Microsoft Snaps Up Nokia Hardware, Services Unit in $7.1 Billion Deal

The struggling handset maker gets snapped up by Microsoft to bolster the software giant's transformation into a devices and services company.

Microsoft is acquiring Nokia's Devices & Services business for 3.79 billion euros, or an estimated $5 billion, the companies announced late Monday, Sept. 2.

The software giant is also paying Nokia 1.65 billion euros, or $2.1 billion, to license the Finnish device manufacturer's patents and mapping technologies. Nokia will also assign to Microsoft its long-term patent licensing agreement with chip maker Qualcomm as part of the deal.

In total, the all-cash deal is valued at $7.1 billion. The companies expect the transaction to close during the first quarter of 2014, pending Nokia shareholder and regulatory approvals. Nokia president and CEO Stephen Elop will transition to Microsoft as executive vice president of Nokia Devices & Services.

The move comes a few months after rumors surfaced that the companies held advanced talks to sell Nokia's device unit to Microsoft. Negotiations reportedly fell apart due to a failure to agree on a price. "Redmond, Wash.-based Microsoft eventually walked away from the deal in part because of the price and Nokia's own strategic predicament—where it ranks as a trailing player to Apple and Samsung," stated a June 19 report in The Wall Street Journal.

Microsoft and Nokia seem to have settled on an agreeable figure. "After a thorough assessment of how to maximize shareholder value, including consideration of a variety of alternatives, we believe this transaction is the best path forward for Nokia and its shareholders," said Nokia's chairman of the Board of Directors and newly appointed interim CEO, Risto Siilasmaa, in a statement.

"Additionally, the deal offers future opportunities for many Nokia employees as part of a company with the strategy, financial resources and determination to succeed in the mobile space," Siilasmaa said. Nokia will be "focused on enabling mobility through its leadership in networking, mapping & location, and advanced technologies," Microsoft's soon-to-retire CEO Steve Ballmer and Elop jointly stated in an open letter related to the acquisition.

Referencing the massive Microsoft reorganization Ballmer announced last month, he described the move as "a bold step into the future and the next big phase of the transformation we announced on July 11," in a separate email to staffers. He added that the deal 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," Ballmer said.

"Microsoft will draw upon its overseas cash resources to fund the transaction," the companies announced. According to the Journal report, Microsoft is sitting on a $66 billion offshore war chest.

Nokia is Microsoft's top Windows Phone partner and producer. In early 2011, the tech heavyweights, both struggling to catch up to Apple and Google in the mobile device market, announced an alliance where Windows Phone would essentially replace Symbian as Nokia's smartphone operating system.

Windows Phone shipments surpassed BlackBerry during the second quarter of 2013 to take the No. 3 spot behind Google Android and Apple iOS, according to IT market research firm IDG. Nokia shipped 81.6 percent of all Windows Phone smartphones during the period.

During the same quarter, the Windows Phone-powered Nokia Lumia line experienced an encouraging 32 percent year-over-year uptick in sales (7.4 million units). Nonetheless, the company still racked up a $298 million in losses.

Pedro Hernandez

Pedro Hernandez

Pedro Hernandez is a contributor to eWEEK and the IT Business Edge Network, the network for technology professionals. Previously, he served as a managing editor for the network of...