Microsoft to Buy Nokia for $7.9billion

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Microsoft is buying Nokia's phone hardware business and patents for $7.9 billion in a deal designed to salvage both the Finnish company's legacy and Microsoft's future in mobile devices.

Nokia, once the world's biggest maker of mobiles phones, has struggled to maintain market share as smartphones took over from simpler handsets, following the launch of the iPhone and devices running Google's Android operating system.
Nokia chief executive Stephen Elop with the company's smartphones, which run on Microsoft Windows Phone.

Nokia chief executive Stephen Elop with the company's smartphones, which run on Microsoft Windows Phone. Photo: Bloomberg

In a letter to Microsoft employees, chief executive Steve Ballmer said the move, which includes $5.6 billion for the hardware unit and $2.4 billion for Nokia's intellectual property - was a "bold step into the future".
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Ballmer said Microsoft was experiencing great momentum in the sales of the Nokia Lumia 1020, which runs the Windows Phone operating system. It was outselling former number one smartphone maker BlackBerry in 34 markets. The software giant struck a partnership deal with Nokia two and a half years ago that saw Nokia cease to make its own operating software in favour Microsoft's, a move some described as a nail in Nokia's coffin.

A Microsoft document describing the strategic rationale for the purchase says Nokia Windows Phones have achieved 10 per cent market share in nine markets. This places it in third after Apple and Samsung - now number one and/or two, depending on the market, and ahead of BlackBerry.

But the deal is not only about phones. Bundled up in Nokia's patents and expertise is the promise of a better grip on a market increasingly turning to mobile devices from PCs. Tablets, phablets (larger screen phones, smaller than tablets) and smartphones are overtaking PCs, historically Microsoft's main game.

Last week, IDC cut its forecast for global PC shipments again saying the outlook for the struggling personal computer industry was worse than was previously believed.

Worldwide shipments of PCs were likely to fall 9.7 per cent this year as consumers continue to favour mobile gadgets, IDC said. Demand for smartphones, phablets and tablets was growing at a faster rate than demand for PCs.

This puts the outlook for Microsoft's cash-cow, the Windows operating system for PCs, under unprecedented pressure.

Microsoft's tilt at tablets via the Surface and Surface Pro running Windows 8 has not gone as well as expected by analysts and the company itself, and the acquisition of a company whose legacy is mobile devices presents sound opportunities.

Foad Fadaghi, research director at Australian research firm Telsyte, said the deal was a chance for Microsoft to mimmick Apple in developing integrated hardware and software to better suit the market.

"They'll be controlling the software and the hardware, it's a more integrated approach of developing them together," Fadaghi said.

"It might put the company in a better position to compete as consumers shift from PCs to mobile devices."

It may also spell the death of the Nokia brand, with Ballmer's letter hinting at the end of the 150-year-old Finnish brand name, in phones as least.

"It is very important that we pursue a unified brand and advertising strategy as soon as possible," Ballmer wrote.

As part of the acquisition, Microsoft also inherits the manufacturing plants, and a number of key engineers and executives from Nokia, including Stephen Elop, Nokia's CEO and the architect of the current Windows Phone partnership. Elop is a former Microsoft employee and has been touted as a replacement for Ballmer when he retires next year.

Fadaghi thinks that may be too long a bow to draw.

"Microsoft is a very diverse business today with software, gaming consoles and the search engine in Bing, putting all that responsibility on someone with only mobile background may be too much," Fadaghi said. "Maybe in the future, but today with all the diversity, I can't see it."

Elop has cut more than 20,000 jobs and suspended Nokia's dividend in January in an attempt to improve its finances.Nokia reported in July a 27 per cent drop in the number of handsets sold in the second quarter. It's lost more than $7.3 billion in nine quarters.

Nokia's chairman chairman Risto Siilasmaa will become interim CEO of Nokia.

Facebook and Google have also pushed ahead of Microsoft in social networking and online advertising, areas where Microsoft has played for years, but remains weak.

with Bloomberg

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