News / Economy

Microsoft Swallows Nokia's Handset Business for $7.2B

A Nokia Lumia 820 smartphone with Microsoft logos on the screen is shown in a photo illustration taken in the central Bosnian town of Zenica, Sep. 3, 2013.
A Nokia Lumia 820 smartphone with Microsoft logos on the screen is shown in a photo illustration taken in the central Bosnian town of Zenica, Sep. 3, 2013.
Reuters
Two years after hitching its fate to Microsoft's Windows Phone software, Nokia collapsed into the arms of the U.S. software giant on Tuesday, agreeing to sell its main handset business for 5.44 billion euros ($7.2 billion).

Nokia, once the world's dominant handset maker, has failed to close a yawning lead opened up by Apple and Samsung in the highly competitive market for smartphones and will now concentrate on its networking equipment unit, navigation business and technology patents.

Nokia's Canadian boss Stephen Elop, who ran Microsoft's business software division before jumping to Nokia in 2010, will return to the U.S. firm as head of its mobile devices business - a Trojan horse, according to disgruntled Finnish media.

He is being discussed as a possible replacement for Microsoft's retiring CEO Steve Ballmer, who is trying to remake the U.S. firm into a gadget and services company like Apple before he departs, though it has fallen short so far in its attempts to compete in mobile devices.

“It's very clear to me that rationally this is the right step going forward,” Elop told reporters, though he added he also felt “a great deal of sadness” over the outcome.

“I feel sadness because inevitably we are changing Nokia and what it stands for,” he said.

In three years under Elop, Nokia saw its market share collapse and its share price shrivel.

In 2011, after writing a memo that said Nokia lacked the in-house technology and needed to jump off a “burning platform”, Elop made the controversial decision to use Microsoft's Windows Phone for smartphones, rather than Nokia's own software or Google's ubiquitous Android operating system.

Nokia, which had 40 percent of the handset market in 2007, now has just 15 percent, and only 3 percent in smartphones.

Shares in Nokia surged 39 percent to 4.10 euros on Tuesday. While up from their decade-low of 1.33 euros hit last year, they are still only a fraction of their 2000 peak of 65 euros.

After today's gains the whole company is worth about 15 billion euros, a far cry from its glory days when it peaked at over 200 billion euros.

Tuesday's deal includes an agreement to license Nokia's patent portfolio for 10 years. Without it, Nokia's devices and services business would have been worth about 3.7 billion euros, the companies said.

Microsoft shares in Frankfurt were down about 5 percent.

Sold for 'peanuts'

While some investors have credited Elop for bringing urgency to Nokia, which has stepped up its pace of product development in recent months and is due to announce a “phablet”-type large-screen handset this month, his legacy will be a bitter one for Finland. The company, which began life as a paper mill and has sold an eclectic range from television sets to rubber boots in its 148-year history, was a national champion in its heyday, accounting for 16 percent of all exports.

Hired by former chairman Jorma Ollila, Elop was the first foreigner to lead it.

For many Finns, the fact that a former Microsoft executive had come to Nokia, bet the firm's future on an alliance with Microsoft, laid off about 40,000 worldwide and then delivered it into Microsoft's hands, was a galling snub to national pride.

“Jorma Ollila brought a Trojan horse to Nokia,” a column in widely read tabloid Ilta-Sanoma said.

“As a Finnish person, I cannot like this deal. It ends one chapter in this Nokia story,” said Juha Varis, Danske Capital's senior portfolio manager, whose fund owns Nokia shares. “On the other hand, it was maybe the last opportunity to sell it.”

Varis was one of many investors critical of Elop's decision to bet Nokia's future in smartphones on Microsoft's Windows Phone software, which was praised by tech reviewers but hasn't found the momentum to challenge the market leaders.

“So this is the outcome: the whole business for 5 billion euros. That's peanuts compared to its history,” he said.

