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

Will Cuba Follow the Southeast Asia Model?

Decision to restore ties between US and Cuba has some debating whether it will lead to enhancement or regression of democracy for Communist island nation More

Kenyan Designer Finds Her Niche in Fashion Industry

‘Made in China’ fabrics underlie her success More

Report: CIA, Israel's Mossad Killed Senior Hezbollah Commander

The Washington Post story says Imad Mughniyah was killed instantly by a bomb "triggered remotely" from Tel Aviv by Mossad agents More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Jefferson's Library Continues to Impress, 200 Years Lateri
X
Deborah Block
January 31, 2015 12:12 AM
Two hundred years after the U.S. Congress purchased a huge collection of books belonging to former President Thomas Jefferson, it remains one of America’s greatest literal treasures and has become the centerpiece of Washington’s Library of Congress. VOA’s Deborah Block reports.
Video

Video Jefferson's Library Continues to Impress, 200 Years Later

Two hundred years after the U.S. Congress purchased a huge collection of books belonging to former President Thomas Jefferson, it remains one of America’s greatest literal treasures and has become the centerpiece of Washington’s Library of Congress. VOA’s Deborah Block reports.
Video

Video Egypt's Suez Canal Dreams Tempered by Continued Unrest

Egypt plans to expand the Suez Canal, raising hopes that the end of its economic crisis may be in sight. But some analysts say they expect the project may cost too much and take too long to make life better for everyday Egyptians. VOA's Heather Murdock reports.
Video

Video Threat of Creeping Lava Has Hawaiians on Edge

Residents of the small town of Pahoa on the Big Island of Hawaii face an advancing threat from the Kilauea volcano. Local residents are keeping a watchful eye on creeping lava. Mike O’Sullivan reports.
Video

Video Pro-Kremlin Youth Group Creatively Promotes 'Patriotic' Propaganda

As Russia's President Vladimir Putin faces international pressure over Ukraine and a failing economy, unofficial domestic groups are rallying to his support. One such youth organization, CET, or Network, uses creative multimedia to appeal to Russia's urban youth with patriotic propaganda. VOA's Daniel Schearf reports.
Video

Video Filmmakers Produce Hand-Painted Documentary on Van Gogh

The troubled life of the famous 19th century Dutch painter Vincent van Gogh has been told through many books and films, but never in the way a group of filmmakers now intends to do. "Loving Vincent " will be the first ever feature-length film made of animated hand-painted images, done in the style of the late artist. VOA’s George Putic reports.
Video

Video Issues or Ethnicity? Question Divides Nigeria

As Nigeria goes to the polls next month, many expect the two top presidential contenders to gain much of their support from constituencies organized along ethnic or religious lines. But are faith and regional blocs really what political power in Nigeria is about? Chris Stein reports.
Video

Video Rock-Consuming Organisms Alter Views of Life Processes

Scientists thought they knew much about how life works, until a discovery more than two decades ago challenged conventional beliefs. Scientists found that there are organisms that breathe rocks. And it is only recently that the scientific community is accepting that there are organisms that could get energy out of rocks. Correspondent Elizabeth Lee reports.
Video

Video Paris Attacks Highlight Global Weapons Black Market

As law enforcement officials piece together how the Paris and Belgian terror cells carried out their recent attacks, questions are being asked about how they obtained military grade assault weapons - which are illegal in the European Union. As VOA's Jeff Swicord reports, experts say there is a very active worldwide black market for these weapons, and criminals and terrorists are buying.
Video

Video Activists Accuse China of Targeting Religious Freedom

The U.S.-based Chinese religious rights group ChinaAid says 2014 was the worst year for religious freedom in China since the end of the Cultural Revolution. As Ye Fan reports, activists say Beijing has been tightening religious controls ever since Chinese leader Xi Jinping came to office. Hu Wei narrates.
Video

Video Theologians Cast Doubt on Morality of Drone Strikes

In 2006, stirred by photos of U.S. soldiers mistreating Iraqi prisoners, a group of American faith leaders and academics launched the National Religious Campaign Against Torture. It played an important role in getting Congress to investigate, and the president to ban, torture. VOA's Jerome Socolovsky reports.
Video

Video Former Sudan 'Lost Boy' Becomes Chess Master in NYC

In the mid-1980’s, thousands of Sudanese boys escaped the country's civil war by walking for weeks, then months and finally for more than a year, up to 1,500 kilometers across three countries. The so-called Lost Boys of the Sudan had little time for games. But one of them later mastered the game of chess, and now teaches it to children in the New York area. VOA’s Bernard Shusman in New York has his story.
Video

Video NASA Monitors Earth’s Vital Signs From Space

The U.S. space agency, NASA, is wrapping up its busiest 12-month period in more than a decade, with three missions launched in 2014 and two this month, one in early January and the fifth scheduled for January 29. As VOA’s Rosanne Skirble reports, the instruments being lifted into orbit are focused on Earth’s vital life support systems and how they are responding to a warmer planet.

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
0.8845
JPY
USD
117.71
GBP
USD
0.6643
CAD
USD
1.2669
INR
USD
62.019

Rates may not be current.