Nokia to sell handset business to Microsoft for $7.2 billion
Nokia, which will continue to make networking
equipment and hold patents, was once the
world's dominant handset maker but was long
since overtaken by Apple ( AAPL.O ) and Samsung (005930.KS) in the highly competitive market for more powerful smartphones. Nokia's Canadian boss Stephen Elop, who ran
Microsoft's business software division before
jumping to Nokia in 2010, will return to the U.S.
firm as head of its mobile devices business - a
Trojan horse, according to disgruntled Finnish
media. He is being discussed as a possible replacement
for Microsoft's retiring CEO Steve Ballmer, who is
trying to remake the U.S. firm into a gadget and
services company like Apple before he departs,
though it has fallen short so far in its attempts to
compete in mobile devices. "It's very clear to me that rationally this is the
right step going forward," Elop told reporters,
though he added he also felt "a great deal of
sadness" over the outcome. In three years under Elop, Nokia saw its market
share collapse and its share price shrivel. In 2011, after writing a memo that said Nokia
was falling behind and lacked the in-house
technology to catch up, Elop made the
controversial decision to use his former firm
Microsoft's Windows Phone for smartphones,
rather than Nokia's own software or Google's (GOOG.O) ubiquitous Android operating system. Nokia, which had a 40 percent share of the
handset market in 2007, now has a mere 15
percent share, with an even smaller 3 percent in
smartphones. Shares in Nokia surged 39 percent to 4.10 euros
on Tuesday as investors who had borrowed and
sold the stock to bet on further price falls rushed
to buy back to limit their losses. They are still only
a fraction of their 2000 peak of 65 euros. After today's gains the whole company is worth
about 15 billion euros, a far cry from its glory
days, when it peaked at over 200 billion euros. Microsoft shares in Frankfurt were down about
2.2 percent. GRAPHIC - Nokia's numbers: link.reuters.com/ sus72v Interactive look at Nokia: link.reuters.com/guz42t GRAPHIC: Microsoft's share price foundered under
Ballmer link.reuters.com/cyd62v SOLD FOR "PEANUTS" The sale of the handset business is not the first
dramatic turn in the 148-year history of a
company that has sold everything from television
sets to rubber boots, but it was taken as a hard
blow in its native Finland. For many Finns, the fact that a former Microsoft
executive had come to Nokia, bet the firm's
future on an alliance with Microsoft, laid off tens
of thousands and then delivered it into
Microsoft's hands, was a galling snub to national
pride. "(Elop's predecessor) Jorma Ollila brought a
Trojan horse to Nokia," widely read tabloid Ilta-
Sanoma declared in a column. Ollila built Nokia
into a global powerhouse but was blamed for
being late to recognise the threat of Apple's
iPhone and the smartphone revolution. "As a Finnish person, I cannot like this deal. It
ends one chapter in this Nokia story," said Juha
Varis, Danske Capital's senior portfolio manager,
whose fund owns Nokia shares. "On the other
hand, it was maybe the last opportunity to sell it." Varis was one of many investors critical of Elop's
decision to bet Nokia's future in smartphones on
Microsoft's Windows Phone software, which
was praised by tech reviewers but hasn't found
the momentum to challenge the market leaders. "So this is the outcome: the whole business for 5
billion euros. That's peanuts compared to its
history," he said. Alexander Stubb, Finland's Minister for European
Affairs and Foreign Trade, said on his Twitter
account: "For a lot of us Finns, including myself,
Nokia phones are part of what we grew up
with. Many first reactions to the deal will be
emotional." Nokia's new interim CEO Risto Siilasmaa painted a
picture of just how grudgingly the call to sell had
been arrived at, describing how the board had
met almost 50 times after the approach by
Microsoft as it explored alternatives to a sale. Ballmer, at a news conference in the Finnish
capital, sought to assuage fears the deal would
hit jobs in the Nordic country and said Microsoft
would build on the recent growth of Nokia's
flagship Lumia smartphones. Nokia said it expected around 32,000 people of
its roughly 90,000 worldwide staff would
transfer to Microsoft, including about 4,700 who
will transfer in Finland. PIVOTAL MOMENT It is also a pivotal moment for Microsoft, which
still has huge revenues from its Windows
computer operating system, Office suite of
business software and the X-Box game console,
but has failed so far to set up a profitable mobile
device business. Microsoft's own mobile gadget, the Surface tablet,
has sold tepidly since it was launched last year. "It's a bold step into the future - a win-win for
employees, shareholders and consumers of both
companies," Ballmer said in a statement. "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." The move leaves the Finnish company with
Nokia Solutions and Networks, which competes
with the likes of Ericsson (ERICb.ST) and Huawei (002502.SZ) in telecoms equipment, as well as a navigation business and a broad portfolio of
patents, which will be licensed to Microsoft. The Nokia deal thrusts Microsoft deeper into the
hotly contested mobile phone market, despite
some investors urging it to stick to its core
strengths of business software and services. Elop will return to Microsoft as its board ponders
a successor to Ballmer, who will depart in the
next 12 months. Activist fund manager ValueAct Capital
Management, which has been offered a board
seat, is among those concerned with Ballmer's
leadership and his attempts to plough headlong
into the lower-margin, highly competitive mobile
devices arena. Others applauded Ballmer's aggressive gambit. "Microsoft cannot walk away from smartphones,
and the hope that other vendors will support
Windows Phone is fading fast. So buying Nokia
comes at the right time," said Carolina Milanesi, an
analyst at Gartner. "In today's market it is clear that a vertical
integration is the way forward for a company to
succeed. How else could Microsoft achieve this?" As part of Microsoft, Elop will head an expanded
Devices unit. Julie Larson-Green, who in July was
promoted to head a new Devices and Studios
business in Ballmer's reorganisation, will report
to Elop when the deal is closed. FIRE SALE Analyst Tero Kuittinen at consultancy Alekstra
said the sale price of Nokia's phone business,
about a quarter of its sales last year, represented
a "fire sale level", though others were less clear
about what a shrunken Nokia was worth. "What should be paid for a declining business,
where market share has been constantly lost and
profitability has been poor?" said Hannu Rauhala,
analyst at Pohjola Bank. "It is difficult to say if it's
cheap or expensive." Nokia is still the world's No. 2 mobile phone
maker behind Samsung, but it is not in the top
five in the more lucrative and faster-growing
smartphone market. Sales of Nokia's Lumia series have helped the
market share of Windows Phones in the global
smartphone market climb to 3.3 percent,
according to consultancy Gartner, overtaking
ailing BlackBerry Ltd (BB.TO) for the first time this year. Still, Google Inc's (GOOG.O) Android and Apple's iOS system make up 90 percent of the
market. Nokia said in a statement it expected that, apart
from Elop, senior executives Jo Harlow, Juha
Putkiranta, Timo Toikkanen, and Chris Weber
would transfer to Microsoft when the deal is
concluded. It did not say what roles they would
take there. The deal is expected to close in the first quarter of
2014, subject to approval by Nokia shareholders
and regulators. (Additional reporting by Terhi
Kinnunen, Jussi Rosendahl and Niklas Pollard;
Editing by Peter Graff and Will Waterman) source
Nokia to sell handset business to Microsoft for .2 billion| Reuters