Nokia sale: Microsoft hopes pounds 4.6bn Nokia purchase will ring changes in smartphone market: Software group increases focus on making devices: 32,000 staff at Finnish firm will now join US company
(Guardian (UK) Via Acquire Media NewsEdge) Microsoft is to buy out Nokia's mobile phone business in a swansong deal for the US software group's long-serving chief executive, Steve Ballmer, delivering Europe's last big mobile handset maker into American ownership.
For euros 5.44bn (pounds 4.6bn), Nokia is casting off the business that once represented Finland's most important export, in a deal that will result in 32,000 Nokia staff becoming Microsoft employees.
Overtaken in the smartphone arena by Apple and Samsung, Nokia's board agreed to end the company's decades-long role as a pioneer and once-dominant player in one of the most revolutionary technologies in modern history.
Nokia's chief executive, Stephen Elop, has stepped down from the company's board, and will transfer with the handset business to Microsoft, where he will become head of the devices division after the transaction's expected completion in the first quarter of 2014. Elop is a former Microsoft executive.
"Today's announcement is a bold step into the future," said Ballmer. "For Microsoft it is a signature event in our transformation."
The acquisition fits Microsoft's recently announced strategy of moving decisively into the device-manufacturing business, so that it can design the software and hardware of its products. It is a move Ballmer hopes will bring the kind of success currently enjoyed by Apple.
Ballmer recently announced his retirement from the company within 12 months after 13 years at the helm. Elop, already tipped as a potential successor, is now seen as the most likely heir to the company still chaired by its founder, Bill Gates. "Elop becomes a really strong candidate for the CEO role," said Roberta Cozza, a research director at Gartner. "He is someone who has demonstrated that he can run a software unit at Microsoft and has his tenure as the CEO of a hardware company."
"I feel sadness because we are changing Nokia and what it stands for," said Elop during an emotional press conference at Nokia headquarters in Espoo. "We are a challenger and as the news ripples around the world today we will be recognised as an even greater challenger to our competitors."
Nokia has staked a claim to a growing but small share of the smartphone market, with 7.4m of its Lumia handsets shipped in the most recent quarter. Samsung shipped 71m smartphones in the second quarter and Nokia is no longer among the global top five.
"I share the frustration that comes from being so far behind two very large competitors," said Elop. "We are going faster than Nokia has ever done before. Achieving our goal of becoming the third ecosystem is becoming very real."
Elop, who formerly headed Microsoft's business services unit, intertwined Nokia's fortunes with Microsoft two years ago when he announced he would abandon the Finnish company's attempts at creating its own smartphone software, opting instead for the Windows Phone operating system.
Microsoft heavily subsidised Nokia's strategy, providing hundreds of millions in marketing dollars per quarter to support the advertising needed to tempt customers unfamiliar with the Windows Phone interface.
As head of Microsoft's devices unit, Elop will oversee not only phones but also its best-selling Xbox games console and its Surface tablet computer, which has failed to register with consumers. Julie Larson-Green, who currently heads devices and studios at Microsoft and was seen as a contender for the top job, will report to Elop.
Risto Siilasmaa, Nokia's chairman, will take over as chief executive of the company in the interim. "This transaction makes all the sense rationally but emotionally it is complicated," he admitted, saying the decision was made because Nokia needed more cash if it was to compete with larger smartphone rivals.
The market, he said, "is becoming a duopoly, with the leaders building significant momentum with a scale not seen before, while many established players have disappeared or faced difficult choices".
By discarding its cash-burning phones business, Nokia will be left with a still profitable telecoms equipment arm and a digital mapping company called HERE. The news added euros 4bn to Nokia's stockmarket value, sending its shares soaring 34%, while investors pushed Microsoft's stock down nearly 6%.
Microsoft will retain its mobiles research and development facility in Finland, where 4,700 Nokia staff are employed, and Ballmer said: "We have no significant plans to shift around the world where work is done. We are deeply committed to Finland."
The US company said it would build a data centre in Finland to serve customers in Europe. Microsoft is also providing euros 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.
The remaining part of Nokia will be dominated by Nokia Siemens Networks (NSN). Elop recently completed the acquisition of the 50% of NSN that was owned by Siemens. These rump assets employ 56,000 people and have revenues of euros 15bn.
But even inside cash-rich Microsoft, Nokia's phone business faces serious challenges. Its handset business has slumped from a peak in the third quarter of 2010, with revenues of euros 7.2bn, to euros 2.7bn in the second quarter of this year, its lowest level in over a decade. It has also been loss-making for five of the past six quarters.
While it is strong in the cheap and basic "feature phone" business in the developing world, Nokia has struggled in the all-important smartphone sector. 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.
(c) 2013 Guardian Newspapers Limited.
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