Microsoft To Buy Nokia's Mobile Business For $5B, License Patents For $2.2B

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Microsoft To Buy Nokia's Mobile Business For $5B, License Patents For $2.2B Empty Microsoft To Buy Nokia's Mobile Business For $5B, License Patents For $2.2B

Post  Nilesh Patel on Mon Sep 09, 2013 6:41 pm

Less than two weeks after Microsoft announced its CEO was set to retire, the company has announced another sweeping change: it’s buying Nokia ‘s storied handset business for 3.79 billion euros ($5 billion), licensing its patents and boldly challenging Samsung and Apple in the battle to win the global smartphone market.

Microsoft To Buy Nokia's Mobile Business For $5B, License Patents For $2.2B 300x2001

The announcement brings an end to Nokia’s three-decades-long adventure selling mobile phones, as well as speculation about a future sale to Redmond, dating back to the moment Nokia announced a former Microsoft executive, Stephen Elop, would take the reins in September 2010. That speculation intensified five months later when Elop announced a strategic partnership between Nokia and Microsoft, in which Nokia would use Windows Phone as its primary operating system.

Microsoft said Monday that Elop would now step down as CEO of Nokia and return to Microsoft as vice president of the company’s “devices” team.

It added that the transaction would see Nokia’s flagship Lumia brand of smartphones and the low-cost Asha line, transfer to its ownership. The acquisition would close in the first quarter of 2014, subject to approval by Nokia’s shareholders and regulators, and be “significantly accretive” to earnings.

Nokia will hold a press conference Tuesday, Sept. 3, at 11am local time in Finland, and an extraordinary-shareholders’ meeting on Nov. 19th.

“It’s a bold step into the future – a win-win for employees, shareholders and consumers of both companies,” Microsoft’s outgoing chief executive, Steve Ballmer, said in an official statement. History may look back on the deal as Ballmer’s swan song.

Forbes contributor Tero Kuittinen called Nokia’s price tag “shockingly low,” considering that the company’s Lumia range has gained some traction recently; it sold roughly 7.4 million units in the second quarter of 2013. But he points out that the company’s Asha range of low-cost phones may have come under pricing pressure from cheaper Android phones being shipped to emerging markets.

The $5 billion price tag for Nokia’s handset unit is indeed less than the $8.5 billion in cash that Microsoft paid for Skype in 2011.

At the close of the transaction, Microsoft expects approximately 32,000 people from Nokia to become its employees, including 4,700 people in Finland and 18,300 people “directly involved in manufacturing, assembly and packaging of products worldwide.” The company said these transferring operations generated roughly 14.9 billion euros ($19.7 billion) or about half of Nokia’s net sales for fiscal year 2012.

The remnants of Nokia will be effectively be a telecoms equipment company. It will retain ownership of the company’s patent portfolio, and license them to Microsoft for a 10-year period, as part of a separate, $2.2 billion patent deal. Microsoft will also license technology from Nokia’s proprietary mapping platform, known as HERE, for four years.

Microsoft is additionally granting Nokia a 1.5 billion euro ($2 billion) loan in the form of convertible notes, which Microsoft says it will fund from “overseas resources.”

Microsoft had reportedly come close to buying Nokia’s mobile business earlier this year, but the talks are said to have fallen through.

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