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Microsoft Pri0

Welcome to Microsoft Pri0: That's Microspeak for top priority, and that's the news and observations you'll find here from Seattle Times technology reporter Matt Day.

September 2, 2013 at 8:42 PM

Microsoft buying Nokia’s handset business as part of $7.2 billion deal

Microsoft is buying Nokia’s handset business as part of a $7.2 billion deal, the two companies announced today.

Microsoft is paying about $5 billion (EUR 3.79 billion) for Nokia’s Devices & Services Business. In addition, it is paying about $2.18 billion (EUR 1.65 billion) to license Nokia’s patents and to license and use Nokia’s mapping services.

The businesses that Microsoft is getting from Nokia brought in about $19.7 billion (EUR 14.9 billion) revenue in 2012, about half of Nokia’s sales that year.

Nokia retains other substantial parts of its business including networking infrastructure and services, technology development and licensing, and mapping and location services. Its patent portfolio remains within Nokia, which is granting Microsoft a 10-year non-exclusive license.

Nokia CEO Stephen Elop is stepping down from that position, and becoming executive vice president of Nokia’s Devices & Services division, leading its transition into Microsoft.

Once the transition is finalized, Elop becomes an executive vice president at Microsoft, heading a devices division that will include Windows Phone, as well as Xbox and Surface. Julie Larson-Green, current executive vice president in charge of the Devices & Studios division at Microsoft, will report to Elop.

(Elop’s name has come up fairly frequently as a possible successor to Microsoft CEO Steve Ballmer, who announced last month that he would be retiring once his successor has been chosen within 12 months.)

In total, Microsoft is getting Nokia’s mobile, smartphone and smart devices units; its design team; its production facilities; and its sales, marketing and support operations, according to Nokia.

Most of Nokia’s employees will remain where they are. After the deal closes, the roughly 32,000 employees in Nokia’s Devices & Services division — slightly more than half of them working in manufacturing and assembly in Nokia’s production facilities around the world — will still work in those facilities, but will work for Microsoft. About 4,700 of those employees work in Finland in research and development, engineering, design, and operations and will remain there.

“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,” Microsoft CEO Steve Ballmer said in a news release. “In addition to their innovation and strength in phones at all price points, Nokia brings proven capability and talent in critical areas such as hardware design and engineering, supply chain and manufacturing management, and hardware sales, marketing and distribution.”

Microsoft has posted Ballmer’s email to employees about the acquisition, and a slideshow presentation of its rationale for the move.

Nokia has made Microsoft’s Windows Phone its primary smartphone operating system since 2011 and its Lumia line of Windows Phone has been credited with giving Microsoft a tiny gain in market share over the past several months even as the OS in general struggles for a foothold in the marketplace. (Windows Phone has about a 3.3 percent worldwide market share.) But Nokia has been floundering and though it’s narrowed its losses lately, it still posted a $151 million loss last quarter.

Nokia said it expects to gain about about $4.2 billion (EUR 3.2 billion) on the sale.

The Finnish company retains the Nokia brand and under a 10-year agreement, Microsoft has said it would use the Nokia brand on certain mobile phones based on its Series 30 and Series 40 operating systems.

However, Nokia is restricted from using its own name on its own mobile devices until Dec. 31, 2015.

Microsoft is using its overseas cash reserves to fund the cash purchase, which is expected to close in the first quarter of 2014, subject to approval by Nokia’s shareholders and regulatory approval, according to a news release. Microsoft had reported having about $77 billion in cash reserves in a financial document filed with the U.S. Securities and Exchange Commission.

Such an acquisition “has been on everyone’s minds on and off,” Al Hilwa, an analyst with research firm IDC, said in an email. “It is good for both companies to see it happen. Nokia has a highly evolved device design and manufacturing process which will benefit Microsoft greatly. This is simply the fastest path in front of Microsoft to achieve something like Apple’s vision on devices. The key to progress in this space does not change, namely will Microsoft be able to create critical mass with its platform.”

Comments | More in Microsoft | Topics: lumia, nokia, stephen elop


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