VP. Is he poised to take Ballmer’s job?
Not by a long shot.
Elop failed at Nokia and he abandoned Microsoft by going to Nokia in the first place so I hardly think Ballmer will hand him the big job. There is a column or two in this question (who should run Microsoft?) and I have some ideas, but let’s leave that for another time and just say for now that it won’t be Stephen Elop.
Microsoft still has a problem in the phone business of course and if Nokia isn’t the answer what is? The more obvious acquisition to me was always Blackberry, not Nokia, and that could still come. Or if Microsoft is really serious about devices let them buy Qualcomm, which Intel was too stupid not to buy.
Microsoft may be dumb, but they aren’t stupid.
Yes, agree. Microsoft is stupid but the time will say.Nice post.
“Money laundering” – I love it!
Thank god someone can keep their money from the government. It is a patriotic act they perform as our government merely turns around and uses it to spy on us and otherwise curtail our freedom and liberties.
Ron Paul, Rand Paul or Ru Paul……..any paul will do!
Interesting perspective. I can see how it would make sense for Microsoft to utilize the Nokia acquisition as a way to invest much of its offshore profits. Of course the end goal of making investments is to have a positive return on them. So in this scenario how does Microsoft get a specific positive return on their investment in Nokia’s phone business? How is it better than wherever it was they had that cash tied up?
That’s interesting that Microsoft might have tax reasons for buying Nokia. Steve Ballmer once threatened what they might do if the US government tried to tax the profits they stashed offshore: “We’re better off taking lots of people and moving them out of the US as opposed to keeping them inside the US”. That was probably just an empty threat but it showed how he was thinking.
Maybe now they can pretend to be a real multinational company so they can pick and choose the best tax jurisdictions for cashing in their profits.
We should already know how Ballmer thinks. He thinks like all rich people, only more so, because the guy is narcissistic (read, self-centered, self-ish). Values (other than money), be it things like morality, or say, patriotism, are strictly a middle class characteristic, the rich don’t need them and the poor can’t afford them. Balmer is just a post child for the former side of that. Don’t like taxes that your home country which provided you with such fertile ground, and such affluent customers, imposes – then pick up your toys and go elsewhere. Thank you for reminding me that rich people are more often than not sociopaths.
for Pete’s sake. They pay taxes. They pay a LOT of taxes. Their tax payments are more than the GNP of almost every country on Earth. They make money overseas. They pay taxes overseas. They do not want to pay taxes here on money made there. THAT would be immoral.
for Pete’s sake.
How, exactly, is U.S. corporate tax policy immoral? The policy, if you aren’t familiar with it, requires that U.S.-based corporations pay U.S. taxes on their global profits. Credit is given for foreign taxes paid, so if a company paid taxes in Germany, say, and the German tax rate was less than the U.S. tax rate, then the company would only have to pay the U.S. tax minus the German tax, which doesn’t sound like double taxation to me. U.S. taxes are due when the profits are repatriated to the USA, which is why Apple and others have so much cash sitting offshore. Is having a tax obligation and not paying it immoral? Some companies move their incorporation to tax havens like the Cayman Islands or Bermuda (Tyco International is one of those) to avoid U.S. corporate income taxes completely. Tyco has fewer than a dozen employees in Bermuda yet hundreds in New York City where it maintains its corporate headquarters. Is pretending to be a foreign company to avoid paying taxes immoral? And all this morality talk, on what is it based? Who makes morality rules?
It seems to me that corporate taxation at the federal level ought to be rethought.
Something like 200 billion dollars of corporate tax was collected in 2011. The amount has declined on a percentage of GDP over the past few decades. Without going into the possible reasons why, it looks to me like there might be a better plan.
Eliminate federal corporate taxes.
Why? Well, if the corporate tax rate in the United States was 0.0%, what reason would companies use to funnel various operations offshore?
Now, what would these companies do with all that cash? It seems to me that there’s three practical uses.
One would be to hoard it somewhere. There’s some benefit to having a rainy day fund.
Another would be to invest the money in the business. That could be through hiring more people, doing more R&D, building more manufacturing, and so on. Wouldn’t that be a good thing?
The third would be to return some or all of the cash to the stock holders. Where it would be taxed as income, instead of being held on some island.
Yeah, there’s loads of nasty details. And with details, there’s loopholes. But, you’d think somebody smart enough could plug those loopholes. Which in turn would cause new ones to be found, ad infinitum. But, that’s life.
The real interesting side effect of this, should it ever come to pass, would be that business decisions presumably would be made on the basis of growing the business rather than optimizing the tax liabilities. Or, that’s the dream anyway. Imagine if a CEO chose a particular corporate strategy to maximum his/her tax status to the detriment of the company? Would corporations spend as much to lobby politicians when there is no tax to be dodged?
@BKDad: Thanks for mentioning the idea of no corporate taxes. That is really where the double taxation comes in. Every single person involved with the company pays personal taxes, at the highest possible rate, earned income. Why should they also be taxed again because they are working as a group? (Rhetorical question.)
BKDad you neglected option 4, which would be the most realistic – senior management would pay themselves even more, and then avoid taxes on that income using every loophole known to man.
Bob said
“How, exactly, is U.S. corporate tax policy immoral?”
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That money wasn’t earned in the US, but for example, in Europe. Europe has different tax laws and rates. On paper it sounds that only taxing the difference is fair, but those profits were made under different conditions where they probably also had extra expenses that the US simply doesn’t have. Those expense may be local taxes on running a business in a property (called “rates” in the UK).
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If such a company complies with the taxes laws of the country where the monies were earned then those profits should be considered taxed enough already! Then you’d have monies flowing in to the US better; keeping all of US industry much better off too.
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I do agree with your other comments about tax avoidance by using tiny operating outside the US for the likes of Tyco (your example). Probably the only way around that is to have “TEA Zones” – countries where the money has been taxed enough already! Make it difficult for any money in these off shore tax avoidance countries to be used without being taxed in registered TEA Zones.
Two comments:
Could executives really compensate themselves highly enough to offset the additional profits of a company? I suppose, but wouldn’t the shareholders and the investment community whine about that? It’s always possible, but for every system there will be people who try to game it. Therein always lies a problem.
Eliminating corporate tax is not something that I myself have any philosophical or religious thoughts on. It just seems like a pragmatic solution to a stupid mess. Companies devote far too much energy and resources – as do individuals – in avoiding taxes. As long as that activity is easier and more lucrative than actually being more productive overall, people and companies will take that route. Rather than tweak the equation, just remove this factor altogether. Besides, although a couple hundred billion is hardly chicken feed, you have to wonder if that amount is worth all the side effects,
If such an idea was seriously proposed, it would be interesting to watch how the various players would spin this. Would business balk? Why? Politicians? Individuals? (Would you rather have the potential for more jobs with possibly higher pay, or lower taxes?)
