Software giant Microsoft continued its transformation into a devices and services entity on Tuesday, announcing that it would buy the mobile phone operations of troubled Finnish manufacturer Nokia. Microsoft confirmed the deal to Reuters on Tuesday. The Nokia buy will cost the Redmond giant roughly $7.2 billion, and the deal should close by the first quarter of 2014.
"It's a bold step into the future — a win-win for employees, shareholders and consumers of both companies," Microsoft's Steve Ballmer, said in a statement. Ballmer is slated to step down from his role as chief executive within 12 months, and no replacement has been found.
"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."
After announcing the acquisition, Microsoft released a document laying out its strategic rationale for the buy. The document calls the buy a "smart acquisition," noting that it will strengthen Microsoft's overall opportunity in the segment and accelerate growth in the Windows Phone platform's market share.
Reportedly, Nokia's current CEO, Stephen Elop, will step down as part of the deal. Elop is expected to take on the role of Microsoft's "Nokia Executive Vice President of Devices & Services." Elop has also been mentioned as a potential replacement for Ballmer in the head role at Microsoft, though neither company has commented on that possibility.
The deal will also see Microsoft forging a 10-year licensing agreement with Nokia to use the company's brand on cellular devices, a move that is something of a necessity given Nokia's stature in the mobile market and Microsoft's comparative lack of stature in that segment. Microsoft will also acquire more than 8,500 design patents, as well as 30,000 utility and patents pending. Nokia's Lumia and Asha brands will fall under the 10-year license.
Two years ago, Nokia undertook a "bet the company" strategy, aligning itself closely with Microsoft's Windows Phone platform in the face of growing competition from Apple's iPhone and devices running Google's Android operating system Once a ruler of the mobile handset market, Nokia has fared poorly in the time since, as consumers have opted for iOS and Android-powered smartphones, leaving the Finnish company struggling to keep up.
The partnership between the two companies has occasionally resulted in financial support from Microsoft to Nokia. In January of last year, Microsoft paid Nokia $250 million in order to support the phone maker's continuing efforts to popularize the Windows Phone platform. Nokia to date appears to be the only manufacturer moving significant numbers of Windows Phone units, selling 7.4 million Lumia devices last quarter even as it lost $151 million.
Nokia has stayed the course, though, releasing a number of Windows Phone 8-powered devices across a range of price points. Currently, the firm is believed to be working on a phablet-like device with a 6-inch display, hoping to capitalize on the desire among some consumers for larger-screened devices.
As Nokia has struggled, many observers have speculated that the company was ripe for an acquisition, and Microsoft has been continually bandied about as a likely buyer. The Windows maker has not only the cash reserves to make such a buy, but also the motivation. Given the accelerating decline of the traditional PC market and evident consumer interest in smartphones and tablets, buying Nokia may give Microsoft better footing to reorient itself to the new computing paradigm. At the very least, the acquisition will likely help Microsoft to integrate its software operations with mobile phone design.
Having bought Nokia, Microsoft now has a foothold in the two major components of modern computing: smartphones and tablets. Nokia had been rumored to be working on its own Windows RT-powered tablet, though that device's future is uncertain given Microsoft's own efforts in that segment with its Windows RT and Windows 8-powered Surface devices.
With its devices and services segments now under Microsoft's control, Nokia will look to further develop its mapping platform. An accompanying statement from the company laid out its plans going forward, saying that it aims to become the "leading independent location cloud platform company, offering mapping and location services across different screens and operating systems." Nokia will also continue to develop its operations in the network services market, as well as to build LTE networks and work on other advanced technologies such as sensing and material tech. Roughly 32,000 Nokia employees — including 4,700 in Finland and 18,300 directly involved in manufacturing, assembly, and packaging worldwide — will now become Microsoft employees.