Microsoft to acquire Nokia’s devices & services business, license Nokia’s patents and mapping services | News Center Microsoft to acquire Nokia’s devices & services business, license Nokia’s patents and mapping services Posted 0 REDMOND, Washington and ESPOO, Finland – Sept. 3, 2013 – Microsoft Corporation and Nokia Corporation today announced that the Boards of Directors for both companies have decided to enter into a transaction whereby Microsoft will purchase substantially all of Nokia’s Devices & Services business, license Nokia’s patents, and license and use Nokia’s mapping services. Under the terms of the agreement, Microsoft will pay EUR 3.79 billion to purchase substantially all of Nokia’s Devices & Services business, and EUR 1.65 billion to license Nokia’s patents, for a total transaction price of EUR 5.44 billion in cash. Microsoft will draw upon its overseas cash resources to fund the transaction. The transaction is expected to close in the first quarter of 2014, subject to approval by Nokia’s shareholders, regulatory approvals and other closing conditions.

Building on the partnership with Nokia announced in February 2011 and the increasing success of Nokia’s Lumia smartphones, Microsoft aims to accelerate the growth of its share and profit in mobile devices through faster innovation, increased synergies, and unified branding and marketing. For Nokia, this transaction is expected to be significantly accretive to earnings, strengthen its financial position, and provide a solid basis for future investment in its continuing businesses. “It’s a bold step into the future – a win-win for employees, shareholders and consumers of both companies. 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,” said Steve Ballmer, Microsoft chief executive officer. “In addition to their innovation and strength in phones at all price points, Nokia brings proven capability and talent in critical areas such as hardware design and engineering, supply chain and manufacturing management, and hardware sales, marketing and distribution.” “We are excited and honored to be bringing Nokia’s incredible people, technologies and assets into our Microsoft family. Given our long partnership with Nokia and the many key Nokia leaders that are joining Microsoft, we anticipate a smooth transition and great execution,” Ballmer said.

“With ongoing share growth and the synergies across marketing, branding and advertising, we expect this acquisition to be accretive to our adjusted earnings per share starting in FY15, and we see significant long-term revenue and profit opportunities for our shareholders.” “For Nokia, this is an important moment of reinvention and from a position of financial strength, we can build our next chapter,” said Risto Siilasmaa, Chairman of the Nokia Board of Directors and, following today’s announcement, Nokia Interim CEO. “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. 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.” “Building on our successful partnership, we can now bring together the best of Microsoft’s software engineering with the best of Nokia’s product engineering, award-winning design, and global sales, marketing and manufacturing,” said Stephen Elop, who following today’s announcement is stepping aside as Nokia President and CEO to become Nokia Executive Vice President of Devices & Services.

“With this combination of talented people, we have the opportunity to accelerate the current momentum and cutting-edge innovation of both our smart devices and mobile phone products.” Nokia has outlined its expected focus upon the closing of the transaction in a separate press release published today. TERMS OF THE AGREEMENT Under the terms of the agreement, Microsoft will acquire substantially all of Nokia’s Devices and Services business, including the Mobile Phones and Smart Devices business units as well as an industry-leading design team, operations including all Nokia Devices & Services-related production facilities, Devices & Services-related sales and marketing activities, and related support functions. At closing, approximately 32,000 people are expected to transfer to Microsoft, including 4,700 people in Finland and 18,300 employees directly involved in manufacturing, assembly and packaging of products worldwide. The operations that are planned to be transferred to Microsoft generated an estimated EUR 14.9 billion, or almost 50 percent of Nokia’s net sales for the full year 2012. Microsoft is acquiring Nokia’s Smart Devices business unit, including the Lumia brand and products.

Lumia handsets have won numerous awards and have grown in sales in each of the last three quarters, with sales reaching 7.4 million units in the second quarter of 2013. As part of the transaction, Nokia is assigning to Microsoft its long-term patent licensing agreement with Qualcomm, as well as other licensing agreements. Microsoft is also acquiring Nokia’s Mobile Phones business unit, which serves hundreds of millions of customers worldwide, and had sales of 53.7 million units in the second quarter of 2013. Microsoft will acquire the Asha brand and will license the Nokia brand for use with current Nokia mobile phone products. Nokia will continue to own and manage the Nokia brand. This element provides Microsoft with the opportunity to extend its service offerings to a far wider group around the world while allowing Nokia’s mobile phones to serve as an on-ramp to Windows Phone. Nokia will retain its patent portfolio and will grant Microsoft a 10-year license to its patents at the time of the closing. Microsoft will grant Nokia reciprocal rights to use Microsoft patents in its HERE services. In addition, Nokia will grant Microsoft an option to extend this mutual patent agreement in perpetuity.