A company in France does not have to pay any taxes to France on income earned in the US.
The U.S. benefited from this taxation system for years, and Americans thought it was wonderful. Now other countries are in the game, and Americans suddenly think it is terrible,
After WWII, when so many countries were devastated, most multinational companies were American. The subsidiaries would buy “services” from the parent company, at whatever artificial price they wanted, thereby transferring profits to the US, since the US could afford the lowest tax rates (partly because of all this money coming in).
Now other countries can (or at least, do) compete with US tax rates, so it doesn’t make sense to send all that cash “home” – or even decide where “home” is. Americans suddenly think this is unfair.
The law may not be immoral, but it is both stupid AND dumb. It is anti-competitive, as most governments in the world do not tax repatriated profits, and encourages U.S. corporations to invest their earnings in foreign countries.
If the law were repealed, we’d see much of this money come home and become invested in our own economy, including the tech start-ups that you rightly spend so much time featuring. That would lead to more domestic jobs and subsequent revenues to the IRS. It would be a big net gain to Uncle Sam’s general tax fund. But the ignorance of voters who buy in to anti-capitalistic / class warfare rhetoric will likely prevent this from happening.
BKDad– As was mentioned, most companies would choose option 4, which would be to enrich top management and screw everybody else. I’ve seen it happen at the big corporations time and time again, so why would this be any different?
U.S. tax rates at the top income tier have declined steadily since the 1950’s, both for corporations and individuals. We all know what happened to U.S. manufacturing jobs in that same time frame, and more recently many other types of work have been offshored. With continued tax reductions, we should expect the trend to continue. To infer otherwise would be illogical. We could eliminate taxes, and that still wouldn’t make a U.S. worker more attractive than a lower-cost Latin American or Asian worker. This is about globalization, not taxes.
Oh, so now paying taxes is morality and patriotism?
And rich people are selfish and greedy because they want to keep their money? Not like the politicians who would like to get their hands on that money — they aren’t greedy. No, they’re patriot and moral.
Oh, I forgot – it’s because we let them create their companies and make the riches. For that they owe us – well, whatever we decide; however much we want.
Tax systems aren’t moral issues, and legal avoidance of taxes is not a sin. Tax systems are judged on their efficacy – how much they bring in to the government entity while minimizing negative distortions to the prosperity of the market that generates that tax revenue. If taxing overseas profits discourages repatriation of profits, and stimulates and rewards behavior we don’t like (because it affects our pocketbooks—but then, we are not greedy, are we?) should be reworked to minimize the negative behavior. Instead of moralistic bombast.
Which doesn’t work anyway.
Being rich has nothing to do with morality, and neither is paying taxes. However, expecting to live in a society and use society’s trappings and not pay for them is quite a different kettle of fish. Who is more immoral then, the poor person who can’t afford to pay taxes, or the rich person who refuses to?
As usual brilliant article. On a side note…
“which Intel was too stupid to buy.”– should that not be “which Intel was too stupid not to buy.”
Consider “too proud to beg”. It means “[I’m] too proud [and I will not] beg.”
I didn’t think Stephen Elop was the solution for CEO either. From the few reports I’ve read on this Bob is the only one to say so too.
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Why not right? My reason is the same as Bob’s – Nokia is going under. If you’re looking at someone who can do a better job than Ballmer has then he’s the ideal man. He’ll kill off Microsoft much quicker!
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As for Nokia, I’ve heard of them going round doing similar stuff to Google’s Streetview. Perhaps Microsoft want to add something similar to Bing (which I’m sure they’ll rename – again!) and buying Nokia gives them that chance?
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But the biggest mistake in buying Nokia, and assuming that Stephen Elop won’t be the next Microsoft CEO, is that such a purchase should have been made by the next CEO. And whoever he is needs to split Microsoft around the products again; not creating one big lethargic leviathan! If Microsoft wasn’t nimble enough to react to new technologies then making the business units bigger isn’t going to make them any more agile!
Tomi Ahonen has been extremely vocal about how Stephen Elop is the worst CEO ever. He also thinks that Elop won’t be CEO of Microsoft. I think there’s a chance, if Microsoft goes completely insane.
“Elop failed at Nokia and he abandoned Microsoft by going to Nokia in the first place so I hardly think Ballmer will hand him the big job.”
Elop acted like he never even left Microsoft in the way that he very quickly made Nokia phones run Windows Phone OS. His failure was probably due to making that choice instead of opting for Android or Nokia’s own OS, so he can’t really be punished by Microsoft for that.
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The reason Windows Phone 8 on Nokia phones failed was not because of the products which seem to be well designed, according to a lot of reviews. It failed because people did not want a phone whose GUI and apps were not compatible with either older Nokia phones or other OS’s like iPhone and Android. The phones carried the two huge brand names of Nokia and Microsoft but did not carry with them the advantages of either previous Nokia phones or Windows desktop OS.
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The only hope for Windows Phone OS is If Microsoft can make it work seemlessly with Windows desktop OS as if they were the one device and without confusing the user.
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Mobile and devices are going to become more and more important, so maybe Elop is in the right position to take over Microsoft.
“Mobile and devices are going to become more and more important, so maybe Elop is in the right position to take over Microsoft.”
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I do agree that seems like the right idea but I also think that’s a trap which Microsoft could easily fall in to by picking him as CEO. Mobile computing is part of what Microsoft needs to cover, but not the whole of Microsoft’s business. While it’s presence to the average Joe is mighty, does it really bring in the big bucks?
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You’d have to have a look at the Microsoft books and see what is the most profitable and what brings in the most revenue to them. Bob’s right about hardware – Microsoft has been successful by allowing other manufacturers to bring out compatible computers which all run the same OS. This is Microsoft’s biggest contribution to computing; the ability to move from one make of PC to the other without fuss.
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Now having bought Nokia Microsoft may well experience the same problem that Google has with Motorola: What to do with it?
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Bob’s idea of a tax write off is the best reason I’ve heard yet. However, the US tax authorities have to realise that as long as tax is paid in at least one country then the corporation has been sufficiently taxed. If they’re not happy with that then they’ve got to somehow make corporations want to pay US taxes rather than the other country’s tax! Especially difficult when you’re making profits in other countries to try that move though.
“Mobile and devices are going to become more and more important, so maybe Elop is in the right position to take over Microsoft.”
But Elop didn’t stop Nokia’s decline.
