Microsoft has announced that it is buying Nokia's devices and services business, as well as licensing its patents and mapping services for $7.2 billion 5.44 billion euros.
The transaction which will be paid in cash is expected to close in the first quarter of 2014 pending approval from Nokia's shareholders. The Redmond, Wash. software giant will pay $5 billion to buy the devices and services division and $2.2 billion to license the patents.
In a press release announcing the news, Microsoft CEO Steve Ballmer said. “It’s a bold step into the future – a win-win for employees, shareholders and consumers of both companies. Bringing these great teams together will accelerate Microsoft’s share and profits in phones, and strengthen the overall opportunities for both Microsoft and our partners across our entire family of devices and services. In addition to their innovation and strength in phones at all price points, Nokia brings proven capability and talent in critical areas such as hardware design and engineering, supply chain and manufacturing management, and hardware sales, marketing and distribution.”
For its part, Nokia said the deal strengthens the company financially, and gives it an opportunity for reinvention.
After selling its high profile handset operations, Nokia will be left with three primary businesses: network infrastructure and services; mapping and location services; and a technology development and licensing unit.
The company will continue to do business as Nokia, licensing the Nokia name to Microsoft for use on its mobile phones for 10 years. “For Nokia today, it’s a moment of reinvention,” Risto Siilasmaa, the chairman of Nokia’s board, said in an interview.
Along with Windows Phone component of the phone business, Microsoft will also take into ownership Nokia's Asha range of feature phones.
Our partnership has also yielded incredible growth. In fact, Nokia Windows Phones are the fastest-growing phones in the smartphone market."
The deal changes the goals of both companies. Nokia will remain mainly as a network equipment maker after exiting from the mobile-phone business it once dominated.
Microsoft on the other hand which is the world’s largest software maker on the back of its Windows operating system, is moving into hardware.
Also as part of the deal, Nokia’s Canadian CEO Stephen Elop will be stepping aside as Nokia President and CEO to fill a new role at Microsoft as “Nokia Executive Vice President of Devices & Services.” This setshim up as a potential successor for Steven A. Ballmer, when the Microsoft CEO steps down in the next 12 months.
Nokia board chairman Risto Siilasmaa would take over CEO duties while the Finnish firm looked for a new CEO, it said.
Key Nokia engineers, including Jo Harlow, Timo Toikkanen, Stefan Pannenbecker and Juha Putkiranta, are also joining Microsoft.
"Building on our successful partnership, we can now bring together the best of Microsoft’s software engineering with the best of Nokia’s product engineering, award-winning design, and global sales, marketing and manufacturing,” Elop said in a statement.
About 32,000 Nokia employees will also transfer to Microsoft.
Ballmer initiated the discussions with Nokia chairman Siilasmaa about an acquisition and the two met in February at tradeshow Mobile World Congress, according to a Microsoft spokesman. Ballmer was looking to complete the deal before his retirement last month.
Nokia and Microsoft- Made for each other
The Microsoft and Nokia deal isn't a huge surprise. Nokia’s phone currently accounts for more than 80 percent of the Windows Phones sold globally.
In 2011, Nokia entered into a partnership with Microsoft, which adopted the Windows Phone operating system as its primary smartphone strategy. The agreement produced a range of phones, including the Lumia 920, 925, and the Lumia 1020.
Meanwhile, Microsoft has struggled to gain significant market share for Windows Phone as Android and the iPhone continue to dominate.This move gives the company the larger mobile offering it's been looking for with Surface and other devices.
Microsoft also has yet to make a smartphone of its own. Buying Nokia can make this possible as the Company now has its own manufacturer that it can work closely with.
Microsoft v Google v Apple
With the deal, Microsoft becomes one of the major developers of smartphone operating systems entering into the manufacturing business. Apple makes its own handsets, which run on its iOS operating system. Google bought Motorola Mobility last year for about $12.4 billion, giving the company its own lineup of phones.
The Effects of the Deal
For Microsoft, the Nokia deal is its second biggest behind the $8.5 billion purchase of Internet telephony company Skype in 2011.
A big question with the new deal is whether Microsoft and Nokia will succeed as one company where they have not as close partners.
“Both Nokia and Microsoft really missed the boat in terms of smartphones, and it is extremely difficult to claw your way back from that,” said Paul Budde, a Sydney-based telecommunications consultant. “The question is whether combining two weak companies will get you a strong new competitor. It’s doubtful.”
After acquiring Nokia, Microsoft will have to take extra efforts for keeping its other hardware partners, including HTC Corp. (2498) and Samsung Electronics Co., sticking to its Windows Phone. Ballmer said today that the company was “100 percent” committed to helping its manufacturing partners.
Sentiments
The sale of Nokia's phone business marks the end of a legacy of a 150-year-old company that once dominated the global cellphone market but still remains one of Europe's premier technology brands.
"For a lot of us Finns, including myself, Nokia phones are part of what we grew up with. Many first reactions to the deal will be emotional," expressed Alexander Stubb, Finland's minister for European Affairs and Foreign Trade, on his Twitter account.
Take a look here at an email from CEO Steve Ballmer to company employees, describing the acquisition.