(Reuters) – Microsoft Corp said it will buy Nokia Oyj’s phone business and license its patents for 5.44 billion euros ($7.2 billion), making its boldest foray yet into mobile devices and bringing executive Stephen Elop back into the fold.
Nokia chief Elop, a former Microsoft executive, will return as Microsoft’s board ponders a successor to current CEO Steve Ballmer, who will depart sometime in the next 12 months after initiating a reorganization intended to transform the software company into a devices and services group in the mould of Apple Inc.
The sale of Nokia’s phone business marks the exit of a 150-year-old company that once dominated the global cellphone market and remains one of Europe’s premier technology brands, even though Apple and Samsung Electronics’ ascendancy all but reduced it to irrelevancy in Asia and North America in recent years.
“For a lot of us Finns, including myself, Nokia phones are part of what we grew up with. Many first reactions to the deal will be emotional,” said Alexander Stubb, Finland’s minister for European Affairs and Foreign Trade, on his Twitter account.
The sale price of the phone business, at about one-quarter of its sales last year, represented a “fire sale level,” according to analyst Tero Kuittinen at consultancy Alekstra, although others disagreed on pricing.
“What should be paid for declining business, where market share has been constantly lost and profitability has been poor?” said Hannu Rauhala, an analyst at Pohjola Bank. “It is difficult to say if it’s cheap or expensive.”
Nokia – reduced to its networks business, navigation offerings and patent portfolio after the sale – is still the world’s No. 2 mobile phone maker behind Samsung, but it is not in the top five in the more lucrative and faster-growing smartphone market.
Sales of Nokia’s Lumia series have helped the market share of Windows Phones in the global smartphone market climb to 3.3 percent, according to consultancy Gartner, overtaking ailing BlackBerry Ltd for the first time this year. Still, Google Inc’s Android and Apple’s iOS system make up 90 percent of the market.
Canadian Elop, hired from Microsoft in 2010, has been cited among the frontrunners to take over from Ballmer, criticized for missing the mobile revolution, kicking off Microsoft’s foray into the market with the tepid-selling Surface tablet only in 2012.
Buying Nokia’s gadget business thrusts Microsoft deeper into the hotly contested market, despite some investors urging the company to stick to its core strengths of business software and services.
LOWER MARGIN
Activist fund manager ValueAct Capital Management, which has been offered a board seat, is among those concerned with Ballmer’s leadership and his attempts to plough headlong into the lower-margin, highly competitive mobile devices arena. The San Francisco-based fund, which manages about $12 billion for clients, owns 0.8 percent of Microsoft’s shares.
Others applauded Ballmer’s aggressive gambit.
“Microsoft cannot walk away from smartphones and the hope that other vendors will support Windows Phone is fading fast. So buying Nokia comes at the right time,” said Carolina Milanesi, an analyst at Gartner.
“In today’s market it is clear that a vertical integration is the way forward for a company to succeed. How else could Microsoft achieve this?”
As part of Microsoft, Elop will head an expanded Devices unit. Julie Larson-Green, who in July was promoted to head a new Devices and Studios business in Ballmer’s reorganization, will report to Elop when the deal is closed.
Analysts say Elop’s bold bet in 2011 to adopt Microsoft’s untested Windows Phone software has yet to pay off.
“It’s a bold step into the future — a win-win for employees, shareholders and consumers of both companies,” Ballmer said in a statement.
“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.”
Nokia said in a statement it expected that, apart from Elop, senior executives Jo Harlow, Juha Putkiranta, Timo Toikkanen, and Chris Weber would transfer to Microsoft when the deal is concluded. It did not say what roles they would take there.
Nokia board chairman Risto Siilasmaa would take over CEO duties while the Finnish firm looked for a new CEO, it said.
The deal is expected to close in the first quarter of 2014, subject to approval by Nokia shareholders and regulators.
