Large acquisition reflects Nokia’s strategy in uncharted waters

Purchase of Intellisync Nokia’s largest deal in years

print this

By Olavi Koistinen
     
      Nokia announced a move on Wednesday that is of a rare sort for the telecoms giant: a large acquisition.
      The mobile handset manufacturer revealed it would buy American company Intellisync, which makes e-mail software for mobile phones, for the price of 430 million dollars, or some 370 million euros. Nokia has not acquired any companies valued in the same ballpark for five years.
      This move was unexpected, as Nokia tends to avoid acquisitions. Not that the company could not afford to be more active: Nokia’s net income from a period of five weeks is equal to the sum it now paid for Intellisync.
     
The reason is in the way of thinking. Nokia wants to grow self-sufficiently, develop technologies itself, and train its own employees. In the long run, this culture has led to good performance, greatly because Nokia has been the force that has pulled the telecoms field forward.
      So has the strategy changed? Will Nokia become a frequent shopper in the corporate market?
      I doubt it. The large trade only reflects the fact that the mobile industry giant is now sailing in uncharted waters. The decision on the deal was made by Nokia’s Enterprise Solutions business group, whose operating environment differs from that of the rest of Nokia.
     
The unit, established at the beginning of 2004, attempts to promote the versatile use of mobile phones in enterprises. The most important goal is to have executives and minions alike reading their e-mail with their mobile phones.
      That is not easy to achieve. For the time being, only eight million people access their e-mail with their mobiles, even though 650 million people use e-mail. In the corporate sector, mobile e-mail is primarily used only by top management.
      The qualities of mobile phones alone are not decisive, because wireless e-mail is becoming more widespread. The handsets must be able to communicate with the information systems of corporations.
     
Nokia is the key player in its field where plain vanilla mobile handsets are concerned. In the corporate world, it must adapt to the laws that govern the IT sector.
      It is easy to convince CEOs that mobile e-mail is a concept worth supporting. The harder part is to convince the true decision-maker, or the IT department of a company, that reading e-mail in one’s mobile phone is a good idea to begin with.
      Many companies have tried mobile e-mail out, but found its security features to be too poor. In the common case, the messages cannot be transferred to the phone without allowing a gifted hacker the possibility of reading them at some point.
      IT managers are also frightened at the thought of a drunken project manager who forgets his or her mobile, full of confidential messages, on the back seat of a cab on Friday night.
     
There are technical solutions to these problems, but they often hinder the flexible use of the e-mail application. However, the technology is developing constantly, and in Nokia’s new e-mail solution, the messages travel encrypted from start to finish.
      Gaining trust is a slow process nonetheless, requiring plenty of marketing and convincing. A well-known brand and connections are a big help. Intellisync has plenty of large clients and partners in the U.S., which is the main market of the Enterprise Solutions unit.
     
The cumbersome nature of maintenance is another reason why IT managers have an unenthusiastic attitude towards mobile e-mail and other advanced ways of using mobile handsets.
      The mobile industry currently resembles the PC business in the 1980s, the golden era of the Commodore 64. There is an abundance of various equipment, software, and standards, and they are often not very compatible with one another.
      This adds to the work of the IT department. The e-mail solutions of Intellisync have been praised for their manageability and for how flexibly they work on different platforms.
      Intellisync boasts that it is the world’s second largest provider of mobile e-mail solutions, using the one thousand largest American companies from the list of Fortune magazine as the target group.
      However, market share is not a significant measure of a company’s value, as the market is so small.
     
Could Nokia strengthen its position in the market for e-mail devices by buying, for example, Canadian company Research in Motion, which manufactures popular e-mail handsets?
      The head of Enterprise Solutions, Mary McDowell , rebuffed this idea without a second’s consideration in a Helsingin Sanomat interview in June. We do not need anyone else’s phones, McDowell answered without hesitation.
      In fact, equipment manufacturing is a part of Nokia’s core competence, but software is not. That is why it was logical to acquire Intellisync.
     
Through Intellisync, Nokia will gain 450 new employees in California, Romania, Bulgaria, India, Australia, and Japan. This figure is not trivial, compared with the head count at Enterprise Solutions, or a good 2,000.
      A corporate merger or acquisition is always a cultural shock for both the buyer and the seller. On the other hand, the people in Nokia’s enterprise unit are accustomed to non-organic growth: the core of the unit was formed in the acquisitions of the turn of the millennium.
     
Helsingin Sanomat / First published in print 19.11.2005

More on this subject:
 FACTFILE: Nokia’s large acquisitions

Links:
  Nokia press release

OLAVI KOISTINEN / Helsingin Sanomat
olavi.koistinen@hs.fi