Two days ago, the chairman of Huawei’s consumer business group said it was open to an acquisition of Nokia. Another Huawei official quickly moved to quash the rumours.
That’s standard procedure, whether talks are occurring or not. However, late yesterday the The Wall Street Journal reported that Microsoft and Nokia were in advanced talks about an acquisition as recently as a month ago.
In other words, financially strapped Nokia may indeed be in search of a suitor.
What would a Huawei-Nokia combination look like? It’s a useful thought exercise because it spotlights recent trends in the global handset market.
A combined Huawei-Nokia entity would significantly extend Huawei’s current lead as the third-largest smartphone manufacturer globally, since it would account for 16 million units shipped in the first quarter. That’s less than half of Apple’s total and a fraction of Samsung’s haul, but it would put some distance between Huawei and the rest of the pack.
Why else would Huawei be interested in Nokia?
Analysts are right that there is still a significant market for feature phones, which Nokia dominates, but that misses a larger point. Nokia retains enormous brand power in the emerging world, and that translates to a huge upsell opportunity as consumers in those economies migrate to smartphones. Furthermore, it gives Huawei distribution infrastructure in these countries.
Of course, a potential Huawei-Nokia merger is fraught with political liabilities because of Huawei’s rumoured ties to the Chinese state apparatus and military.
Finally, it’s worth considering what would happen if, like Nokia, the combined entity adopted Microsoft’s Windows Phone platform. It’s extremely unlikely that Huawei would decide to do that, given Windows Phone’s lack of popularity. But if it happened, it would give Microsoft an 8% share of the smartphone market, based on first quarter shipments.
Here’s another look at the same data:
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