Tuesday, September 3, 2013

Betting On Boom Times in Mobile

Two corporate buyouts have two separate companies betting that boom times are just around the corner in mobile communications. Microsoft is buying Nokia’s smart-phone division, a $7 billion deal that provides a platform for its next generation of phone software experiments. Separately, Verizon is buying out Verizon Wireless. That wouldn’t be a big deal except for the $61 billion in debt Verizon is taking on to finance the deal. If mobile communications turns out to be a passing fad, unlikely but certainly possible, that is a financial arrangement that could cause hurt all around. Microsoft’s bet is not as large, but it is a high-risk bet from a company that in more than a decade has never put together a winning streak in its phone business. Both buyouts could pay off if there is a sudden surge of interest in mobile phones, and Verizon and Microsoft aren’t the kind of businesses to take billion-dollar gambles lightly. They must have some reason to believe that boom times are coming soon.