He caused Nokia’s decline but in a way that caused least damage to Microsoft (by not using Android). For Microsoft that might be considered a success. I don’t think any one else could have made a popular Nokia Windows smartphone either. I never read any serious criticism of either its hardware or software, but the public just didn’t want it.
I agree that mobile (phone and tablets) are the future, but it seems to me that Microsoft has a much better approach to success. They currently face a chicken and egg problem — few apps for Windows tablets/phones because no customers, no customers so no one develops apps for the platform. Ballmer is being shown the door because he has ~$1Billion in unsold Windows RT tablets, tablets that can run a version of MS Office. MS Office is still the dominant office product for most companies — companies that often have Microsoft enterprise licenses that Microsoft wants to maintain.
Perhaps Microsoft should simply take its pile of unsold tablets and give them — with a full MS Office suite installed — to companies re-upping their enterprise licenses. This would make the Windows tablet an immediate force in the professional/enterprise market. While I love my iPad, if my company gave me a Windows tablet to use while traveling, I would certainly take it. And while traveling, I might like to play Angry Birds, or read a book on a Kindle App, or perhaps install Trip Advisor or some other apps. This would make that embarrassing pile of unsold tablets disappear and create an instant market for apps. In addition, it would establish Microsoft as the dominant “enterprise” tablet.
George
There is a phone that integrates all your devices seamlessly and easily — Android. All of my contacts from work, Facebook, Google+ and every cell phone I’ve had for the past 15 years transfers to whatever device I’m using at any given moment via my Google login. Sometimes this is downright creepy, like when Google remembers the WAP password to a coffee shop I visited a year ago with a previous phone, but it’s all there.
How much more integrated can devices get? I mean, it’s not like I want to log into my work Windows domain and work on spreadsheets on my phone during my commute. The most workplace integration most people need from a handheld device, basic e-mail and calendaring, is already available on other platforms and even non-smart phones. The problem Microsoft has is that it has lost control of something that it might not be able to wrest back from its competitors: the overall computing experience.
[…] Link. A lot cheaper than it looks. […]
Bob,
Regrading the internet failure – you could always go back to your 802.11 yagi setup as a backup.
As far as I can tell I don’t have line-of-site to anything, though there’s a big old 10-foot satellite TV dish on the property I’m dying to repurpose. We’re right near the top of the hill and the property extends up and a little bit over (we have 20 acres) so I’m probably just a few hundred feet from having a straight shot to Santa Rosa and plenty of cells I could hit with a high gain repeater. My plan has always been to build a little yurt over there for an office with a sunset view and turn my present office back into the garage it used to be. That’s probably the best solution but clearly not done over a weekend.
Bob, what I find quite surprising is that, given your semi-remote location up there in Sonoma, with no cell phone access, you would choose to switch to internet-based phone service and completely away from a traditional landline phone , which has the advantage of still working in the case of power failure.
Or, at least let’s put it this way…if there’s a power failure, you have a much mch better chance of still having usable phone service with a traditional landline phone carrier (AT&T, etc.) than you do with VoIP phone or cell phone.
I recently switched to Vonage myself for my landline phone, due to the cost savings, but even with being located right here in the middle of central urban San Diego, I still had to think long and hard about giving up landline service due to its reputation for still working during disasters (long after IP phone service and cell phone service has failed). And, I only did it after speaking with my ISP who assured me they have their own generators they can use to power their nodes and “head units” located in the neighborhood (I took their “assurances” with a healthy grain of salt, however).
But living on the side of a mountain in Sonoma outside of Santa Rosa? It seems to me that, for a man of your means (lol), the money you saved by switching from traditional landline to VoIP is not worth the loss of peace-of-mind if the power goes out.
You are probably correct. The phone company at least gets up here, but I figure that one or more wireless carriers will eventually improve their network to the point where I have service at my house. With my luck that would be right after I put in that landline. So inertia rules…
Yes I’ve no doubt the tax follies make this a cheaper deal for Microsoft, but they are still putting some bucks out there.
Windows Phone didn’t get ANY traction with any other manufacturer, even HTC. So Nokia was the only one that had a shot with it. I tend to agree mobile has left the building, but Netscape was way ahead before Internet Explorer destroyed it by other means. I don’t think those means are available to Microsoft this time, since the competitors are much bigger, richer and smarter, but it fits Microsoft tradition of following where the market is.
Yes sadly I agree there will be many Nokians let go. Manufacturing will still matter, but I look for Microsoft to cut some Apple-like Foxconn deal to actually make the stuff.
As for the actual products, it can’t hurt Windows Phone to have a dedicated force behind it. I don’t think it hurts iOS or Android much either though. Still there should be some innovation to come and as a tech fan that is a good thing.
As for Stephen Elop, I also would be very surprised if he gets the top job. I expect some initial sales boost as Microsoft injects some cash into Nokia operations, but I suspect he’ll languish in the mobile devices leadership as Microsoft mobile devices fail to make a major move up. Something tells me he won’t read the handwriting on the wall and leave on his own.
Can you say “patents”? MS wants the patents with which to continue beating other vendors over the head, to ensure none of ’em deserts to that cancer-causing OS.
While MS has been unable to come up with mobile products people actually want, if they can seriously disadvantage those who sell the other products, they hope they can reclaim their former control.
on patents… Microsoft is already making something like $20 a shot on Android phones because of its broad patent portfolio. maybe now it will be $25 for every chance to drive a nail into their feet.
on Elop… I don’t see his move to Nokia as a defection. he was a colonizer. the savages have been brought to the tent to perform useful labor at bargain prices, until they get smallpox and die. that doesn’t make Elop the next CEO perhaps, but I bet they made his pension and benefits good for his sabbatical.
and since we have a string of arguments in the post about single point of failure… and these are all single points of failure… we all have single points of failure. you got wired Internet, great, but don’t buy the beer for that backhoe party down the road. oh, look, a tree fell, and the power is out… almost no consumer internet service has backup power and multiple feeds. Rings are starting to take hold in the GPON space, but if it’s your switch that goes down, it’s still a single point of failure.
Microsoft has multiple single points of failure, as do all businesses. servers, manglement, product design, marketing, bad press, Monkey Boy throwing chairs and blowing his ankle out. day in and day out, the colossus keeps rolling on. but there is deep rot there. deep. IBM deep. I’m beginning to agree with the outsiders who clamor for a breakup, so the worst of the rot finds it’s cut off from the sections that can heal.
But Microsoft didn’t acquire Nokia’s patents; they only acquired licenses (presumably perpetual?). In any case, it looks like Nokia will retain any proceeds from those patents, not Microsoft.
They have a 10 year licence for the patents (which is almost equivalent perpetual given the limited lifespan).
