Cost Synergy Case Study: Consolidation Of Microsoft And Nokia

Consolidation of Microsoft and Nokia took place with an estimated total value of synergy as $8.396 Billion USD. However due to the integration costs which are $3.095 Billion USD, the value of net synergy turns out to $5.301 Billion USD (as given below in Table 1 below).

Table 1: Value of Synergies Value of Synergy (in Millions $) % of Total Synergies

Revenue Synergies :

Windows & Windows Live Division 952 11%

Nokia Siemens Networks 882 10.50%

Total 1,884 22.50%

Cost Synergies :

Cost of Revenues 3,578 42.50%

Sales and Marketing 1,572 19.00%

Research & Development 1,362 16%

Total 6,512 77.50%

Total Value of Synergies 8,396 100%

Integration Costs 3,095

Total Net Synergies 5,301

When companies consolidate/integrate or merge, two types of synergies exist- cost synergy and revenue synergy; however, cost synergies are the most reliable source of synergy. In the case under consideration, cost synergies constitute 77.5% of total net synergies, while the revenue synergies make up for the rest 22.5%. Concerning to the Integration costs represent around 58% of total net synergies, thus, reflecting high need to invest in the internal market in order to avoid the damage of employees’ motivation when they misunderstand their function

One most logical meaning of this could be in the mobile context where it seeks to control an integrated ecosystem of hardware, software and content/services to challenge the ecosystems of Apple and Google. This strategic consolidation with Nokia provides Microsoft the missing piece in mobile hardware. In addition to hardware expertise, Nokia brings with it a ready-made, proven capability in supply chain management, marketing and distribution. The alternative of investing in all of these domains on its own would have been extremely difficult and costly option for Microsoft given its increasingly impatient investor base looking for success in mobile