In addition, Microsoft will become a strategic licensee of the HERE platform, and will separately pay Nokia for a four-year license. Microsoft will also immediately make available to Nokia EUR 1.5 billion of financing in the form of three EUR 500 million tranches of convertible notes that Microsoft would fund from overseas resources. If Nokia decides to draw down on this financing option, Nokia would pay back these notes to Microsoft from the proceeds of the deal upon closing. The financing is not conditional on the transaction closing. Microsoft also announced that it has selected Finland as the home for a new data center that will serve Microsoft consumers in Europe. The company said it would invest more than a quarter-billion dollars in capital and operation of the new data center over the next few years, with the potential for further expansion over time. NOKIA LEADERSHIP CHANGES Nokia expects that Stephen Elop, Jo Harlow, Juha Putkiranta, Timo Toikkanen, and Chris Weber would transfer to Microsoft at the anticipated closing of the transaction. Nokia has outlined these changes in more detail in a separate release issued today.

EXTRAORDINARY SHAREHOLDERS MEETING Nokia plans to hold an Extraordinary General Meeting on November 19, 2013. The notice of the meeting and more information on the transaction and its background are planned to be published later this month. PRESS CONFERENCE Nokia will host a press conference today, Tuesday, Sept. 3, at 11 a.m. EEST in Dipoli, Espoo (Otakaari 24). Registration will start at 10 a.m., and the doors will open at 10.40 a.m. Due to space constraints, only media who show valid press credentials at the registration will be admitted. Media are encouraged to watch a live webcast of the press conference at: INVESTOR CALLS Microsoft will hold a conference call for investors, financial analysts and news media Tuesday, Sept. 3, at 3:45 p.m. EEST/8:45 a.m. EDT. Interested parties should call toll-free at (888) 459-9165, or for international calls dial +1-773-799-3324. You may also access the call online at .

Nokia executives will hold an investor call at 3 p.m. EEST today, Tuesday, Sept. 3. A webcast of the conference call will be available at Media representatives can view the webcast or listen in at +1 706 634 5012, conference ID 45390451.

MEDIA ENQUIRIES Rapid Response Team, Waggener Edstrom Worldwide, +1 (503) 443-7070, rrt@waggeneredstrom.com FORWARD-LOOKING STATEMENTS: NOKIA It should be noted that Nokia and its business are exposed to various risks and uncertainties and certain statements herein that are not historical facts are forward-looking statements, including, without limitation, those regarding: A) the planned sale by Nokia of substantially all of Nokia’s Devices & Services business, including Smart Devices and Mobile Phones (referred to below as “Sale of the D&S Business”) pursuant to a purchase agreement between Nokia and Microsoft (referred to below as “Agreement”); B) the closing of the Sale of the D&S Business; C) obtaining the shareholder approval for the Sale of the D&S Business; D) receiving timely, or at all, necessary regulatory approvals for the Sale of the D&S Business; E) expectations, plans or benefits related to or caused by the Sale of the D&S Business; F) expectations, plans or benefits related to Nokia’s strategies, including plans for Nokia with respect to its continuing business areas that will not be divested in connection with the Sale of the D&S Business;

 E) expectations, plans or benefits related to changes in leadership and operational structure; F) expectations and targets regarding our operational priorities, financial performance or position, results of operations and use of proceeds from the Sale of the D&S Business; and G) statements preceded by “believe,” “expect,” “anticipate,” “foresee,” “sees,” “target,” “estimate,” “designed,” “aim”, “plans,” “intends,” “focus,” “will” or similar expressions.

These statements are based on management’s best assumptions and beliefs in light of the information currently available to it. Because they involve risks and uncertainties, actual results may differ materially from the results that we currently expect.