I’ve seen plenty of speculation that Microsoft is happy to see Nokia continue on as a Patent Troll now that they don’t have any skin in the phone game but plenty of patents.
I’m sure the Fins are proud… not.
I was really looking forward to the next Maemo-type phone from Nokia.. they really dropped the ball thanks to Elop’s infiltration. Lucky for me someone else will be bringing it’s equivalent to market.
That’s an awful lot of money to be spending just to launder money. It would be far cheaper to set up a shell company that sells widgets to a needy world, then buy it for far more than it’s worth.
I like Bob’s angle that this is really only costing MS $4.5 after accounting for taxes. But I’m not sure how this is money laundering : the value (and, let’s optimistically assume, future profit) is still OUTSIDE the country.
As for Mr. Elop, here we have a guy who leaves Microsoft for Nokia, then makes Microsoft his new company’s most important customer, then finds himself working for Microsoft again. Maybe it was all part of a grander plan…
I thought it was pretty clear in the column but here goes. Microsoft is buying Nokia’s manufacturing operation even though it doesn’t really want it. Why would they do that? For one thing it’s a favor to Nokia which would incur a lot of bad press in Finland if they had to be the ones shutting or selling those factories. Even more importantly, though, Microsoft can now sell the Nokia factories for cash they CAN bring into the USA untaxed because they’ll book no profit (no capital gain) on the sale. For tax purposes they’ll probably take a loss, which is even better. For an idea about the numbers let’s throw a few out here. Say half of the $7.2 billion is considered to be the manufacturing operation or $3.6 billion. Since Microsoft is avoiding U.S. taxes on that $3.6 billion the real cost of Nokia manufacturing to Microsoft is $2.4 billion. Then they’ll turn around and sell it for, say, $3 billion. That gives Microsoft a $600 million capital loss that ought to be (based on the tax-adjusted acquisition cost) a $600 million capital gain, but isn’t treated as such. Microsoft brings the $3 billion into the USA tax free, writes-off a further $600 million (the supposed capital loss) thus freeing that much more in foreign profits to enter the USA untaxed. It’s win-win-win for Microsoft which at this point will have got Nokia for a net $2.4 billion ($7.2 billion minus the $3.6 billion capital sale and minus another $1.2 billion in taxes avoided on the remaining $3.6 billion in the total sales price), has $3.6 billion less stashed overseas and $3.6 billion more cash in the USA without incurring any tax liability. If that seems like a lot of trouble to go to it isn’t. It’s a few lawyers and accountants working a few days to launder $3.6 billion.
I don’t think you should sell yourself as an expert in tax law or accounting.
Just because it is untaxed money, doesn’t turn a loss into a gain.
You are leaving out in your calculations, that Microsoft has not brought in 3.6 billion for free, but rather 4.2 billion was spent to bring in 3.6 billion. So a 1 in 7 loss vs a 1 in 3 from taxes by your accounting.
But by your logic, MS could just go around Europe, buy up random properties, sell them at cost, and bring them into the USA tax free as there is no capital gain on the deals.
Oh, so all the IP, the business, and everything else that isn’t a factory is free? Or are you so desperate to burnish your marcissistic anti-tax crusader credentials that you couldn’t be arsed to figure out what the other $600mn was for?
Who said it was free? Merely pointing out the flaws in Cringely’s argument. He neglects to point out, or probably totally missed, that Microsoft has spent 4.2 billion to bring in 3.6 billion tax free. You haven’t pointed out any flaw in this logic, or the bigger issue that if Cringely is correct about the tax laws, then Microsoft has no need to buy Nokia. They could just buy whatever property they want, sell it for the same price, and bring it all in tax-free with no loss at all.
I somehow doubt that the Finnish government will stand idly by as workers are let go and factories sold – unless they are sold as going concerns. But surely the demand/value of those factories has plummeted with this sale? Who would be the buyers? If its for some other manufacturing activity, the machinery will be a burden not an asset. How much of Nokia’s remaining value is in manufacturing and how much is in Finland? It’s likely there are assets in China, Taiwan, etc. but since smartphone manufacturing capacity isn’t really limiting, they, again, are subject to discount. Perhaps Ballmer’s idea is to feed the growth of super-cheap Androids to hurt Apple and Samsung (scorched earth) but, as you say, Microsoft isn’t stupid.
There is maybe more to this acquisition than meets the eye but perhaps this really is about a desperate move on the part of Microsoft to prevent a likely irrevocable slap in the face in the mobile business from a failed Nokia.
Bob:
I don’t understand why you think the immediate goal would be for MS to sell off the manufacturing areas that could be repurposed for the ‘services and devices’ strategy that MS seems to be committed to. Am I missing why they HAVE to sell it off? They don’t have to, and given their antagonistic history with the EU, this could be a win for them by keeping the manufacturing, manipulating the IP bonafides, and having another avenue for the devices side of things.
Again, Microsoft (like Apple) owns no factories, finding it cheaper and more flexible to use contract manufacturing. That is unlikely to change under devices and services. Why would it? Microsoft will dump the Nokia factories.
“That makes the real price of Nokia not $7 billion but more like $4.5 billion, because it’s all pre-tax money.”
That’s an interesting number that you arrive at there Bob, because I recall reading, or perhaps hearing in discussions with friends or colleagues that the value of Nokia patents that Microsoft would receive was around $4.5 billion. I’m not sure if that’s a coincidence or just misinformation or something near the truth, but if it is, that would make the purchase almost free, wouldn’t it?
On the other hand, what patents does Nokia have, and what makes the value of them $4.5 billion (or whatever they are worth)? It would have to be the revenue that they generate. So if true, then maybe the purchase cost of Nokia was free, from Microsofts standpoint. What a terrible legacy for the once great Nokia company, the former jewel in Finland’s commercial economy’s crown, only to be sold for a song.
I think there’s three realms or aspects that a surviving+prevailing mobile tech company will constitute as having in the future: Software, Hardware, and (Media) Content. The latter is important – how much of Apple’s money comes from Itunes store? Amazon doesn’t even make money on its devices. In effect, the mobile devices are media consumption devices (where as desktop and laptop computers are media authoring devices). Apple is all three (software, hardware and media content) as is Google, but not cohesively. Amazon is heavy content, the second largest tablet vendor (but still light in this realm as they don’t produce handsets), and really light on software. As far as I know, Microsoft doesn’t have much of a media content presence. In addition to possibly picking up Blackberry, Microsoft might consider picking up Barnes&Noble.com (if available) in order to have a position in the content delivery. They could even continue the Nook line as an Android channel (or convert it to Windows transparently). The bigger challenge would be to blend those disparate elements.
