Microsoft has swooped in to buy the handset business of
Finland'sNokia,
an audacious move that confirms the Redmond software company's
intention to compete with Apple and
Google head-on as a "devices and services" business.
The deal, for €5.44bn (£4.6bn), gives Microsoft a company which
used to dominate the mobile and smartphone market in 2006 but has
been overshadowed by the rise of Apple and, latterly, Samsung and
companies using Google's Android software.
For Nokia, it means that a decades-long heritage as one of the
world's leading mobile phone makers - which had been a source of
huge pride in Finland - is over.
As part of the deal Stephen Elop, now Nokia's chief executive, will
rejoin Microsoft, which he left in September 2010 to take over the
then-struggling Finnish company. Elop, 49, has been tipped as a
leading contender to become the next chief executive of Microsoft,
after the announcement at the end of August by Steve Ballmer that
he would depart within 12 months. A total of 32,000 Nokia staff
will join Microsoft, including 4,700 based in Finland.
Microsoft is also providing €1.5bn of "immediate financing" to
Nokia, implying that the Finnish company has hit a cash crunch. Its
debt has already been reduced to "junk" status. If used, the loan
will be repayable when the deal closes.
"For Nokia, this is an important moment of reinvention and from a
position of financial strength, we can build our next chapter,"
said Risto Siilasmaa, chairman of the Nokia Board of Directors, who
now takes over as the interim chief executive of the remaining
parts of Nokia. Those are Nokia Siemens Networks, which builds
mobile phone infrastructure and its HERE mapping platform. The NSN
and mapping business are now just over 50% of revenues, and barely
profitable. Elop recently completed the acquisition of 50% of NSN
that was owned by Siemens.
But even inside cash-rich Microsoft, Nokia's phone business faces
serious challenges. Its handset business has slumped in size from a
peak in the third quarter of 2010, with revenues of €7.2bn, to just
€2.72 in the second quarter of this year, its smallest size in more
than a decade. It has also been lossmaking for five of the past six
quarters.
While it is strong in the "feature phone" business in the
developing world, it has struggled in the all-important smartphone
business. Apple's iPhone and handsets running Google's Android
together make up over 95% of sales in the US and China, the world's
two largest smartphone markets,according
to Kantar Worldpanel's latest figures. Windows Phone only has
shares above 10% in Mexico and France, according to the company's
figures.
Under the deal, Microsoft is buying the "Lumia" and "Asha" brand
names that Nokia has used for its smart and intermediate phones. It
has licensed the use of the Nokia brand on handsets for ten years,
but the Finnish business will retain ownership of the brand. That
will probably mean that the Nokia brand disappearing from handsets
in the next decade, ending over 30 years' history in the
business.
Having started in 1865 with a pulp mill in the Finnish town of
Tampere, Nokia reinvented itself repeatedly, shifting to rubber
boot production early in the 20th century, and then making its
first telephone exchange in the 1970s. Its first mobile phone
appeared in 1981.
Rumours that Microsoft intended to buy Nokia had been floated since
Elop joined the company. When he chose to dump its home-grown
Symbian and Meego smartphone software in favour of Microsoft's
newer Windows Phone software in February 2011, a number of Finnish
observers accused him of being a "Trojan horse" for Microsoft.
Ballmer said in a statement: "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."
But the deal could also mean that BlackBerry's best chance of being
acquired, by Microsoft, is over. The Canadian handset maker, which
has seen its revenues and handset sales plummet, has formed a
committee seeking alternatives including a sale. But Carolina
Milanesi, smartphone analyst at research group Gartner, commented:
"In case there was still hope out there for BlackBerry, this
[purchase by Microsoft] is pretty much it. Microsoft will be more
aggressive than Nokia in pursuing enterprises."
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