Nokia made a major gamble betting the farm on Microsoft's Windows Phone platform rather than rolling with Android, which is installed on 8 out of 10 smartphones around the world. Like any good gambler, you have to know when to cash out, and that day has come for Nokia, having sold its Devices and Services division to Microsoft for what amounts to $7.2 billion in cash. The deal also includes Nokia patent licenses and use of the Finnish phone maker's mapping services.
Microsoft will pay €3.79 billion to purchase all of Nokia's phone business plus an additional €1.65 billion to license the company's patents for a total of €5.44 billion, or about $7.2 billion in U.S. dollars. That's a hefty sum to bring the Lumia lineup to Redmond, but in doing so, Microsoft hopes to accelerate the growth of its share and profit in mobile devices, both of which could use a boost.
"It’s a bold step into the future – a win-win for employees, shareholders and consumers of both companies. 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," said Steve Ballmer, Microsoft chief executive officer.
Around 32,000 Nokia employees will transfer to Microsoft, including 4,700 workers in Finland and 18,300 employees directly involved in manufacturing, assembly, and packaging of product worldwide.
The challenge for Microsoft is how best to leverage the Lumia line and promote its Windows Phone platform as a viable alternative to Android and iOS. Microsoft's track record in mobile isn't all the stellar with its recent Surface fiasco, though phones are a different business.
One thing Microsoft has going for it is its prior relationship with Nokia and the knowledge gained from that experience.
"Microsoft effectively 'acquired' Nokia several months ago when it entered into a deal to license Windows Mobile to Nokia, making Nokia entirely reliant on Microsoft's software for its mobile future," said Victor Basta, managing director of Magister Advisors. "Nokia’s value has eroded progressively since, making the actual deal to acquire the mobile business even more attractive now for Microsoft. In the meantime Microsoft has had the chance to work with Nokia and learn about the business, so this now looks like a safe deal for Microsoft. The burning question, of course, is whether Nokia's gradual erosion – in market share, value and perception - can be reversed."
Depending on how you look at it, this is an exciting time for Microsoft, and also a critical one. There's a lot of potential in this acquisition, and with Steve Ballmer retiring, it will be up to the next CEO to decide how best to use it.