After all the rumours, speculation and counter-rumours, it has finally come to pass: Nokia is selling its devices and services business to Microsoft for €5.46 billion ($7.2 billion) and will focus on network equipment, mapping and location technology and licensing in future.
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In some ways the deal is a surprise, in other ways it is the inevitable conclusion of a series of events that started in 2010 with the appointment of former Microsoft executive Stephen Elop as CEO of the Finnish mobile device manufacturer.
Nokia subsequently abandoned its own attempts at building a mobile operating system to match iOS and Android, instead adopting Microsoft's Windows Phone as the basis for its new Lumia smartphones. More recently, Nokia acquired Siemens' 50 per stake in network equipment manufacturer Nokia Siemens Networks--now Nokia Solutions and Networks (but still NSN) --raising further questions over the future of the devices unit.
Some analysts say this is a necessary next stage in Microsoft's mobile phone strategy and regard it as a positive step for Microsoft. "With mobile now firmly positioned as the world's fastest-growing and largest computing platform, we see this move as a bold but entirely necessary gamble by Microsoft," said CCS Insight in a research note. "Mobile needs to be a cornerstone of Microsoft's business for future success."
However, competing against Apple and Android will still be no easy matter, as pointed out by Magister Advisors, M&A advisors to the technology industry: "A 'me too' strategy, catching up with Apple is not likely to succeed," the company said in a research note. "Microsoft needs its own strategy in the marketplace, and Nokia alone will not deliver that strategy."
While noting that the deal "is still by no means a silver-bullet solution to Nokia and Microsoft's current difficulties," CCS Insight said the decision should also be positive for Nokia, which never seemed to come close to regaining its lost position in the smartphone race as the iPhone and Android smartphones vendors powered ahead.
Yet a quick glance at Finnish newspaper headlines reveals how much of a blow this deal is to people in Finland themselves. As Reuters puts it, "the fact that a former Microsoft executive had come to Nokia, bet the firm's future on an alliance with Microsoft, laid off about 40,000 worldwide and then delivered it into Microsoft's hands, was a galling snub to national pride."
Rubbing more salt into the wound, Elop is set to return to Microsoft to run the former Nokia unit once the deal closes, and is seen by some as a future CEO of the US giant; current CEO Steve Ballmer has said he will retire within the next 12 months, and has acknowledged that Elop is a candidate to succeed him. Elop will become executive vice president of Nokia's devices and services unit, reporting to interim CEO Risto Siilasmaa; Elop relinquished the CEO role to avoid conflicts of interest.
Furthermore, when the deal closes approximately 32,000 people are expected to transfer to Microsoft, including around 4,700 people in Finland, Nokia said.
Finnish tabloid Ilta-Sanoma goes further still, accusing former Nokia CEO Jorma Ollila of bringing a "Trojan horse" into Nokia in the form of Elop, who then proceeded to sell the devices and services units for "peanuts," as Juha Varis, Danske Capital's senior portfolio manager, told Reuters.
"As a Finnish person, I cannot like this deal. It ends one chapter in this Nokia story," said Varis, whose fund owns Nokia shares, and who was critical of Nokia's decision to adopt Windows Phone. "On the other hand, it was maybe the last opportunity to sell it."
Even Siilasmaa illustrated how grudgingly the call to sell had been arrived at, Reuters reported, describing how the board had met almost 50 times after the approach by Microsoft as it explored alternatives to a sale.
"Selling businesses is not nearly as cool, but sometimes it is the right course of action," Siilasmaa said during a press conference that was also broadcast on the Internet, noted AllThingsD. "It was a very emotional decision for me."
It will be a difficult and emotional time for the Finnish population, many of whom will have worked for the former mobile giant at some point in their lives: Nokia has been in existence for around 150 years, although of course it did not start life as a mobile phone manufacturer. In fact it started out as a paper mill, later moving into the production of rubber items such as galoshes and tyres. The company gained the Nokia name in 1871, after founder Fredrik Idestam established a second paper mill on the banks of the river Nokianvirta.
Nokia branched out into electronics in the 1960s, and began developing radio telephones for the army and emergency services in 1963. The first handheld mobile phone, the Mobira Cityman, was launched in 1987 and ran on the Nordic Mobile Telephone (NMT) service, which was the world's first international cellular network.
Nokia's future lies in Nokia Solutions and Networks, which provides network equipment to carriers; HERE, which sells mapping and location services; and the new Advanced Technologies, which Nokia said "will explore new business opportunities through advanced research, development and concept products in areas such as connectivity, sensing and material technologies, as well as web and cloud technologies." Nokia also said Advanced Technologies will handle the company's patent portfolio.
According to Reuters, some analysts say the sale of the devices unit is extremely beneficial to the remaining group's assets: "The sum-of-the-parts valuation has been indicating for some time that the handset business was polluting the value of the other assets," analyst Richard Windsor of Radio Free Mobile wrote in a note, Reuters reported. "Nokia shareholders are the big winners."
For more:
- see this Reuters article
- see this Bloomberg article
- see this AllThingsD article
- see this Nokia timeline
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