Nokia sells handset business to Microsoft

By Danielle Middleton topicIcon Internet News

Nokia sells handset business for $7.2bn

Nokia has sold its entire mobile enterprise to Microsoft in a multi-billion dollar deal between the two.

Microsoft announced that the deal will see the Windows corporation acquire "substantially all of Nokia's Devices & Services business, license Nokia's patents, and license and use Nokia's mapping services", and Nokia's CEO Stephen Elop step aside to become Vice President of Services & Devices at Microsoft.

Microsoft, who has been competing with rivals Apple in the smartphone and tablet market, has purchased the handset manufacturing company for $7.2bn (£4.62bn). The move comes after Nokia signed a deal with Microsoft back in February 2011, committing to a Windows Phone operating system rather than Google Android.

A long time coming

In 2010, Stephen Elop moved from Microsoft's business software division to become Nokia's CEO; during the three years since his move the company's market share has collapsed and its share price has buckled as investors lacked faith in his strategy proposal.

The mobile company's hold of the handset market share has dropped from 40 per cent in 2007 to a mere 15 per cent, with an even smaller 3 per cent in smartphones. And while overall sales have dropped by 27 per cent on last year, sales of the Nokia Lumia with Windows OS have risen.

Speculation over the pairing has been predominantly positive as news of the deal, which is set to be completed in early 2014, has already inspired a 45 per cent rise in Nokia's shares.

Better prepared for the future

Despite Microsoft releasing their own Surface tablet in 2012, the company have still struggled to compete on the same level as Apple and Samsung in the smart device market, including its mobile technology.

In a statement to the BBC, Ben Wood, an analyst at telecoms consultancy CCS Insight said: "It's a necessary gamble by Microsoft to break into mobile, but given its complete reliance on Nokia for Windows Phone devices and the competitive position of Apple and Google with rival phone platforms an understandable move.

"It completely reshapes Microsoft's business pushing it firmly into hardware. But it also raises big questions about the sustainability of other firms, including HTC and Blackberry, remaining pure-play phone makers."

Tighter integration and management changes are thought to be the key for the success of both firms in the future. The move will also see 32,000 Nokia employees transfer to Microsoft, who have signed a deal with the mobile company to allow Microsoft to use its mobile brand on handsets for the next decade.

Daniel Nolan, managing director at theEword said: "Between them they have a huge amount of expertise and resources at hand. Microsoft buying Nokia's handset business puts them in a strong position, and as Nokia have already had experience as leaders in the mobile market, there is no reason that the next five years couldn't see a change in the structure of dominant mobile players."