Microsoft buys (and rescues) flailing Nokia
Philip Ellison 05 September, 2013 at 06:09
The tech story on everybody’s lips this week is the acquisition of embattled mobile company Nokia by Microsoft, for £4.61 billion. Risto Siilasmaa, chairman for the Finnish company, called the move “emotional”, as it effectively means stepping away from the mobile phone industry that Nokia once helped propel. Says Siilasmaa: “The industry is becoming a duopoloy with the leaders building significant financial momentum. Nokia alone doesn’t have the resources to fund the required acceleration.”
Microsoft’s decision to buy Nokia, a notoriously underperforming company, has been questioned by some, and this is reflected in a 4.5% drop in share prices. However, Todd Lowenstein, portfolio manager at HighMark Capital Management believes that Microsoft “can in all likelihood carve out a decent niche with their scale as a fully integrated player.”
Prior to 2007, Nokia was a leader in the mobile market. Then Apple unveiled the iPhone, and nothing was ever the same again. Since then, other companies like Samsung have taken up more and more of Nokia’s market share. Nokia CFO Timo Ihamuotila has described the acquisition as “rationally, the right step”, but “emotionally, more complex.”
So what’s next?
It has been reported that Nokia will retain its R&D, patent licensing and mobile network equipment business areas. 32,000 staff (out of 98,000) will be transferred to Microsoft when the deal is finalised in the first quarter of 2014. Microsoft will snap up the rights to Nokia’s design, manufacturing and sales operations, as well as the option to license Nokia patents and use the Nokia brand on handsets over the next ten years.
Whether the deal goes through or not, Microsoft are immediately providing Nokia with a €1.5 billion financing facility. This has been interpreted as just one more nail in the coffin for the Finnish company; without that cash injection, it would have had major difficulty raising finance on the bond markets.
Stephen Elop, who took over as Nokia’s chief executive three years ago, remains confident that Nokia will continue to be an accelerative force in the mobile phone world, with considerable more clout under the Microsoft umbrella. Elop was behind the decision to transition from Nokia’s native smartphone software to Microsoft, making this new leap less of a surprise. Says Elop: “We have been going faster than Nokia has ever gone before.”