Software giant Microsoft is to take a dive into hardware for the mobile market after announcing today a proposal to acquire Nokia’s Device & Services business for about EUR 3.79 billion (R73billion).
The move is a bold initiative by Microsoft to catch up with leaders, Samsung and Apple and also advances made by its nemesis Google in the lucrative smart mobile devices market. Microsoft has in the past few days made strong indications of wanting to shake off inertia of the recent past.
The Nokia announcement comes shortly after Microsoft announced that Steve Ballmer who took over as CEO from founder Bill Gates in 2000 plans to retire within the next twelve month.
Microsoft and Nokia announced today the proposed deal which will see Microsoft purchase “substantially all of Nokia’s Devices & Services business, license Nokia’s patents, and license and use Nokia’s mapping services”.
The companies’ announcement said “Under the terms of the agreement, Microsoft will pay EUR 3.79 billion to purchase substantially all of Nokia’s Devices & Services business, and EUR 1.65 billion to license Nokia’s patents, for a total transaction price of EUR 5.44 billion in cash”.
The transaction is a follow up from the Microsoft/Nokia partnership launched in 2011 which produced Nokia’s Lumia smartphones.
“Microsoft aims to accelerate the growth of its share and profit in mobile devices through faster innovation, increased synergies, and unified branding and marketing. For Nokia, this transaction is expected to be significantly accretive to earnings, strengthen its financial position, and provide a solid basis for future investment in its continuing businesses”.
Departing Microsoft CEO Steve Ballmer said “It’s a bold step into the future – a win-win for employees, shareholders and consumers of both companies. Bringing these great teams together will accelerate Microsoft’s share and profits in phones, and strengthen the overall opportunities for both Microsoft and our partners across our entire family of devices and services”.
In addition to their innovation and strength in phones at all price points, Nokia brings proven capability and talent in critical areas such as hardware design and engineering, supply chain and manufacturing management, and hardware sales, marketing and distribution.”
“We are excited and honored to be bringing Nokia’s incredible people, technologies and assets into our Microsoft family. Given our long partnership with Nokia and the many key Nokia leaders that are joining Microsoft, we anticipate a smooth transition and great execution,” Ballmer said. “With ongoing share growth and the synergies across marketing, branding and advertising, we expect this acquisition to be accretive to our adjusted earnings per share starting in FY15, and we see significant long-term revenue and profit opportunities for our shareholders.”
Risto Siilasmaa, Chairman of the Nokia Board of Directors said “For Nokia, this is an important moment of reinvention and from a position of financial strength, we can build our next chapter”.
“After a thorough assessment of how to maximize shareholder value, including consideration of a variety of alternatives, we believe this transaction is the best path forward for Nokia and its shareholders. Additionally, the deal offers future opportunities for many Nokia employees as part of a company with the strategy, financial resources and determination to succeed in the mobile space.”
Once thee giant in the mobile phone space which produced the world’s best selling mobile phone in 2003, Nokia has almost stagnated in recent years after failing to make a convincing adaptation from feature phone into the smart mobile device.
However the 142 years old Finland based firm can perhaps count on a history full of miraculous transformations. Nokia was established in 1871 as a paper milling operation and evolved to produce rubber boots, tyres, cables, TVs.