Factors, including risks and uncertainties that could cause these differences include, but are not limited to: 1) the inability to close the Sale of the D&S Business in a timely manner, or at all, for instance due to the inability or delays in obtaining the shareholder approval or necessary regulatory approvals for the Sale of the D&S Business, or the occurrence of any event, change or other circumstance that could give rise to the termination of the Agreement; 2) the potential adverse effect on the sales of our mobile devices, business relationships, operating results and business generally resulting from the announcement of the Sale of the D&S Business or from the terms that we have agreed for the Sale of the D&S Business; 3) any negative effect caused by us entering into the Sale of the D&S Business, as we may forego other competitive alternatives for strategies or partnerships that would benefit our Devices & Services business and if the Sale of the D&S Business is not closed, we may have limited options to continue the Devices & Services business or enter into another transaction on terms favorable to us, or at all; 4) our ability to effectively and smoothly implement planned changes to our leadership and operational structure or maintain an efficient interim governance structure and preserve or hire key personnel; 5)

 any negative effect from the implementation of the Sale of the D&S Business, which will require significant time, attention and resources of our senior management and others within the company potentially diverting their attention from other aspects of our business; 6) disruption and dissatisfaction among employees caused by the plans and implementation of the Sale of the D&S Business reducing focus and productivity in areas of our business; 7) the amount of the costs, fees, expenses and charges related to or triggered by the Sale of the D&S Business; 8) any impairments or charges to carrying values of assets or liabilities related to or triggered by the Sale of the D&S Business; 9) potential adverse effect on our business, properties or operations caused by us implementing the Sale of the D&S Business; 10) the initiation or outcome of any legal proceedings, regulatory proceedings or enforcement matters that may be instituted against us relating to the Sale of the D&S Business; and, as well as the risk factors specified on pages 12-47 of Nokia’s annual report on Form 20-F for the year ended December 31, 2012 under Item 3D.

“Risk Factors.” and risks outlined in our most recent interim report. Other unknown or unpredictable factors or underlying assumptions subsequently proving to be incorrect could cause actual results to differ materially from those in the forward-looking statements. Nokia does not undertake any obligation to publicly update or revise forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent legally required. Forward-Looking Statements: Microsoft This press release contains forward-looking statements, which are any predictions, projections or other statements about future events based on current expectations and assumptions that are subject to risks and uncertainties.

The potential risks and uncertainties include, among others, that the expected financial and other benefits from the Nokia transaction may not be realized, including because of: our inability to close the transaction, or Nokia’s inability to repay the financing should it take down the financing and the transaction doesn’t close; the response to the acquisition by the customers, employees, and strategic and business partners of Nokia’s Devices & Services business; the extent to which we achieve anticipated operating efficiencies and cost savings, and anticipated smart device and mobile phone market share targets; the overall growth rates for the smart device and mobile phone markets; ongoing downward pressure on prices for mobile devices; unanticipated restructuring expenses; any restrictions or limitations imposed by regulatory authorities; the impact of Microsoft management and organizational changes resulting from acquisition of Nokia’s Devices & Services business; the ability to retain key Nokia personnel; our effectiveness in integrating the Nokia Devices & Services business with Microsoft’s businesses; the response of existing Microsoft smart devices original equipment manufacturers; risks related to the Nokia Devices & Services international operations; and our ability to realize our broader strategic and operating objectives.

Actual results may differ materially from the forward-looking statements because of these and other risk and uncertainties of our business, which are described in our filings with the Securities and Exchange Commission (“SEC”), including our Forms 10-K and 10-Q.

For further information regarding risks and uncertainties associated with Microsoft’s business, please refer to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” sections of Microsoft’s SEC filings, including, but not limited to, its annual report on Form 10-K and quarterly reports on Form 10-Q, copies of which may be obtained by contacting Microsoft’s Investor Relations department at (800) 285-7772 or at Microsoft’s Investor Relations website at Microsoft swallows Nokia's phone business for $7.2 billion | Reuters Tue Sep 3, 2013 | 7:16 PM EDT Microsoft swallows Nokia's phone business for $7.2 billion By Ritsuko Ando and Bill Rigby | HELSINKI/SEATTLE HELSINKI/SEATTLE Microsoft Corp will buy Nokia's phone business and license its patents for 5.44 billion euros ($7.2 billion), a bold foray into mobile devices that also brings potential chief executive contender Stephen Elop back into the fold.

