Microsoft Acquires Nokia's Phone Business
The rationale behind Microsoft’s $7.2 billion deal to acquire Nokia’s Devices & Services business, license Nokia’s patents and license and use Nokia’s mapping services is the desire for “faster innovation, increased synergies, and unified branding and marketing,” the companies say.
It may also yield a successor to departing CEO Steve Ballmer -- Nokia CEO Stephen Elop, who will be returning to Microsoft as EVP Devices –- as many accounts speculate.
“It's a bold step into the future –- a win-win for employees, shareholders and consumers of both companies," claims Ballmer, whose recently announced retirement plans after 13 years at the helm have mostly drawn applause (although some maintain his critics have been far too heavy-handed.
Microsoft and Nokia will discuss the agreement, which is expected to close in the first quarter of 2014 pending shareholder and regulatory approval, in a conference call for investors, financial analysts and news media at 8:45 a.m. ET this morning. A 30-slide presentation “Accelerating Growth: Microsoft’s Strategic Rationale...” prepared for the call is available for viewing and download.
“Devices help services and services help devices,” observes one key slide, according to the Washington Post’s Timothy B. Lee. “The company believes that more closely integrating the two will improve the user experience and help to ‘build a large user base.’”
The Wall Street Journal’s Shira Ovide suggests that the deal brings with it “several executives who could be contenders for Mr. Ballmer's job” without naming any specific names beyond Elop, who once ran Microsoft’s software business. Ovide is among the commentators who also point out that “Nokia's market share and market value” have both gone south during Elop’s nearly three-year’s stewardship.
Other senior Nokia executives moving to Microsoft include Jo Harlow, Juha Putkiranta, Timo Toikkanen and Chris Weber, who heads sales and marketing and is also a Microsoft veteran. Overall, “about 32,000 Nokia employees will transfer to Microsoft, which currently has about 99,000 workers,” according to an AP report.
The deal is also an attempt by two once-dominant companies to avoid becoming irrelevant in the era of the smartphone, which has been dominated by Samsung and Apple. Microsoft’s OS is still the leader, by far, in the PC segment but the company has had notorious difficulty in duplicating its success in emerging segments.
Likewise, Nokia was once the mightiest company in the mobile phone business, but it has lost much of its luster as the industry shifted to the era of the smartphone. Nokia scrapped it mobile OS system for Microsoft’s in a deal announced in early 2011, a few months after Elop left Redmond, Wash., for the Finland-based company.
Windows Phone accounted for only 3.7 % of smartphone shipments in the second quarter of 2013, according to IDC, reports the New York Times’ Nick Wingfield. “Nokia remains the second-largest shipper of mobile phones in the world after Samsung, but that is largely because of lower-end feature phones, from which consumers are moving away. Nokia is no longer among the top five makers of smartphones,” Wingfield writes.
“The sale of the handset business is not the first dramatic turn in the 148-year history of a company which has sold everything from television sets to rubber boots,” point out Reuters’ Ritsuko Ando and Bill Rigby.
When the deal closes, “Nokia plans to focus on its three established businesses: NSN, a leader in network infrastructure and services; HERE, a leader in mapping and location services; and Advanced Technologies, a leader in technology development and licensing,” according to a statement. Nokia chairman Risto Siilasmaa becomes interim CEO, replacing Elop, who will remain as an EVP at Nokia until the deal is finalized.
“Today is an important moment of change and reinvention for Nokia and its employees,” says Siilasmaa. “With our strong corporate identity, leading assets and talent, and from a position of renewed financial strength, we will build Nokia's next chapter.”
As for Microsoft, “clearly the number one priority for the company is to get its mobile strategy right. From a strategy point of view, this deal is the perfect step. The only question is how well they can execute this plan,” Manoj Menon, managing director of consulting firm Frost & Sullivan, tells the BBC’s Robert Peston.
"It completely reshapes Microsoft's business pushing it firmly into hardware. But it also raises big questions about the sustainability of other firms, including HTC and Blackberry, remaining pure-play phone makers," adds Ben Wood, an analyst at telecoms consultancy CCS Insight.
Meanwhile, if you like your analysis with a “hearty dose of sarcasm and snark,” ZDNet’s Zack Whitaker has rounded up some of the spiciest comments from the Twittersphere.