Microsoft buys Nokia phones to fight Apple, Google
05 September, 2013
HELSINKI: Mobile phone pioneer Nokia on Tuesday announced the sale of its sinking handset business to software giant Microsoft, which is fighting to catch up with rivals Apple and Google in the fierce smartphone market.
Nokia, the world's leading mobile phone maker until last year, will now focus on network infrastructure and mapping services, which it called "the best path forward for Nokia and its shareholders."
The sale for 5.44 billion euros ($7.17 billion) was cheered by Nokia investors, pushing the Finnish company's share up more than 40 percent in late afternoon deals, but Microsoft shares fell 4.5 percent in early trading to $31.90.
Microsoft chief executive Steve Ballmer said the Nokia acquisition -- the second-biggest in its history after Skype -- was a "signature event in our transformation" and one that "will accelerate our success in smartphones."
Nokia pioneered the mobile phone and dominated the market for 14 years, until it was overtaken by Samsung in 2012 as the top-selling brand.
The company, long the pride of Finland, was blindsided by the shift to smartphones and struggled to fight off increasing competition from Apple's iPhone and Samsung's Galaxy and rumours of a sale have swirled for months.
Microsoft and Nokia have been partnered since 2011, co-creating Nokia's Lumia line of smartphones using Microsoft's Windows Phone software.
With Tuesday's deal, Microsoft is following in the footsteps of rival Google, which created the Android smartphone operating system and then branched into hardware when it bought phone-maker Motorola.
"The trigger behind this is without a doubt the current restructuring of business at Microsoft in which the tech giant attempts to stem the decline in global product sales," ETX Capital analyst Ishaq Siddiqi said in a comment.
Microsoft "is still behind Apple and Android based handset devices in the global mobile phones market share but under this deal, Microsoft can start to take control of the operation and turn Nokia's declining handset business into a formidable competitor in a competitive market," he said.
Stephen Elop, the Nokia chief executive who was hired from Microsoft in 2010, will transfer back to his original employer, becoming a rumoured replacement for Ballmer whose retirement was announced this summer.
Risto Siilasmaa, Nokia's chairman of the board, will be Elop's interim replacement.
In 2011, Elop spearheaded dramatic change at Nokia as he warned the company was "standing on a burning platform" and needed to shift course.
The shake-up involved rubbishing Nokia's Symbian platform in favour of the partnership with Microsoft, and the launch of the Lumia smartphones.
Tuesday's announcement marks the end of Nokia's days as a phone manufacturer.
"Nokia alone does not have the resources to fund the required acceleration ... especially as we have great opportunities in our other businesses as well," Siilasmaa told reporters.
Some 32,000 Nokia employees are expected to transfer to Microsoft, including some 4,700 people in Finland, the company said.
The phone operations affected by the transfer generated approximately 14.9 billion euros in 2012, or almost 50 percent of Nokia's net sales.
Nokia will book a gain on the sale of some 3.2 billion euros, which will "clearly strengthen our financial position and it will provide a solid basis for future investment in Nokia's continuing businesses," Siilasmaa said.
Last month, Nokia finalised the purchase of German engineering giant Siemens' 50-percent stake in Nokia Siemens Networks (NSN) for 1.7 billion euros.
NSN, which is specialised in high-speed mobile broadband, had posted stronger earnings than Nokia's mobile phone business, booking a net profit of 8.0 million euros in the second quarter of this year, compared to Nokia's net loss of 227 million euros.
Going forward, Nokia's main rivals will be Sweden's Ericsson and Huawei of China, according to Danske Bank Markets analyst Ilkka Rauvola.
"Huawei's market share is growing and Ericsson's is stagnating. That's Nokia's real challenge," Rauvola told Finnish broadcaster YLE.
Tuesday's announcement is likely to spark speculation about the future of another big yet struggling phone maker, BlackBerry of Canada.
And the deal comes a day after US telecoms giant Verizon and Vodafone of Britain agreed that the British company would sell its 45-percent stake in their joint venture Verizon Wireless for $130 billion.
Hargreaves Lansdown analyst Richard Hunter said US groups were eager to snap up assets.
"The European stage is seen as one with growth potential for the big US companies," he said.
"It is often forgotten that, as a whole, the eurozone is the world's second-largest economy.
Microsoft's acquisition is expected to be completed in the first quarter of 2014.