Microsoft Completes Nokia Phone-Unit Deal in Push to Mobile
Microsoft Corp. (MSFT) completed the takeover of Nokia Oyj (NOK1V)’s phone business, ending a seven-month wait to renew its assault on the mobile market and leaving the Finnish company seeking growth in wireless networks.
The final price may be “slightly higher” than the 5.44 billion euros ($7.5 billion) announced in September, Nokia said today. About 30,000 employees are transferring to Redmond, Washington-based Microsoft as part of the transaction, which was delayed amid regulatory scrutiny.
Microsoft, the world’s largest software maker, is gaining a device business that it’ll rely on to catch up with Apple Inc. (AAPL) and Google Inc. (GOOG) in the tablet and mobile-phone markets. Nokia is left seeking a turnaround for its network-equipment business and is said to consider the division’s head, Rajeev Suri, as chief executive officer to challenge rivals such as Ericsson (ERICB) AB.
“The deal alone doesn’t immediately solve the problem for either company,” said Sami Sarkamies, an analyst at Nordea Bank AB in Helsinki. “Now, they have to roll up their sleeves and starting working to play catch-up.”
The purchase of the unprofitable division makes Microsoft the world’s second-largest maker of mobile phones with about 14 percent of the market, according to researcher IDC. Samsung Electronics Co. is the market leader.
In smartphones, the most profitable part of the industry, Microsoft will continue to lag far behind rivals. Apple and devices running Google’s Android operating system accounted for about 96 percent of the 290 million smartphones shipped in the fourth quarter, according to IDC. Devices using Microsoft’s Windows Phone software had 3 percent of the market.
Nokia, once the smartphone market leader, is evaluating its strategy for its future without the phone business. The Espoo, Finland-based company said in March it aims to be able to discuss the outcome of the review at the end of April. The company is scheduled to report first-quarter earnings April 29.
Suri is set to be named CEO that day, newspaper Helsingin Sanomat reported today, citing two unidentified people familiar with the matter. James Etheridge, a spokesman for Nokia, declined to comment. Suri is among candidates for the top job as 149-year-old Nokia is seeking a leader to revive the company, people with knowledge of the matter said in January.
The new CEO will replace Stephen Elop, who is returning to Microsoft as executive vice president of the devices group. He joined Nokia in 2010 and stepped down as CEO when the sale to Microsoft was announced.
Shares of Nokia have advanced about 80 percent since the companies disclosed the deal, and rose 1.7 percent to 5.37 euros at 3:11 p.m. in Helsinki. Microsoft has added 19 percent.
Nokia, which is receiving the Microsoft deal proceeds in cash, said in January it plans to decide on a payout to shareholders after the sale is completed. The company’s debt is ranked junk by the three main rating companies.
The proceeds will also help Nokia invest more in research and development and potentially acquisitions, Nordea’s Sarkamies said. After the sale, Nokia will get about 90 percent of its revenue from base stations, antennas and other network equipment as well as related services it sells to wireless carriers. Competitors include Sweden’s Ericsson, China’s Huawei Technologies Co. and France’s Alcatel-Lucent SA.
Nokia is seeking partnerships similar to a pact it has with Juniper Networks Inc. to expand its networks business, Suri said in an interview in February. Last year, Nokia considered buying the wireless-equipment unit of Alcatel-Lucent, people familiar with the matter have said.
In addition to network gear, Nokia has a digital-maps business and a unit that licenses its patents.
Microsoft unveiled this month an updated version of its Windows Phone software with voice-search features, and said it’s offering the platform for free for small phones and tablets as part of CEO Satya Nadella’s turnaround.
Nadella, who was named CEO on Feb. 4, is working to remake Microsoft for an era where smartphones and tablets have become central. To do so, he must strike a balance between offering Microsoft’s software for competing platforms while still keeping the company’s Windows operating system as a core focus.
Windows stands to be the fastest-growing smartphone operating system over the next four years with 30 percent annual growth, according to IDC. Even at that rate, Windows Phone would only make up 7 percent of the total market in 2018.
Microsoft’s new handset division will begin selling phones using Windows Phone 8.1, Elop said this month. A high-end device called 930 will debut in June and feature wireless charging, while two cheaper phones designed for emerging markets will become available in May, Elop said.
Contrary to the original plan, the Nokia phone division’s factories in Masan, South Korea, and Chennai, India, won’t be transferred to Microsoft. The Chennai plant’s assets are frozen amid a tax dispute with local authorities, and Nokia has agreed to produce mobile devices for Microsoft at the facility. The Masan site, employing about 200, will be closed.
To contact the reporter on this story: Adam Ewing in Stockholm at firstname.lastname@example.org