Microsoft to Purchase Nokia's Devices and Services Divisions
9/2/2013 by: Anshel Sag
In an open letter Microsoft posted on its own site, the company announced the acquisition of Nokia's devices and services division from Nokia's parent company. The purchase will bring the Nokia's line of Lumia branded Windows Phone devices under the direct supervision of the Window's maker. This announcement comes around 3 years after Nokia brought Stephen Elop, a former Microsoft employee, onboard as CEO. Elop as CEO drastically switched the company to Windows Phone OS with many believing him to be a sort of Microsoft plant. In hindsight, viewing Nokia devices now, it does not seem as ridiculous as one year ago.
This was further supported by Microsoft's official news release that they would be purchasing Nokia's devices and services business for 3.79 billion euros or $5 billion. Additionally, Nokia's parent company would continue to retain all of the IP and will pay 1.65 billion euros to license that intellectual property from Nokia. This will come out to a total deal price of 5.44 billion euros or $7.18 billlion in cash. Since Microsoft has quite a bit of cash on hand, they do not have to make any swaps for stock. Additionally, Microsoft will draw from overseas cash to fund the deal in order to avoid having to use already taxed US cash. The deal will close in the first quarter of 2014, pending all shareholder and regulatory approvals.
With this deal, Microsoft will also increase their employee rolls by 32,000 people, significantly increasing the size of Microsoft as a company. It will also create interesting problems for Microsoft's Surface hardware division considering how much more experience Nokia's engineers have with building solid hardware. Microsoft will also obtain some licensing agreements from Nokia, like the licensing agreement that Nokia currently has with Qualcomm that settled some earlier patent disputes.
Also take into account that Nokia will still retain most of the intellectual property developed by Nokia over the years and that Microsoft is paying to license this technology. Furthermore, Nokia will retain their mapping software, which will continue to be a source of income for the company as Microsoft continues to integrate more Nokia products into their ecosystem. Nokia will still include Nokia Solutions and Networks, which recently bought out Siemens from what was once known as Nokia Seimens Networks. This buy-out deal got lots of investors and analysts interested in the possibility of a Microsoft deal because it would make the acquisition of Nokia much more attractive and easier to accomplish. Since Nokia Solutions and Networks has lately been Nokia's most profitable division, you can probably see how this purchase of Nokia's weakest division coupled with the cash infusion will make Nokia's investors very happy.
However, Microsoft opted to leave the most profitable division of Nokia to the company and to take on the division that utilizes their software in their devices.
The most saddening part of this whole deal is that Nokia as a phone manufacturer will likely cease to exist and they will likely stick to the networking business and licensing mobile IP to Microsoft and other companies. Many of us will remember the days of our first cell phones, many of which were Nokia's own indestructible brick phones which ushered us into the mobile era. Nokia as it was, will be missed, but hopefully they will find new life inside of Microsoft, because everyone knows that Microsoft's Windows Phone needs it.
This brings us to another conundrum, what will happen to HTC and Samsung's Windows Phone devices? The real truth of the matter is that Nokia's devices have been the flagship devices for Windows Phone and HTC and Samsung haven't shipped nearly as many Windows Phone devices at Nokia and probably never will. I do not believe that this is a good strategy for Microsoft, however, they are doing whatever they can to compete with Android and iOS at the given moment.
This leads us to the final question, will Stephen Elop replace Steve Ballmer as Microsoft's CEO? I've already heard this question uttered a few times in the short minutes that this has become news and I don't think it will be happening. The primary reason has to do with the fact that Elop didn't necessarily take the company into profitability, I don't think that shareholders or Microsoft's Board will be willing to adopt a new CEO that couldn't turn a profit.
Needless to say, some interesting news on a Holiday in the US. It should be interesting to hear what people say about today's deal tomorrow while we attends Qualcomm's UPLINQ mobile conference.
Microsoft, Nokia, Lumia, Tablet, Smartphone, HTC, Samsung, Windows Phone, Phone, Windows, Surface, RT
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