Microsoft All-In On Nokia With Acquisition
By Sam Lewis
Software developer finally gains control of hand-held devices through its $7 billion deal
Microsoft and Nokia came to terms on a $7 billion deal late in the day, September 2. The move allows Microsoft to absorb Nokia’s hand held devices division, including smartphones. The news of the acquisition follows news from August 23, when Microsoft’s CEO, Steve Ballmer, announced he would retire as soon as a new CEO was found.
The transaction makes sense for both parties as Nokia is currently Microsoft’s biggest partner in the smartphone market. For Microsoft, acquiring Nokia appears to be an effort to make up ground in a mobile phone market dominated by Apple and Samsung. Microsoft expects growth to accelerate in its share of the market and to increase profits in mobile devices. The merger “builds on the phenomenal partnership we've built with Nokia,” Ballmer said during a joint interview with Nokia Chairman Risto Siilasmaa. Ballmer believes the transition for both parties should be smooth, as Nokia and Microsoft have been smartphone partners for three years.
For Nokia, the onetime leader in mobile phones, the deal comes as a harsh reality that the struggling Finnish company could not compete with Samsung and Apple, and ultimately, is admitting defeat. A Nokia representative said the deal with Microsoft will improve its financial position and “provide a solid basis for future investment in its continuing businesses.” Microsoft’s next CEO faces an enormous challenge of gaining ground on the dominated smartphone, making the purchase worthwhile.
The deal between Nokia and Microsoft sounds strikingly similar to the April 2011 deal between Google and Motorola Mobility. The online search and advertising giant bought Motorola’s hand held units division, gaining Motorola’s patents and expanding Google’s hardware, for around $12.5 billion. Motorola’s role in the mobile phone market all but disappeared when its popular RAZR phone sales began to tank. The Google purchase revived Motorola from a near-death experience in the mobile market, but, consequently, the purchase enslaved it to Google’s Android platform. It seems Nokia will be on the same path.
The negotiating for the Microsoft-Nokia deal began in February, when Ballmer asked Siilasmaa if Microsoft and Nokia could agree to a deal where the two companies were more than just partners. The board at Nokia met 50+ times regarding the proposition, eventually leading to the purchase on Monday. Microsoft will pay for the transaction with cash from Microsoft’s ventures outside of the U.S., and will be completed in early 2014, with the approval of Nokia Shareholders. Microsoft will also bring in 32,000 of Nokia’s employees, the addition is about one third of Microsoft’s current payroll. Nokia’s Stephen Elop is included in the addition to payroll, and many believe he is a contender to be the successor of Ballmer.
“For Microsoft, this is a bold step into the future,” Ballmer said in a note to employees. Ballmer has been trying to adapt Microsoft to a new strategy focused on devices and services. The vision aims to put Microsoft as the producer of both the software and now the hardware devices upon which consumers and businesses rely. Ballmer’s plan has been stymied by Microsoft’s weak position in the smartphone market, holding just three percent of U.S. sales. However, the deal will give Microsoft control of both smartphone hardware as well as software development for its devices, which could bring Ballmer’s desired results. The pressure will be on Microsoft to succeed, as the number of Windows devices will initially be small. “It’s an all-or-nothing bet,” said Van Baker, an analyst at Gartner, Inc. “They have to be successful in the marketplace because there won’t be anyone else to fall back on.”