However, having said all that, none of that is going to happen. Microsoft still advertises how their tablets are better than everyone else’s because they can do so much more than everyone else’s. The problem with that, is it demonstrates that Microsoft doesn’t realize that ‘media authoring tools and capabilities’ provide little or not value to a ‘media consumption’ oriented device. Which is to say, Microsoft doesn’t understand that mobile devices are strickly media consumption devices. So why would they go out and secure media content delivery companies, when they think that the consumer is buying a mobile device so that he can author his own media that he plans to consume.
On top of that, they have been very slow and clumsy at integrating anything. So even if they had all the elements, software, hardware and media content, they probably would take so long to integrate them into a product, that they would be like Blackberry entering the smartphone market a half decade late: to little, too late.
Microsoft is facing some critical junctions here. New CEO, integrating two companies and adrift in the new technology era. What to do about Blackberry? Oh, and no media content. As an observer, I’d like to see them buy Blackberry, buy B&N.com and pull in an uber skilled executive and try and watch him pull off the integration. It would be like watching Jobs when he first came back to Apple. Buying time, getting help from Microsoft, rolling out Imacs, while ipods where in the cooker. Pass the popcorn.
AFAIK Ownership of the patents wasn’t part of the deal… just a license to use them.
MS do not need Nokia for tax reasons. The Irish brass-plate operations which the tens of billions of annual i.p licensing are funneled through are working quite nicely. MS needs Nokia as a Potemkin Village to prop up the stock price to pretend MS still has a future. It does not. The shark is dead and the corpse is starting to bloat quite nicely.
Nokia got the better side of the deal. They got rid of the loss making half of the company (and its Manchurian candidate CEO) which is now beyond recovery in its current form. They kept the most profitable half of the company and have kept all their mobile options open for the future. Nokia only licensed the patents and licensed the Nokia brand name for the current family range of mobile devices running the MS OS. Nothing to stop them selling Nokia mobile devices in the future.
All the employees who made Nokia mobile phones such a huge success in the past few decades have either left the company or will in the near future. So nothing to stop the Finns putting it all back together in the future. But without the albatross of yet another failed MS mobile OS. One of almost a dozen over the last 20 years.
So dont be too surprised if you are able to buy a Nokia brand mobile device running some non MS OS long after the cost of MS acquisition has been written down to zero and written off as yet another failed MS acquisition. And long after MS has been broken up and is no longer a player in mobile.
you should blog
Microsoft can avoid tax by funnelling its profits through Ireland and other countries alright, but to do that it has to keep them outside the USA. As soon as it repatriates its profits to the USA it has to pay US taxes on them.
Not only does it not matter if the international revenue is not repatriated to Redmond but the current setup insures that a lot of the booked US revenue actually goes through the foreign tax free operations. Every time you buy a MS product in the US a largish chunk of the revenue is transferred as an i.p licensing fee to the Irish MS brass plate operation in the IFSC. That’s how you turn a 90% net margin into a 6% (ish) net tax paid. This is even before you get into the wonderful world of transfer pricing for MNC’s.
I’m sure MS are kicking themselves that they did not come up with Apples wheeze where the vast majority of the i.p transactions are tax recognized in neither jurisdiction. Neither the US nor Ireland. So no effective tax paid. Zero. Apple may claim “Designed in California” but the US revenue is mostly booked in Nevada.
The only place MS Treasury has to get a little creative is in choosing exactly which financial instrument they use to repatriate revenue as a non revenue recognition / non taxable event. Funds for paying the annual dividend for example. They seem to mostly take the simple route of issuing corporate bonds in the capital markets and using those funds to pay the dividend. Or any other long capital costs that might arise. For someone like MS this is basically free money. Quite separate from having to pay a coupon of 3% rather than a 35% tax.
Of course if they were really creative (or ever had to get creative) they would use something like the repo / reverse repo markets to manage cashflows and something like synthetic instruments to hedge and transfer. Big companies like MS already do this for FX (foreign exchange) risks so doing it for other cashflows is no big deal.
So in the bigger scheme of things buying the Nokia phone division for purely tax reasons would be just a much more expensive way of doing something MS has already being doing for decades. The fact that MS has to immediately provide a couple of bil of working capital for the Nokia phone division tells me that the Nokia board were no longer willing to continue underwriting the hemorrhaging of working capital by the phone group while it was purely a MS OS shop.
So it looks like a shotgun wedding. With the Nokia board holding the shotgun.
Big companies like Microsoft like to have the flexibility to move money around the world for tax reasons. You mention Ireland but a large part of Microsoft’s profits flow through other countries as well, like Puerto Rico and the Netherlands. I’m sure they’ll find some some tax-efficient use for a a multi-billion dollar deal with a Finnish company, preferably to move some profits back to the USA.
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Nokia might not have sold nearly as many Windows Phone 8 smartphones as hoped for but they were designing and building them as well as anyone could expect. Microsoft could have just kept on pouring money into Nokia to cover the losses but for some reason they paid a very generous price for a big chunk of the company and it took the industry analysts by surprise. That makes me suspect that they had another reason for the deal.
“Manchurian candidate CEO”
Best description of Elop I’ve heard yet!
I’m not sure I disagree with you except for the Irish part. Yes, that’s a very successful tax strategy for Microsoft and a lot of other companies, but it hasn’t been able to move much money back to the States. There’s a long history of companies and countries doing odder things in the name of tax policy. The UK, for example, until Margaret Thatcher, didn’t allow the repatriation of movie studio profits from showing films in UK theaters (theatres in this case, I guess). This had a very beneficial effect on UK film production because they had to do something with the money, but there are plenty of readers here who would chide the British for it. Ireland is good for stashing foreign operating profits buit then what? You need a second strategy to sneak the money home where it is far more useful.
The example of the UK and the film industry had nothing to do with taxation. It was a simple matter of foreign exchange controls. The UK spent most of the post war period desperately trying to hoard dollars as that is what of a large chunk of its war debts and trade deficit was denominated in. By the time exchange controls were junked the exchange rate had declined from immediate post war 4.03 to 2.80 (mid 60’s) to around 1.80 and then sank to a low of around 1.10 (mid 80’s) until the Thatcher recovery found its feet and it recovered to the 1.50/1.70 range where it has stayed.
As I said in another reply companies can move huge sums around without generating a taxation recognition event. This is financial engineer 101. But the biggest mistake you are making is looking at it from a parochial American point of view. And a point of view that might have been correct 30 or 40 years ago. Why should US MNC’s like MS need to repatriate any or all of the cash hoard? The US account for less than 50% of revenue. All the high growth market opportunities are outside the US. From the ROI number, even without the high tax angle, the US is a poor destination for the cash. It makes more sense to keep it all offshore.
