Microsoft To Buy Nokia’s Mobile Business For $5B
9/03/2013 @ 12:52AM |10,318 views
Microsoft To Buy Nokia’s Mobile Business For $5B, License Patents For $2.2B
Less than two weeks after Microsoft MSFT -0.45% announced its CEO was set to retire, the company has announced another sweeping change: it’s buying Nokia NOK -2.5%‘s storied handset business for 3.79 billion euros ($5 billion), licensing its patents and boldly challenging Samsung and Apple in the battle to win the global smartphone market.
The announcement brings an end to Nokia’s three-decades-long adventure selling mobile phones, as well as speculation about a future sale to Redmond, dating back to the moment Nokia announced a former Microsoft executive, Stephen Elop, would take the reins in September 2010. That speculation intensified five months later when Elop announced a strategic partnership between Nokia and Microsoft, in which Nokia would use Windows Phone as its primary operating system.
Microsoft said Monday that Elop would now step down as CEO of Nokia and return to Microsoft as vice president of the company’s “devices” team.
It added that the transaction would see Nokia’s flagship Lumia brand of smartphones and the low-cost Asha line, transfer to its ownership. The acquisition would close in the first quarter of 2014, subject to approval by Nokia’s shareholders and regulators, and be “significantly accretive” to earnings.
Nokia will hold a press conference Tuesday, Sept. 3, at 11am local time in Finland, and an extraordinary-shareholders’ meeting on Nov. 19th.
“It’s a bold step into the future – a win-win for employees, shareholders and consumers of both companies,” Microsoft’s outgoing chief executive, Steve Ballmer, said in an official statement. History may look back on the deal as Ballmer’s swan song.
Forbes contributor Tero Kuittinen called Nokia’s price tag “shockingly low,” considering that the company’s Lumia range has gained some traction recently; it sold roughly 7.4 million units in the second quarter of 2013. But he points out that the company’s Asha range of low-cost phones may have come under pricing pressure from cheaper Android phones being shipped to emerging markets.
The $5 billion price tag for Nokia’s handset unit is indeed less than the $8.5 billion in cash that Microsoft paid for Skype in 2011.
At the close of the transaction, Microsoft expects approximately 32,000 people from Nokia to become its employees, including 4,700 people in Finland and 18,300 people “directly involved in manufacturing, assembly and packaging of products worldwide.” The company said these transferring operations generated roughly 14.9 billion euros ($19.7 billion) or about half of Nokia’s net sales for fiscal year 2012.
The remnants of Nokia will be effectively be a telecoms equipment company. It will retain ownership of the company’s patent portfolio, and license them to Microsoft for a 10-year period, as part of a separate, $2.2 billion patent deal. Microsoft will also license technology from Nokia’s proprietary mapping platform, known as HERE, for four years.
Microsoft is additionally granting Nokia a 1.5 billion euro ($2 billion) loan in the form of convertible notes, which Microsoft says it will fund from “overseas resources.”
Microsoft had reportedly come close to buying Nokia’s mobile business earlier this year, but the talks are said to have fallen through.
UPDATE, Sept. 2 21:56 PST: Steve Ballmer sent the following e-mail out to Microsoft employees about two hours ago:
From: Steve Ballmer
To: MS FTEs
Date: Sep. 2, 8:00 PM PDT (Sep. 3, 6:00 AM EET)
Subject: Accelerating Growth
We announced some exciting news today: We have entered into an agreement to purchase Nokia’s Devices & Services business, which includes their smartphone and mobile phone businesses, their award-winning design team, manufacturing and assembly facilities around the world, and teams devoted to operations, sales, marketing and support.
For Microsoft, this is a bold step into the future and the next big phase of the transformation we announced on July 11.
We are very excited about the proposal to bring the best mobile device efforts of Microsoft and Nokia together. Our Windows Phone partnership over the past two and half years has yielded incredible work – the stunning Lumia 1020 is a great example. Our partnership has also yielded incredible growth. In fact, Nokia Windows Phones are the fastest-growing phones in the smartphone market.
Now is the time to build on this momentum and accelerate our share and profits in phones. Clearly, greater success with phones will strengthen the overall opportunity for us and our partners to deliver on our strategy to create a family of devices and services for individuals and businesses that empower people around the globe at home, at work and on the go, for the activities they value most.
We have laid out Microsoft’s strategic rationale for this transaction in a presentation that I encourage you to read.
This is a smart acquisition for Microsoft, and a good deal for both companies. We are receiving incredible talent, technology and IP. We’ve all seen the amazing work that Nokia and Microsoft have done together.
Given our long partnership with Nokia and the many key Nokia leaders that are joining Microsoft, we expect a smooth transition and great execution.
As is always the case with an acquisition, the first priority is to keep driving through close, which we expect in the first quarter of 2014, following approval by Nokia’s shareholders, regulatory approvals, and other closing conditions.
But I also know people will have some questions about what happens post-close. While details aren’t final, here is what we know, and how we’re generally approaching integration:
1. Stephen Elop will be coming back to Microsoft, and he will lead an expanded Devices team, which includes all of our current Devices and Studios work and most of the teams coming over from Nokia, reporting to me.
2. Julie Larson-Green will continue to run the Devices and Studios team, and will be focused on the big launches this fall including Xbox One and our Surface enhancements. Julie will be joining Stephen’s team once the acquisition closes, and will work with him to shape the new organization.
3. As part of the acquisition, a number of key engineering leaders will be joining Microsoft from Nokia, reporting to Stephen in his new capacity:
· Jo Harlow, who will continue to lead the Smart Devices team
· Timo Toikkanen, who will continue to lead the Mobile Phones team
· Stefan Pannenbecker, who will lead Design
· Juha Putkiranta, who will lead the integration effort on Nokia’s behalf
4. Regarding the sales team, we plan to keep the Nokia field team, led by Chris Weber, intact and as the nexus of the devices sales effort, so that we can continue to build sales momentum. After the deal closes, Chris and his team will be placed under Kevin Turner. We will develop a single integrated team that is selling to operators, and there may be other integration opportunities that we can pursue. Kevin will work with Chris Weber and Chris Capossela to make those plans.
5. Our operating system team under Terry Myerson will continue unchanged, with a mission of supporting both first-party and third-party hardware innovation. We are committed to working with partners, helping them build great products and great businesses on our platform, and we believe this deal will increase our partner value proposition over time. The established rhythms and ways of working between Terry and his team and the incoming Nokia team will serve us well to ensure that we do not disrupt our building momentum.
6. We are planning to integrate all global marketing under Tami Reller and Mark Penn. It is very important that we pursue a unified brand and advertising strategy as soon as possible.
7. Finance, Legal, HR, Communications, DX / Evangelism, Customer Care and Business Development will integrate functionally at Microsoft. Sourcing, customer logistics and supply chain will be part of Stephen’s Devices organization. ICM / IT will also integrate functionally for traditional IT roles. We will need to work through the implications for factory systems given the differing manufacturing processes and systems at both Nokia and Microsoft.
8. We plan to pursue a single set of supporting services for our devices, and we will figure out how to combine the great Nokia efforts into our Microsoft services as we go through the integration process.
9. There are no significant plans to shift where work is done in the world as we integrate, so we expect the Nokia teams to stay largely in place, geographically.
10. Tom Gibbons will lead the integration work for Microsoft.
While today’s announcement is big news, we have to stay heavily focused on running the current business. We have a huge fall and holiday season ahead of us, so we need to execute flawlessly and continue to drive our business forward. I have no doubt we will.