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Summary:

Many have speculated that former Microsoft executive Stephen Elop took the CEO job at struggling mobile phone pioneer Nokia just to direct the company toward Microsoft’s mobile ambitions. On Monday night, Microsoft agreed to buy Nokia’s devices division for $7.17 billion.

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After years of rumors about what former Microsoft executive and current Nokia CEO Stephen Elop had in mind for the world’s most prominent Windows Phone brand, it’s official: Microsoft is buying Nokia’s Devices and Services division for 5.44 billion euros, or just over $7.17 billion.

The deal will give Microsoft control of Nokia’s smartphone manufacturing, and 32,000 people who worked for Nokia last week now work for Microsoft, pending the completion of the deal, which the companies said was expected to close in the first quarter of 2014.

“We will continue to build the mobile phones you’ve come to love, while investing in the future – new phones and services that combine the best of Microsoft and the best of Nokia,” said Elop and Microsoft CEO (for now) Steve Ballmer, in an open letter published on Microsoft’s site.

After joining Nokia in 2010, Elop famously convinced Nokia’s board of directors and employees to abandon what he called its “burning platform” in 2011, a reference to the Symbian smartphone operating system that once dominated the smartphone market only to grow quite stale, and embrace Windows Phone as the operating system of its future. Coming from Microsoft, Elop’s strategy immediately sparked rumors that Microsoft would one day buy the smartphone maker, which along with Palm and Research in Motion (now BlackBerry) created the smartphone market that Apple and Google now own.

Microsoft is getting a 10-year license to the Nokia brand, which it may or may not use on future Microsoft smartphones. After Microsoft unveiled plans to make its own tablet device last year, many people in the mobile industry figured it was only a matter of time before the company released its own branded smartphone. However, sales of Microsoft’s Surface tablets have been quite poor, forcing the company to take a $900 million write-down on unsold inventory last quarter.

Nokia will now be a very different company. “Following the transaction, Nokia plans to focus on its three established businesses, each of which is a leader in enabling mobility in its respective market segment: NSN, a leader in network infrastructure and services; HERE, a leader in mapping and location services; and Advanced Technologies, a leader in technology development and licensing,” the company said in a press release announcing the deal.

Risto Siilasmaa, currently the chairman of Nokia’s board of directors, will immediately become CEO of what remains of Nokia, a smartphone pioneer that has been struggling ever since Apple unveiled the iPhone in 2007 and changed the notion of what it meant to be a smartphone. Until the deal closes, Elop will step down from the CEO position and become Executive Vice President of the Devices and Services division.

The deal comes at an extremely interesting time for Microsoft. Two weeks ago Ballmer announced that he plans to step down within 12 months, although you can’t find too many people in the tech industry (outside of Microsoft’s PR firm, Waggener Edstrom) who think he’ll remain on Microsoft’s executive team that long. Elop immediately becomes a front-runner candidate to succeed Ballmer.

(This story was updated frequently as more information became available. The headline and first paragraph were corrected Tuesday 9/3 with the correct price for the deal.)

  1. Now that you have everything, really show us what you can do…Looking forward to some innovative devices. Let the games begin…

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  2. Majeed Ahmad Kamran Monday, September 2, 2013

    Earlier this year, a book tried to address this recurrent question if there will be a triumphant comeback after Nokia’s existential smartphone crisis? It argued that Nokia’s other businesses–patents, location and LTE–are in a good shape. The book “Nokia’s Smartphone Problem” (http://amzn.to/ZhKnGP) chronicled how Nokia’s smartphone fortunes are tied to its software partner Microsoft. The subtitle of the book said a lot: The End of an Icon?

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  3. “Microsoft has agreed to a 10 year license arrangement with Nokia to use the Nokia brand on current Mobile Phones products. Nokia will continue to own and maintain the Nokia brand. Under the terms of the transaction, Microsoft has agreed to a 10 year license arrangement with Nokia to use the Nokia brand on current and subsequently developed products based on the Series 30 and Series 40 operating systems. Upon the closing of the transaction, Nokia would be restricted from licensing the Nokia brand for use in connection with mobile device sales for 30 months and from using the Nokia brand on Nokia’s own mobile devices until December 31, 2015 ”

    So M$ seems that it will be using the Lumia brand for smartphones and the Nokia brand for dumbphones and Nokia is will be able to make devices soon enough.

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  4. Frederick Tubiermont Tuesday, September 3, 2013

    The wedding of two behemoths… Not sure it will give birth to Nokia’s resurrection. They could have adopted the Apple way, less products, better positioned, but they kept on expanding their range the Dell way. So sad…

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    1. Stanislaus Szczepaniak Tuesday, September 3, 2013

      “less products, better positioned, but they kept on expanding their range the Dell way”

      Yes, Nokia was on a good way to achieve a turnaround. Now, it seems that Microsoft stymied these efforts by never adding the functions people wanted to WP8 and never embraced the app developer community. What a shame.

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  5. Interesteing that Ballmer is setting the course for the company for the new CEO; a deal this big could have waited for the new incumbent.

    No surprises, but evidence that Microsoft have failed to persuade enough people to buy windows phones – and manufacturers to make them.

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  6. I strongly believe Microsoft Makes the Right Move with Nokia and here is why

    Microsoft is often criticized for being behind the times when it comes to embracing new technology or leading the way to where users want to go. However, the company just made a move that has the potential to be a game-changer and may be Steve Ballmer’s best move yet.

    Buyout of Nokia’s Devices and Services Division
    In addition to purchasing the Devices & Services division, Microsoft also will license Nokia’s patents and license and use Nokia’s mapping services. This is according to a notice issued by Microsoft.
    A statement made by CEO Steve Ballmer shows that he believes that Nokia can improve Microsoft’s standings with smartphones through Nokia’s innovation in hardware design and proven capabilities in sales, marketing, and distribution of hardware.
    Microsoft stands to benefit a great deal from this acquisition with the knowledge that Nokia brings to the table. Even though the company is no longer the number one manufacturer of cell phones, it did retain that title at one time.
    Microsoft has not seen its own Windows Phone take over the market as had been hoped. It’s apparent with this deal that the company recognizes the need for a strong alliance with an insider in the industry.

    This deal will strengthen an already amicable partnership between the two companies. Nokia has been the primary manufacturer of Windows phones since the two signed a deal in 2011. This close relationship will only be enhanced by the acquisition as Microsoft will be able to bring to market new technologies much faster than previously to better compete with Samsung and Apple.
    If the deal is agreed upon by the Nokia shareholders, this will be the first time that Microsoft has owned both the software and hardware side of a product. This fact will enable them to better compete against companies like Apple that have always had that benefit.

    More Choices and Better Competition

    Combining hardware and software into one company will give consumers a better alternative to Apple and Google devices. Microsoft believes that they will benefit from less expensive phones with more innovation. Microsoft can also put more money into designing and improving new platforms when all of the profit goes to the company. It will have a higher gross margin on each phone that is sold, which will allow the company to put more of the money back into the development and marketing of the products.

    Rumors Abound
    Along with the many other benefits the two companies can enjoy from working together, there is the rumor of Nokia CEO Stephen Elop being considered for Ballmer’s position once he retires. Elop is a former Microsoft executive and has extensive knowledge of the cell phone industry, a problem area for the company.
    Ballmer denies any change in the process of selecting a candidate and has said that the company will be looking at both internal and external candidates.
    This move by Microsoft proves that the company can make bold decisions and may end up being one of the best made by Ballmer.

    @sociallygeek

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