A few decades ago it made sense for US MNC’s to return all excess cash to the US and pay it out in dividends to shareholders. But as the tax reforms of the 80’s were incomplete, the double taxation of dividends was never removed for purely populist partisan reasons, so it makes absolutely no sense to return this cash and pay it out as dividends. It makes more sense to use it to push up the stock price. With the large tax differential between marginal income tax rate and capital gains tax it makes perfect sense for MNC’s to build up the cash hoard (which is priced into the stock price) and use the hoard every now and then for stock buybacks. Dividends are taxed as income. Gains in stock price is taxed as a capital gain. So that a effective tax rate of 70 plus (minus qualified dividend adjustment ) versus 20% (or less). So the cash stays offshore and the stock price goes up. Or not. As is the case of MS. Thats why they started having to pay a dividend a few years ago. No meaningful long term capital gain from the stock price so the dividend was an act of desperation.
So from a purely tax / finance point of view the Nokia deal makes no sense for a typical MNC Treasury. It actually makes things a bit more complicated. If MS actually had more revenue recognition presence in countries like France, Italy or Germany then the Nokia deal might give them a few more tax right offs. That’s why big German manufacturing companies only pay an effective corp tax rate of around 8%. But as most of MS’s local gross revenue disappears before the local net revenue recognition moment then these new opportunities for tax mitigation is not worth that much to them in the long run.
Not sure I followed all of that, but I think this was your main point “So from a purely tax / finance point of view the Nokia deal makes no sense for a typical MNC Treasury.” So apparently you think they did it because they just wanted to. Well they are a wealthy company, like Apple or Google, and can afford to take risks that may or may not pan out in the long term. (Not so sinister after all.)
As I said in another post, MS did if because they had no choice. Nokia is far more than just mobile phones, and has been for over a hundred years. The phone division had been a huge success for the last few decades but now it is dead. When Elop took over he promised the board that the MS OS would reverse the decline of the phone division. But it just accelerated the death spiral. Basically its just Africa and India now. The board has been actively shopping the phone division for more than a year but no takers. So it looks like MS was presented with an offer they could not refuse. Nokia sloughs off the current division but retains all future options to return to the mobile device market if and when they want. Remember MS did not buy the Nokia brand name or related I.P. They just bought the rights to license the brand name and i.p purely for a Windows mobile OS and for a very limited time. For one maybe two further product cycles.
So what MS bought was basically a pig in a poke, and it looks increasing like to avoid the very public humiliation of the only real licensee shutting down their MS Mobile OS division as a complete failure. In this market anything less than 40% market share is a total failure.
Not sure about that 40% figure. If it can make a profit that exceeds what it cost, it can be considered successful. Mac OS computers have survived to this day with less than 10%. I’d be happy to keep 1% of the profits from the #3 phone maker.
“All the employees who made Nokia mobile phones such a huge success in the past few decades have either left the company or will in the near future. So nothing to stop the Finns putting it all back together in the future.”
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Perhaps Jolla in Finland and their Sailfish OS? (Sailfish OS is a continuation of Nokia’s MeeGo/Harmattan OS http://en.wikipedia.org/wiki/Sailfish_OS)
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Maybe part of Microsoft’s $2 Billion in financing to Nokia will go towards buying Jolla, to keep them afloat and/or make sure they aren’t bought out by somebody else in the meantime.
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I’d been hoping Nokia would use part of Microsoft’s 2011 investment to keep their MeeGo OS project running. Maybe this is a more round about way to the same result.
Nokia use Microsoft funding to buy Jolla? That’s an extremely bad idea. As part of the deal, Nokia is forbidden from selling phones for 2 1/2 years. Jolla would like to ship a lot sooner than that.
Ballmer thinks the deal is “win-win”. And if he’s backing it, what could possibly go wrong?
Two birds tied together, though they have four wings, cannot fly.
— Circle of Iron
Apple has big part of their $140+ billion war chest in overseas capital. They could go on a serious overseas company spending spree if they wanted to outdo Microsoft. Maybe that’s their real long-term strategy, just take over the world by buying it up one company at a time.
if this works for MS I’d expect other companies in a similar position, lots of offshore cash, apple, facebook, etc to do exactly the same thing.
Nokia was headed for bankruptcy, at least the smart phone portion of the company was headed towards insolvency. The company was already a subsidiary of Microsoft as it was receiving 1 billion per year from Ballmer on WP support payments.
Microsoft had a choice, watch the only real Windows Phone partner on the planet go belly up, or double down on the lunacy of fighting two well entrenched market leaders.
The truly hilarious aspect of this battle is that Microsoft has come to the fight with a jammed weapon: the Metro Interface, a sadly mangled, inherently ugly take on a useable interface. People don’t like to look at the Windows Phone and Windows 8 interface.
Microsoft has passed the Metro Rubicon, the utterly ridiculous re-purposing of Windows as a mobile platform. There is no going back.
The die is cast.
ah, yes, the billion a year. if Cringe’s math is right above, then they got the Nokia brand and life-of-value patents, plus the sales force, for three years of support costs. that’s about as long as this Windows Phone 8 charade can possibly last.
there’s the win-win. they’re already obligated for the cash. now they’ve got the company, too. and if there is a mass defection by the half-hearted WinPhone partners, hey, they still think they’ve got a chance to trot the pig out in makeup.
the new Lumia with the 20-meg camera sounds like a right lovely phone, for the 3 to 4 years Nokia spent tuning up that camera. Sony just jumped into that game. so there’s competition there, also.
it’s break-even for Microsoft.
Money laundering is turning money from criminal acts into legitimate money.
You apparently think Microsoft is engaged in a criminal act in not paying taxes.
They have not. They set up a separate company for overseas, and thus the money is not earned by them, until the money comes to America.
On top of that, Microsoft is gaining things from the transaction as you say, so it can’t be just money laundering.
If Microsoft and other big companies are trying to negotiate a deal with the IRS and the DoJ on this very issue then what they are doing or want to do (repatriation) is against the law. If it weren’t against the law they wouldn’t need to negotiate. We can argue over your use of the term “criminal act,” but as the law is presently written that’s exactly what it is and to say it isn’t is fantasy. You can work to change the law, but to do even that you have to recognize that the law exists.
So if I lobby for a tax cut, I’m a criminal?
If they were doing anything illegal, they would already be facing fines and penalties. Perhaps the “negotiation”, as you call it, is indeed about how to change or interpret the law so they can “repatriate” the income legally.
Bob, thank you for an extremely illuminating column and perspective on this story. Wow.
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There is a huge amount of corporate profit in offshore banks. This is common knowledge and often discussed by the administration and congress.