Alexander Stubb, Finland's Minister for European Affairs and Foreign Trade, said on his Twitter account: “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.”

Nokia's new interim CEO Risto Siilasmaa painted a picture of just how grudgingly the call to sell had been arrived at, describing how the board had met almost 50 times after the approach by Microsoft around February.

Ballmer, at a news conference in the Finnish capital, sought to assuage fears the deal would hit jobs in the Nordic country and said Microsoft would build on the recent growth of Nokia's flagship Lumia smartphones.

Nokia said it expected around 32,000 people of its roughly 90,000 worldwide staff would transfer to Microsoft, including about 4,700 who will transfer in Finland.

Pivotal for Microsoft

It is also a pivotal moment for Microsoft, which still has huge revenues from its Windows computer operating system, Office suite of business software and the X-Box game console, but has failed so far to set up a profitable mobile device business.

Microsoft's own mobile gadget, the Surface tablet, has sold tepidly since it was launched last year.

“It's a bold step into the future - a win-win for employees, shareholders and consumers of both companies,” Ballmer said. “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.”

The move leaves the Finnish company with Nokia Solutions and Networks, which competes with the likes of Ericsson and Huawei in telecoms equipment, as well as a navigation business and a broad portfolio of patents.

The Nokia deal thrusts Microsoft deeper into the hotly contested mobile phone market, despite some investors urging it to stick to its core strengths of business software and services.

Elop will return to Microsoft as its board ponders a successor to Ballmer, who will depart in the next 12 months.

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 plow headlong into the lower-margin, highly competitive mobile devices arena.

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.

Fire sale

Analyst Tero Kuittinen at consultancy Alekstra said the sale price of Nokia's phone business, about a quarter of its sales last year, represented a “fire sale level”, though others were less clear about what a shrunken Nokia was worth.

The price agreed for the devices and services business gives it an enterprise value of about 0.33 times sales for a loss-making business, about half what Google paid for Motorola's handset business in 2012.

“What should be paid for a declining business, where market share has been constantly lost and profitability has been poor?” said Hannu Rauhala, analyst at Pohjola Bank. “It is difficult to say if it's cheap or expensive.”

Nokia 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.

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, probably in the first quarter of 2014.

You May Like

Multimedia Obama, Modi Announce Breakthrough on Nuclear Deal

Deal resolves differences over liability of suppliers to India in event of a nuclear accident, U.S. demands on tracking whereabouts of material supplied to country More

WHO's Late Efforts in Tackling Ebola Highlight Need for Reform

Health experts debate measures to reform agency’s response to global public health emergencies in special one-day session on deadly outbreak More

One Tumultuous Year in Power for CAR's President

As sectarian violence raged across Central African Republic, interim President Catherine Samba-Panza has Herculean task: to end civil war and put country back on right track More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Worldwide Photo Workshops Empower Youthi
X
Julie Taboh
January 23, 2015 11:08 PM
Last September, 20 young adults from South Sudan took part in a National Geographic Photo Camp. They are among hundreds of students from around the world who have learned how to use a camera to tell the stories of the people in their communities through the powerful medium of photography. Three camp participants talked about their experiences recently on a visit to Washington. VOA’s Julie Taboh reports.
Video

Video Worldwide Photo Workshops Empower Youth

Last September, 20 young adults from South Sudan took part in a National Geographic Photo Camp. They are among hundreds of students from around the world who have learned how to use a camera to tell the stories of the people in their communities through the powerful medium of photography. Three camp participants talked about their experiences recently on a visit to Washington. VOA’s Julie Taboh reports.
Video

Video US, Japan Offer Lessons as Eurozone Launches Huge Stimulus

The Euro currency has fallen sharply after the European Central Bank announced a bigger-than-expected $67 billion-a-month quantitative easing program Thursday - commonly seen as a form of printing new money. Henry Ridgwell reports for VOA from London on whether the move might rescue the eurozone economy -- and what lessons have been learned from similar programs around the world.
Video

