Microsoft tipped to rescue Nokia from ‘burning platform’

Analysts have attributed Nokia’s decline in large part to its late response to Apple, whose iPhone redefined the smartphone market in 2007, and some see a marriage with Microsoft as possibly a last chance to turn the group around.

Microsoft is already paying the Finnish company $1 billion (£619m) a year to use its software on Nokia’s Lumia smartphones. And investment bankers familiar with the technology sector said the support could extend well beyond that amount, if the company’s problems intensify.

Addressing Nokia employees in January 2011, Nokia chief executive Stephen Elop – at that point only four months into the job – dramatised the company’s predicament by comparing it to standing on a burning platform.

Nearly a year and a half on, and with Nokia’s Lumia mobile phone range failing so far to revive sales, its position still looks frail. Its shares have lost 90 per cent in five years and its debt is rated junk by two of the three major ratings agencies.

It is thought that Microsoft, Elop’s former employer, could step in to help Nokia out, seeing the Finnish company as a valuable point of entry into the mobile phone market.

For Microsoft the relationship is important, because Nokia was its first major break into the smartphone market after a decade of heavy investment. During that period other mobile phone makers either chose to use their own software – as did Apple – or favoured Google’s Android operating system.

“If Nokia ends up in financial difficulties I believe the helping hand would be there,” said Sami Sarkamies, an analyst at Nordea.

“I don’t see Microsoft owning Nokia, but it would definitely provide financing to the tune of a couple of billion dollars,” said one veteran technology banker.

Any Microsoft support for Nokia would be more likely to take the form of an inter-company loan, or an equity stake, rather than a full takeover, a second banker said.

Even though Microsoft has nearly $60bn of cash on its balance sheet, the company has traditionally steered clear of the hardware business, because it does not want to compete with the manufacturers that use its software.

Yet other priorities may override that consideration.

At the same time, some bankers said they thought Nokia, which has a market value of €9.3bn (£7.5bn), was an unlikely target for other mobile phone manufacturers because of its deep integration with Microsoft.

“I don’t see it as a target for private equity either. It is still too expensive and too volatile,” said a third banker.

It is understood that Nokia is in talks to sell its British luxury subsidiary Vertu, which makes some of the world’s most expensive mobile phones – but it is not expected to raise enough cash to make a material difference to the Nokia’s finances.

Nokia and Microsoft declined to comment.