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We want more investment, more manufacturing, and more jobs in the USA. But if you are an Apple, or a Microsoft, or pick any big company and had huge amounts of cash you can’t bring back into the USA — what would you do with the money?. The answer is simple — invest it off shore. And that is exactly what Microsoft did with Nokia.
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By not allowing USA companies to repatriate their off shore profits our government is perpetuating the problem — no domestic investment, no domestic manufacturing, no domestic jobs.
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Why isn’t there a Foxcomm like manufacturer in the USA? Answer — Washington DC.
A U.S. Foxconn is made much more difficult by our employment regulations that wouldn’t allow the business practices that make Foxconn so successful in China. We aren’t allowed to treat workers that way. Are you suggesting that should change?
Foxconn *does* have plants in the United States. They just are not nearly the size or scope of what they own in Asia and South America.
That’s a good point. Amazing the business media missed it. Of course, the phone business is so huge even with 5 percent, a reasonable goal, that could be 50 million units a year. Apple does about that many units right now. The smartphone business is likely to be 1 billion a year soon. At 100 dollars a unit that’s 5 billion revenue. This is like HPs business in pcs. It’s not profitable, but it’s too big to walk away from. They hope that Samsung or Android has problems. Microsoft has a history of doing badly in early rounds and improving, as they did to Apple so many times. Microsoft might become like Apple, offering a product with some edge over open source. They might be able to do it too, with different management.
Well I finally have heard it all…so corporations that have, since being incorporated, been subsidized —seen taxes deferred, cut and still play the three shell Monty game for zero taxes–period. And to a person I hear comments as though (all individuals) somehow are in the same position to benefit? Mighty expensive and in no way guaranteed jobs?… I guess these opinions will still be voiced when each must face continuing to make up for corporate/banking taxes not paid? And of course all look forward to feeling part and parcel of the corporate clan when in addition to the ‘bailouts’ already paid by individual taxpayers —all get to play chumps again when the recently agreed to ‘bail-ins’ are applied to each and every bank customer’s asset– or have their accounts frozen, depending on the degree of bank failure, after derivative/gambling with money not —theirs? Buying into this nightmare is as fraught with disaster as buying into a rigged market where multinationals and cartels make their own laws. The difference between corporations/bankers and the rest of us —-they confiscate the money of banking customers at will no repercussions —one of us confiscates money from a bank and we go to jail…now there spells the reality of difference. The laws reflect them not us?
Part of the idea behind lowering taxes, whether corporate or individual, is to reduce the size of government and it’s role as a wealth redistributor. Otherwise it will grow without bounds. Given that some services are essential to the role of a federal government, they should be paid for fairly by all citizens. It makes no sense to charge corporate employees extra just because those citizens work as a group. We want lower taxes and less government meddling in things that can be handled by citizens who have a stake in the fruits of their labor.
Ronc,
1. Corporate employees aren’t penalized for working together, a corporation’s owners pay taxes on their profits.
2. The corporate form allows investors to pool their money with unlimited upside potential, but the downside risk limited to the amount of their investment. E.g., if your sole proprietorship sells a million widgets which spontaneously combust, you are personally liable for the damages caused up to the total value of your assets (ignoring homestead exemptions, etc.). If a corporation you own shares in does the same thing, your (and every other shareholders’) maximum liability is the amount of your investment. Why does it “make no sense” to charge the corporation for these enormous benefits.
3. The size of government and its role as a wealth re-distributor are hardly linked in lock step.
That’s my point…the corporation’s owners, the stockholders, pay tax on their individual profits as they sell their stock. If the government did not confiscate half of the corporations profits, those profits could be paid to the individual stockholders as dividends, also currently taxable (but not always, like in the ’50s) and they could also be used for improved working conditions and higher pay for the employees. Of course, companies choose to incorporate for the limited liability reasons, but the cost of liability insurance doesn’t have to amount to half of all profits going to increase government bureaucracy.
This reminds me of a conversation I had with a bank manager years ago when I was a student. One was supposed to ‘arrange’ an overdraft so I asked him the question, “Hypothetically, what happens if I go overdrawn without giving you notice”. I was expecting an answer similar one of the following (all of which would have been perfectly understandable) :
1. You will be charged an overdraft penalty
2. You will pay a higher rate of interest on the loan.
3. It will be denied (e.g. cheque will bounce).
Instead I got a little sermon on how “When you go overdrawn you are stealing from the bank …”. So I asked him, “So when I am in credit are you stealing from me !”.
I closed the account a couple of weeks later.
You’re right that the answer he gave wasn’t helpful. But I’m not sure I even understand the question “Hypothetically, what happens if I go overdrawn without giving you notice”. Shouldn’t the question be “What happens I go overdrawn”. Of course, if that is all you meant, he should have told you the consequences, not the reasoning behind them. But he has a point…if you think about the arrangement as between two people instead of a person and a bank.
You call this lateral thinking? OK please go on!
Or is it the Starbucks coffee?
Rather than just snipe at me, Gijsbert, please take a position and support it.
might not add much to the discussion… but thought it was worth sharing.
https://www.coolinfographics.com/blog/2013/9/6/visualizing-the-microsoft-nokia-deal.html
Some very interesting points…Microsoft did not need to buy Nokia, but they have an awful lot of money sitting overseas underperforming (about $70 BILLION)…so yes, the Nokia buy is a good investment. Adding BlackBerry would be another nice use of the cash, and a bargain at that. the addition of BlackBerry Enterprise Server to the Office Server portfolio would be a capstone for the Exchange environment. It would also provide a good base to spin off the division into a separate entity entirely, along with Stephen Elop, should he still be around when that happens. I also agree with you that Elop isn’t destined to take over from Ballmer, I don’t think they like each other much. I don’t think Elop is any better a CEO than Ballmer is, frankly, but he does seem to know when to just get the hell out of the way of the creators. In this, I think there will be a surprise from outside Microsoft, which would be the best thing. A lot of talk this morning about Alan Mullaly from Ford coming over was quickly quashed. But someone of his stature is definitely who is needed.
Microsoft already floated the idea several years ago of moving across the border into Vancouver to escape the repatriation tax, and it never really went anywhere. However, spinning off pieces of the company and basing them outside of the U.S. is more imaginable.
I also don’t believe this deal keeps Nokia out of the Android market. I don’t think we know all the details on what exactly Microsoft is buying, other than the Lumia and Asha brands along with the manufacturing facilities and some (more) patents. Could be that Nokia will be starting from scratch, perhaps staying solely in the tablet market.
