Post BBQ News: Microsoft Buys Most Of Nokia For $7.2 Billion

Many people in the US returned from Labor-Day barbecues to discover that Microsoft had acquired Nokia’s hardware business for roughly $5 billion and would spend another roughly $2 billion to license the Finnish company’s patents. The total value of the deal is 5.44 billion euros or approximately $7.2 billion.

Here are some of the details from the Microsoft press release:

Microsoft will acquire substantially all of Nokia’s Devices and Services business, including the Mobile Phones and Smart Devices business units as well as an industry-leading design team, operations including all Nokia Devices & Services-related production facilities, Devices & Services-related sales and marketing activities, and related support functions.

At closing, approximately 32,000 people are expected to transfer to Microsoft, including 4,700 people in Finland and 18,300 employees directly involved in manufacturing, assembly and packaging of products worldwide. The operations that are planned to be transferred to Microsoft generated an estimated EUR 14.9 billion, or almost 50 percent of Nokia’s net sales for the full year 2012.

Microsoft is acquiring Nokia’s Smart Devices business unit, including the Lumia brand and products. Lumia handsets have won numerous awards and have grown in sales in each of the last three quarters, with sales reaching 7.4 million units in the second quarter of 2013.

As part of the transaction, Nokia is assigning to Microsoft its long-term patent licensing agreement with Qualcomm, as well as other licensing agreements.

The deal gives Microsoft the hardware operation that it now believes it must have to succeed in mobile. The acquisition also means Microsoft no longer needs to rely on third party partners to build hardware. Yet the acquisition is far from a guarantee of success. Google’s $12.5 billion purchase of Motorola Mobility has not stopped the latter’s market share slide — although the just-released Moto X is the first phone designed under Google ownership.

Nokia CEO Stephen Elop is reportedly going to rejoin Microsoft as “Executive VP of Devices & Services” and current Nokia Chairman Risto Siilasmaa will take over the CEO role, at least for the time being.

Elop was hired from Microsoft to lead Nokia almost exactly three years ago. At the time there were conspiracy theories about Elop being a “Trojan Horse” for Microsoft, to ensure a privileged position for Windows Phones within Nokia. That all sounded completely paranoid at the time. It seems a much less outlandish theory at the moment.

Elop is probably now on the short list to succeed outgoing Microsoft CEO Steve Ballmer, who announced his early resignation last week. Given the centrality of mobile (and importance of this acquisition) it’s quite logical to put Elop in charge of Microsoft as a whole. However his record at Nokia is mixed at best.

While the company made a bold decision to adopt a third party operating system; it probably should have equally embraced the Android OS. Had it done so it would be in a stronger position today and probably would not have sold itself to Microsoft. Although he’s not single-handedly responsible, during Elop’s tenure Nokia lost considerable value from a shareholder perspective.

Kantar Worldpanel ComTech data has shown some solid share gains in select EU countries for Windows Phones, but flat-to-declining share in key markets like the US and China. Microsoft’s work is still very much cut out for it.

Microsoft now gains control over a venerable hardware brand — the company is acquiring the Lumia brand and licensing the Nokia brand for a period of years — together with device-manufacturing assets and expertise. The buy also furthers Steve Ballmer’s newly articulated vision of Microsoft as “devices and services” company rather than a software company. It will be up to the next Microsoft CEO to truly execute on that vision.

The acquisition sets up a three way mobile contest between Google, Apple and Microsoft on a global scale. BlackBerry is for sale and unlikely to remain a meaningful global player in the smartphone market. Other parties and operating systems, especially in China, may add interesting wrinkles to the global battle. But it appears that Microsoft has clawed, cajoled and bought its way into the fight.

The Nokia Maps business (HERE) is not part of this deal. That’s very curious given how entwined Nokia/HERE maps and Bing Maps are today. However Microsoft will apparently license HERE Maps as part of the $2 billion fee it’s paying.

Nokia will continue on focused on its HERE business, NSN and its IP licensing. Years from now this will either be the moment when Nokia ended (as a practical matter) or, if all goes well, this transaction might be seen as similar to IBM’s divestiture of its PC business.

About The Author

Greg Sterling

Greg Sterling is a Contributing Editor at Search Engine Land. He writes about the connections between digital and offline commerce. He previously held leadership roles at LSA, The Kelsey Group and TechTV. Follow him Twitter or find him on LinkedIn.