Video Nigerian Elections Pose Concern of Potential Conflict in 'Middle Belt'

Nigeria’s north-central state of Kaduna has long been the site of fighting between Muslims and Christians as well as between people of different ethnic groups. As the February elections approach, community and religious leaders are making plans they hope will keep the streets calm after results are announced. Chris Stein reports from the state capital, Kaduna.
Video

Video As Viewership Drops, Obama Puts His Message on YouTube

Ratings reports show President Obama’s State of the Union address this week drew the lowest number of viewers for this annual speech in 15 years. White House officials anticipated this, and the president has decided to take a non-traditional approach to getting his message out. VOA White House correspondent Luis Ramirez reports.
Video

Video S. Korean Businesses Want to End Trade Restrictions With North

Business leaders in South Korea are calling for President Park Geun-hye to ease trade restrictions with North Korea that were put in place in 2010 after the sinking of a South Korean warship.Pro-business groups argue that expanding trade and investment is not only good for business, it is also good for long-term regional peace and security. VOA’s Brian Padden reports.
Video

Video US Marching Bands Grow Into a Show of Their Own

The 2014 Super Bowl halftime show was the most-watched in history - attracting an estimated 115 million viewers. That event featured pop star Bruno Mars. But the halftime show tradition started with marching bands, which still dominate the entertainment at U.S. high school and college American football games. But as Enming Liu reports in this story narrated by Adrianna Zhang, marching bands have grown into a show of their own.
Video

Video Secular, Religious Kurds Face Off in Southeast Turkey

Turkey’s predominantly Kurdish southeast has been rocked by violence between religious and secular Kurds. Dorian Jones reports on the reasons behind the stand-off from the region's main city of Diyarbakir, which suffered the bloodiest fighting.
Video

Video Kenya: Misuse of Antibiotics Leading to Resistance by Immune System

In Kenya, the rise of drug resistant bacteria could reverse the gains made by medical science over diseases that were once treatable. Kenyans could be at risk of fatalities as a result if the power in antibiotics is not preserved. Lenny Ruvaga has more on the story from Nairobi.
Video

Video Solar-Powered Plane Getting Ready to Circumnavigate Globe

Pilots of the solar plane that already set records flying without a drop of fuel are close to making their first attempt to fly the craft around the globe. They plan to do it in 25 flying days over a five month period. VOA’s George Putic reports.
Video

Video How Experts Decide Ethiopia Has the Best Coffee

Ethiopia’s coffee has been ranked as the best in the world by an international group of coffee connoisseurs. Not surprisingly, coffee is a top export for the country. But at home it is a source of pride. Marthe van der Wolf in Addis Ababa decided to find out what makes the bean and brew so special and how experts make their determinations.
Video

Video Yazidi Refugees at Center of Political Fight Between Turkey, Kurds

The treatment of thousands of Yazidis refugees who fled to Turkey to escape attacks by Islamic State militants has become the center of a dispute between the Turkish government and the country's pro-Kurdish movement. VOA's Dorian Jones reports.
Video

Video World’s Richest 1% Forecast to Own More Than Half of Global Wealth

The combined wealth of the world's richest 1 percent will overtake that of the remaining 99 percent at some point in 2016, according to the anti-poverty charity Oxfam. Campaigners are demanding that policymakers take action to address the widening gap between the ‘haves’ and the ‘have nots’, as Henry Ridgwell reports for VOA from London.

Circumventing Censorship

An Internet Primer for Healthy Web Habits

As surveillance and censoring technologies advance, so, too, do new tools for your computer or mobile device that help protect your privacy and break through Internet censorship.
More

All About America

AppleAndroid

World Currencies

EUR
USD
0.8930
JPY
USD
117.98
GBP
USD
0.6673
CAD
USD
1.2445
INR
USD
61.498

Rates may not be current.