El Segundo, Calif. —Microsoft Corp. is set to become one of the world’s Top 10 original equipment manufacturer (OEM) semiconductor buyers with the upcoming acquisition of Nokia, according to IHS Inc. This also means it will become one of the leading purchasers of microchips for wireless applications.
Microsoft is projected to become the eighth-largest OEM chip buyer in 2014, up from No. 13 in 2013 and No. 15 in 2012, according to the IHS Semiconductor Design and Spend Analysis service of IHS Inc. In dollars, this translates into an estimated spend of $5.9 billion in 2014, up from $3.78 billion in 2013, and $3.55 billion in 2012. About 37 percent of the $5.9 billion spend will be for wireless chips used in devices such as smartphones and tablets.
IHS said the 2012 and 2013 revenues do not include spending generated by the Nokia buy. The Nokia deal will add about $2 billion to Microsoft's spend on semiconductors in 2014. Most of Microsoft's chip spending in recent years has been related to the Xbox 360 video game console, said IHS.
Microsoft will now vault to a fourth place chip spending level for wireless applications, up from a relatively small quantity of semiconductors it purchased for its Surface tablets, in competition with ZTE, LG Electronics, TCL and Ericsson. Microsoft's wireless chip spend is expected to rise from $85 million in 2012 to $110 million 2013. Even if Microsoft takes fourth place in wireless chip buys in 2014, market leaders will remain the same − Apple, Samsung Electronics, and Huawei Technologies, said IHS.
"Nokia is achieving some success with its Windows-based phones, even though sales of these handsets still trail well behind the market leaders, Android and Apple iOS,” said Myson Robles-Bruce, senior analyst, semiconductor spend and design, in a statement. "One challenge for Microsoft will be formulating a strategy for success and deeper penetration of its smartphone and tablet lines. Microsoft also will need to figure out how to address its problematic positioning, with the company continuing to license Windows systems to other OEMs that sell devices with which Microsoft competes."
Nokia shareholders are expected to vote on the acquisition on Nov. 19. Microsoft does not expect profits from the acquisition until 2016, "when net income generated by the deal will offset the costs of acquisition and integration," said IHS.