News Analysis: Microsoft to spend €5.4bn buying Nokia mobile phone business

By Neil Ainger | 3 September 2013

Microsoft is going to buy Nokia’s mobile phone unit and its patents in a cash €5.4bn takeover deal. The two have long been partners since Nokia abandoned its Symbian mobile operating system (OS) for the Windows Phone tile-based OS and this latest move has been expected.

The takeover, predicted last week on bobsguide, will be one of the final big acts of the departing chief executive officer (CEO) of Microsoft, Steve Ballmer, who is to leave the US technology giant within a year. Conceivably, he could now be replaced by Stephen Elop, as Nokia’s CEO is in-line to return to Microsoft to head up the integrated mobile phone business and may be given extra responsibilities. Risto Siilasmaa, Nokia’s chairman will remain as the interim chief executive of the Finnish firm and leader of the remaining telco business.

The takeover deal involves a €3.79bn fee for “substantially all” of Nokia’s phone unit, according to the ‘FT’, and €1.65bn to license its patents. Microsoft is gambling that the mobile devices made by the now predominantly handset-only Finnish phone manufacturer will eventually rival the global popularity of Apple and Samsung’s mobile devices, which Google’s Android OS uses as its main delivery end point. A lot is riding on the Lumia mobile phone range currently in the shops finding favour with consumers.

The rump of Nokia will be left as principally a telecoms equipment manufacturer, but the 148 year-old company maintains it still has a bright future after its 30-year mobile phone adventure, which saw it rise to become the world’s largest handset manufacturer with its associated Symbian OS dominating the mobile phone marketplace for much of that time.

Since displacing Motorola and its other early rivals, Nokia has struggled to compete with Apple’s integrated handset and OS offering, necessitating its earlier partnership with Microsoft to gain an OS fit for the smartphone age. That partnership has now been formalised into a total takeover and it will be interesting to see if the company’s offerings, now fully under the Microsoft brand, can once more rise to the top. Elop admitted that the firm: “need more combined muscle to truly break through with consumers”.

News Analysis: Why Microsoft is Buying Nokia

For Microsoft the rationale behind the Nokia takeover is to advance its attempted transformation into a device and services company that is less reliant on its traditional PC-based software licensing business. As discussed on bobsguide last week, this declining market is something that Microsoft is keen to move away from as it tries to position itself for the mobile computing age. The problem is that its Windows 8 operating system (OS), based around the tile-focused Windows Phone OS design that Nokia’s handsets have been using for a few years is not proving too popular with consumers; many of whom are bemoaning the lack of the traditional desktop Windows OS ‘start’ button. The associated Surface tablet, Microsoft’s first hardware device for more than a decade, has also failed to gain the widespread traction with consumers hoped for; necessitating a $US900m write-down in mid-July amid a poor earnings report.

Nonetheless Microsoft is rightly committed to trying to break into the mobile computing age, leveraging its continuing strength in the PC-based computing arena to try to fund its move into mobile computing devices and OS’. If you doubt the validity of this move just look at any youngsters around you and see for yourself if they are using a laptop computer with a PC-layout and traditional Windows OS or an Apple iPad, Samsung Galaxy Note or something similar? The future is mobile and Microsoft knows it needs to catch up in this area. The centrality of the mobile phone to future technology developments has been further reinforced this week by the vast $130bn sale of Vodafone's stake in Verizon. The third largest corporate deal in history illustrates how many services - from finanical to retail and marekting - are converging on the mobile channel. Vodafone is expecting to reinvest at least some of the money in improving its 4G mobile offering.

Mobile Computing Revolution Driving Takevoer

Hailing the Nokia takeover, which is expected to close by year end, Microsoft CEO Ballmer, called it a “signature event”, adding that it was “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 excess of 32,000 employees will transfer over to Microsoft from Nokia as part of the takeover, with 4,700 of them based in the ‘home’ market of Finland, considerably expanding Microsoft’s existing 12,000-strong workforce in Europe. Ballmer explained to the ‘FT’ that a new data centre servicing Microsoft consumers would also be built in Finland, with an investment of US$250m over the next few years and that there are “no significant plans to shift around the world where work is done”, adding that the previous acquisitions of Skype, Navision and Fast were still respectively based in Estonia, Denmark and Norway.

• For more about the mobile technology arena please read the bobsguide blogger (aka contributing editor) submissions from Sirpa Nordlund, executive director of the bank-led Mobey Forum organisation, which is working to advance mobile financial services (MFS).

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