Microsoft and Nokia announced this morning that Microsoft would be buying Nokia’s ailing phone business for 5.4 billion euros ($7.2 billion.) Under the terms of the license, Nokia will keep its patents and mapping service but license them to Microsoft.
The purchase has been a long time coming, but there was an air of inevitability around it. Microsoft has been pumping billions of dollars into Nokia over the last few years to prop it up as a flagship manufacturer for Windows Phone, which has lost in the mobile operating system to Android and Apple’s iOS.
Nokia’s stock jumped 45% in response to the announcement (on NYSE, NOK stock jumped from $3.90 a share to $5.43 a share in early morning trading.) The deal is expected to be completed in early 2014 and over 30,000 employees at Nokia’s phone unit will start working for Microsoft then. There is no word yet on whether the acquisition will be followed by any downsizing or whether Microsoft will keep the entire unit and most of the staff.
Associated Press reported that the deal consisted of two parts: “3.79 billion euros ($5 billion) for the Nokia unit that makes mobile phones, including its line of Lumia smartphones that run Windows Phone software” and 1.65 billion euros ($2.2 billion) for “a 10-year license to use Nokia’s patents, with the option to extend it indefinitely.”
End of an Era, Beginning of a New One?
Microsoft and Nokia, both one-time leaders in the operating system and mobile phone business, have seen their share dwindle in the past few years as nimble competitors have leapfrogged them in both fields.
In the software and operating system space, Microsoft lost out first to Apple’s iPhone and iPad, and then Google’s Android operating system. In the phone business, Nokia lost out to Apple and Samsung as the smartphone revolution up-ended the phone industry.
Nokia’s stock value has fallen from a high of $150 billion a few years ago to less than 10% of it recently, which no doubt contributed to Microsoft’s being able to snap up the European smartphone maker at a budget.
Microsoft, on the other hand, has seen increasing revenues and income year after year, but mostly on the strength of its business and server/tools divisions, which have been showing predictable increases. Even its Windows and Office divisions have shown growth, but the growth has likely been stunted by the parallel rise of Google and Apple’s alternatives.
Microsoft’s CEO Steve Ballmer said earlier that he expects to step down in a year as the company finds a new CEO. The software giant has also made a focus of transitioning into the “services and devices” industry to keep itself competitive in the market.
With the purchase, Nokia gets the full backing of Microsoft’s deep war chest to make what could be a last-ditch attempt to regain lost luster in the smartphone world. And Microsoft desperately needs to pull something out of its hat in order to stay relevant in the rapidly changing technology industry.
