Microsoft to pick up Nokia’s phone business

Microsoft chief executive Steve Balmer, left, and Nokias Stephen Elop unveiled the Microsoft powered handset last year. Picture: Getty

The deal, which follows two years of collaboration that saw Nokia devices using Microsoft’s Windows operating system, follows a spectacular fall from grace for the firm that was once the world’s dominant mobile phone maker.

But for Microsoft the buyout provides a cheap way to catch up with Apple and Google and emulate their model of selling integrated devices and software.

It also takes Nokia’s Canadian boss Stephen Elop back to Seattle, with analysts touting him to take control of the enlarged firm when outgoing chief executive Steve Ballmer leaves next year.

Elop ran Microsoft’s business software division before jumping to Nokia in 2010, prompting accusations in Nokia’s native Finland today that he was a “Trojan horse”.

Ishaq Siddiqi, market strategist at ETX Capital, said Elop was always aware that Microsoft wanted to enter the smartphone market, but the Canadian had also ensured a favourable outcome for Nokia’s long-suffering shareholders.

“Aside from the fact that the price-tag is a tasty deal for Microsoft, the agreement is mutually beneficial,” Siddiqi said.

He said shareholders at both companies will welcome the news and are likely to show little or no opposition to the agreement. Siddiqi added: “For the broader market, it’s encouraging news too – deal activity is back on board this year in a sign of corporate confidence.”

Nokia shares shot up after the deal was announced, leaving the firm’s many detractors nursing deep losses on “short” positions.

The Finnish firm, which started life as a paper mill in 1865, is left with a networks business and a portfolio of patents, to which Microsoft has access.

Investors had ascribed little remaining value to the phone business, which has seen its 40 per cent share of the world market in 2007 decline to some 15 per cent today, with just 3 per cent of the more lucrative smartphones segment.

However, Victor Basta, managing director of technology industry M&A broker Magister Advisors, believes Microsoft played a hard game to pick up its target at a very favourable price.

He said: “Microsoft effectively ‘acquired’ Nokia several months ago when it entered into a deal to license Windows Mobile, making Nokia entirely reliant on Microsoft’s software for its mobile future. Nokia’s value has eroded progressively since, making the actual deal to acquire the mobile business even more attractive now for Microsoft.”

But he said the “burning question” for the new owner is whether Nokia’s lost market share and prestige can be regained.

“The risk for Microsoft is that this deal is a me-too strategy on the heels of Google’s deal with Motorola and a fundamental recognition that Apple’s content and hardware ecosystem is the only model that can work. In fact Microsoft is attempting to ‘recreate Apple’ by combining its software and hardware under one roof.”