One drum I’ve been beating for a long time is the elimination of the corporate income tax. If you really understand it, you realize that corporations don’t pay income tax at all, rather their customers pay it, through increased prices. No corporate income tax should result in lower prices and higher employment, along with the elimination of these un-repatriated profits.
Mr Cringely, I still don’t see in your argument, why it can’t be extended, and Microsoft just buys up random properties and sells them at cost, thus bringing in all the foreign money as zero capital gains.
[…] One of the reasons that I think that Lessin’s speculation is not necessarily accurate is that she also speculates that Microsoft’s acquisition of Nokia is going to breathe new life into Windows Mobile. I think that Mark Stephens (better known as Robert X. Cringely) has a more logical explanation for that: International money laundering. […]
I thought the failure of Nokia was already a smashing success for Microsoft. Before Elop, Nokia was threatening to turn Qt into the development platform for the bestselling smartphone platform and the anointed successor platform, while still being cross-platform to Windows, MacOS, and desktop Linux. It would have made the various Windows APIs obsolete. Now Qt is relegated safely back to its niche.
Joel Spolsky probably has a point that backwards compatibility is the secret to platform success. I suspect that the dramatic declines of Palm, Blackberry, and Windows Mobile was not due to iOS and Android being so attractive, but because they all abruptly switched to incompatible new platforms. Back in 2010, I certainly couldn’t imagine why so many people were still buying Symbian phones, after 3 years of iPhone. Elop proved that ending backwards compatibility would kill Nokia, too.
Microsoft needs some mobile strategy to work. Maybe it is Windows Phone. They might want to sell the factories to repatriate money tax-free, but that’s just a treat to make the Nokia acquisition less costly. They do want Nokia to succeed, selling devices running Microsoft software.
“They do want Nokia to succeed, selling devices running Microsoft software.” One of those devices is Windows Phone. Being #3 isn’t so bad considering the many “other” contenders including Blackberry.
I expect a Newkia lateral thought any minute now………
http://asia.cnet.com/singapore-based-newkia-wants-to-bring-nokia-back-62222296.htm
As an accountant, I’ll explain the tax issue raised.
Taxing corporations is irrational. When a corporation is taxed it is not clear to what extent the owners, executives, employees, suppliers and customers have been taxed.
Taxing corporations is a scam perpetuated by the US government to obscure how much you have been taxed.
Taxing a foreign corporation is insane. On what basis would the US government tax business activity in another country? If you move to Germany and get a job with a German corporation would you expect to pay US income tax? When you moved back to the US would you expect to pay income taxes on what you earned while in Germany?
As additional information, it is worth knowing that individual consumption tax is the most rational tax. Property and corporation taxes are the most irrational. Personal income tax should be reserved for only the very rich as a mechanism to control over centralization of wealth.
TrueRock, the personal income tax is applied on a yearly basis. So a lot of the wealthy people in a given year won’t be there the next year. Especially you have sales of businesses, which are one time things, for people who are maybe not even in the higher tax brackets before that, as the money was plowed into business.
Actually as a US citizen if you move to Germany and take a job with a German company you will still have to file an US income tax return. For the rest of your life. Even if you never earn another cent in the US. That is how completely insane the US tax system is. No other country in the world does this.
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You will be credited for any German tax paid but it gets very complicated very quickly. Basically if you earn more than $70K p.a its technically impossible to comply with both US tax laws and the laws of wherever you are actually tax resident. And it will get worse with the new law written by that idiot Democrat in Congress from Mass. Not only will be almost impossible for US citizens to open bank accounts in whatever country they live in, or have their current accounts closed, but they are legally required to hand over all their spouses personal financial information to the IRS. In complete contravention of every other country domestic law. And all this to raise maybe and extra $50M / $60M a year. Because it seems those millions of US expats are all “tax evaders”.
“Basically if you earn more than $70K p.a its technically impossible to comply with both US tax laws and the laws of wherever you are actually tax resident.” What happens at $70 K? Who is the idiot democrat, was his law passed, and what is that law?
1) Around $70K is when you can no longer get a waiver from filing a huge amount of paperwork every year. You still have to file a 1040 though. Every year. No matter how many decades you have left the country. Over $70K you are looking at a bill of several K p.a just to file and in most countries a hard decision about whose tax laws you want to abide by. Because no other country claims tax jurisdiction over non tax residents the tax laws of every other country are not set up to deal with the bizarre and perverse scenario created by the IRS.
2) The new law is FATCA. Even by IRS standards it is utterly insane. Basically every US expat with assets of more that $50K (including house and spouses assets) will have to file a quarterly report of all changes in their total finances. Including the notional value of all their assets. The law is trivial for the high net worth real tax exiles to avoid , they already have tax lawyers on retainer, but it will make the life of the millions of ordinary US expats a living nightmare. Due to Catch 22 nature of US tax law basically make a simple oversight and fail to fill in or file a form correctly and you will have a fine / penalty / legal bill running to 4 or 5 figures for someone with an average income.
If it were not for the US’s Nazi Germany style exit tax (up to 70%) a lot of long term US expats would have given up their US citizenship long ago. Again, no other country has such a punitive exit tax.
3) Even though Rangel has his name on the Bill when I did some digging about which bright spark came up with such a stupid law it turned out it was a classic idiot Dem “progressive” from one of those 70% margin, we’d elect a corpse if it was the official Dem candidate, districts in MA. Cannot remember his name, he was instantly forgettable. Like pretty much every thick-as-bricks cliche “progressive” politician I’ve run into in CA politics in the last 30 years. Every one of their policies utterly toxic. I say this as an old style FDR New Deal Dem who has no time for self serving hypocrisies of the 68’er New Left. Of which HIRE and FACTA are classic examples.
MikeN,
Small business income (and expenses) passes directly to the owner(s) each year. That precludes what you are saying and has nothing to do with corporate income.
I’ll say again that taxing income is irrational. If I have income but I never spend it, then I have not withdrawn any resources from society. If I am paid for my income producing efforts in apples and pears – but, I never use the fruit for personal benefit, then I have not given societies resources to myself. If I gift the fruit to a different individual, there is no economic event requiring the re-balancing of society’s benefits. If I eat the fruit, then I have withdrawn assets from society for my personal benefit and should expect to pay part of that to society having received the benefit of participating in society.
Money laundering… I like it. It certainly explains more than a late attempt to compete with iPhone.
[…] Why Microsoft really bought Nokia (cringely.com) […]
[…] Esto es una traducción de una entrada de Robert X. Cringely “Why Microsoft really bought Nokia? […]
[…] I, Cringely Why Microsoft really bought Nokia – I, Cringely […]
[…] to Robert Cringely for his bright use of lateral thinking at the time the Nokia acquisition was […]