The
deal will see Nokia’s current chief executive, Stephen Elop, join Microsoft and
makes him favourite to replace Steve Ballmer, who announced his retirement last
month. Labrokes said he was now 4/6 favourite to take the role, with Facebook’s
Sheryl Sandberg 7/1 and former Microsoft executive Steve Sinofsky 12/1.
Nokia’s
chairman, Risto Siilasmaa, admitted that the Finnish company’s effective exit
from the mobile phone business it pioneered was an “emotional” decision but
made financial and strategic sense.
He
said it lacked the resources to properly promote its Lumia smartphones, which
use Microsoft’s Windows Phone operating system, in a sector dominated by the
Apple iPhone and handsets running Google’s Android software, particularly
Samsung’s Galaxy range.
He
said: “The industry is becoming a duopoly with the leaders building significant
financial momentum. Nokia alone doesn’t have the resources to fund the required
acceleration.”
The
struggles of Nokia’s mobile phone business, which accounted for around half the
group’s revenues last year, have weighed heavily on profits. In the first half
of this year underlying margin was 4pc, it said, but would have been 12pc
without having to battle in the fiercely competitive sector.
The
company's shares were up more than 40pc following the announcement this
morning.
Nokia’s
chief financial officer Timo Ihamuotila said: “Rationally this transaction is
the right step but emotionally this transaction is more complex.”
When
the introduction of the iPhone sparked the mobile internet revolution in 2007,
Nokia was the biggest mobile phone maker. It has since ceded that position to
Samsung and its share of the crucial smartphone sector has dwindled from nearly
50pc to 3pc in the first half of this year, according to the industry analysts
Gartner.
Nokia
will retain its mobile network equipment business, NSN, its R&D and patent
licensing division, and Here, its location and mapping unit.
Some
32,000 of the company’s 98,000 staff will be transferred to Microsoft, when the
deal is completed in the first quarter of 2014.
Microsoft
will pay €3.79bn to buy Nokia’s mobile phone design, manufacturing and sales
operations, and €1.65bn to license Nokia’s patents for 10 years. It will also
be able to use the Nokia brand on handsets for 10 years.
Microsoft
immediately provide a €1.5bn financing facility to Nokia regardless of whether
the deal goes through, in an indication of the Finnish company’s poor health
and the difficulty it would have had raising cheap cash on the bond markets in
the midst of major corporate restructuring. If Nokia draws down the financing
it will repay it when the deal goes through.
The
deal is Microsoft’s most significant yet in its effort to break Apple and
Google’s stranglehold on the smartphone business. It did not introduce Windows
Phone until late 2010 and has struggled to haul back the lead established by
its rivals despite well-regarded software and heavy marketing investment.
Ownership
of a major device manufacturer will make its operation more comparable to those
of Apple and Google, which both make their own mobile hardware.
Ben
Wood, an industry analyst at CCS Insight, said: “With mobile now firmly
positioned as the world’s fastest growing and largest computing platform we see
this move as a bold, but entirely necessary gamble by Microsoft. Mobile needs
to be a cornerstone of Microsoft's business for future success.
“The
failure of Microsoft’s platform-only approach over the last 15 years, initially
with Windows Mobile and more recently with Windows Phone, has left it with few
alternatives given its almost complete reliance on Nokia for Windows Phone
devices and the competitive ecosystem strength of Google and Apple.
Mr
Elop, 49, who took the helm at Nokia three years ago, insisted the mobile phone
business would thrive and be seen as a stronger challenger under Microsoft
despite starting from "so far behind". The former Microsoft executive
dumped Nokia's own smartphone software and threw its lot in with the American
software giant, forging strategic links that culminated in today's acquisition.
He
said: “We have been going faster than Nokia has ever gone before. Achieving our
goal of becoming the third ecosystem is becoming very real.
Mr
Ballmer was at pains to reassure Finns, for whom Nokia's international success
has been a source of national pride, that Microsoft is “deeply committed to
Finland”.
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