Two years after hitching its fate to Microsoft's Windows Phone software, the Finnish phone maker that once dominated the global market collapsed into the arms of the U.S. software giant, its mobile business ravaged by nimbler rivals Apple Inc and Samsung Electronics. Shares in Microsoft slid as much as 6 percent in the afternoon, lopping more than $15 billion off the company's market value, as investors protested the acquisition of an underperforming and marginalized corporation that lost more than $4 billion in 2012. Retiring CEO Steve Ballmer is trying to remake Microsoft into a gadget and services company like Apple, a move that has not won the endorsement of all shareholders. Nokia CEO Elop, who ran Microsoft's business software division before jumping ship in 2010, will return to the U.S. firm to head up its mobile devices business just as the company's board considers a successor to Ballmer, who announced last week he will retire within a year. Elop, who presided over Nokia's market share collapse and a shriveling share price during his three years at the helm, is being discussed as a potential replacement because he remains respected and is considered one of the few who can fully grasp Microsoft's sprawling empire.

But disgruntled Finnish media labeled him a Trojan horse who handed over the keys to one of the few remaining European technology powers. Nokia, whose market value topped $200 billion over a decade ago, will now concentrate on its networking equipment unit, navigation business and technology patents. 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. 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. "Adding to the cost structure when shareholders may be looking for steps in the other direction is not likely to be well received...," said Nomura analyst Rick Sherlund. "Perhaps a decision to repurchase stock and up the dividend would be a good idea right about now." 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. CRUNCH TIME It is a pivotal moment for Microsoft, which still has huge revenues from its Windows operating system, Office suite of business software and Xbox 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. "We think we have made excellent, excellent progress with the partnership and yet we also know we have a long way go and felt on balance that together this is the best approach for both companies' shareholders," Ballmer told Wall Street analysts in a conference call to explain the deal early on Tuesday. Microsoft said it would make more than $40 profit on each smartphone it sells once it owns the Nokia business, as opposed to less than $10 now, due to development and marketing costs it pays to Nokia.

However, it said the business would not be fully profitable until fiscal year 2016, and needs to sell more than 50 million smartphones a year to break even. Last quarter, Nokia sold 7.4 million smartphones. The deal leaves the Finnish company with Nokia Solutions and Networks, which competes with the likes of Ericsson and Huawei in telecoms equipment, as well as a navigation business and a broad portfolio of patents. In 2011, after writing a memo that said Nokia lacked the in-house technology and needed to jump off a "burning platform", Elop made the controversial decision to use Microsoft's Windows Phone for smartphones, rather than Nokia's own software or Google Inc's ubiquitous Android operating system. Nokia, which had 40 percent of the handset market in 2007, now has just 15 percent, and only 3 percent in smartphones. Shares in Nokia surged 34 percent to close at 3.97 euros by late Tuesday. While up from their decade-low of 1.33 euros hit last year, 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 reached over 200 billion euros. Tuesday's deal includes an agreement to license Nokia's patent portfolio for 10 years. Without it, Nokia's devices and services business would have been worth about 3.7 billion euros, the companies said. "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. "I feel sadness because inevitably we are changing Nokia and what it stands for." SOLD FOR "PEANUTS" While some investors credit Elop for bringing urgency to Nokia, which has stepped up its pace of product development in recent months and is due to announce a "phablet" large-screen handset this month, his legacy will be a bitter one for Finland. The company, which began life as a paper mill and has sold an eclectic range of products from television sets to rubber boots in its 148-year history, was a national champion in its heyday, accounting for 16 percent of all exports.

Hired by former chairman Jorma Ollila, Elop was Nokia's first foreign CEO. 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 about 40,000 worldwide and then delivered it into the software giant's hands, was a galling snub to national pride. "Jorma Ollila brought a Trojan horse to Nokia," a column in widely read tabloid Ilta-Sanoma said. "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 around February. 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 staff to transfer to Microsoft, including about 4,700 who will transfer in Finland. 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." Others were less clear about what a shrunken Nokia was worth.

The price agreed for the devices and services business gives it an enterprise value of about 0.33 times sales for a loss-making business, about half what Google paid for Motorola's handset business in 2012. "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 remains 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 phones have helped the market share of Windows Phones in the global market climb to 3.3 percent, according to consultancy Gartner, overtaking ailing BlackBerry Ltd for the first time this year. Still, Google's Android and Apple's iOS make up 90 percent of the market.

Credit default swap spreads on Nokia tightened by more than 30 basis points to around 200 basis points after the news, meaning it now costs $200,000 to insure $10 million worth of Nokia debt, which is rated junk due to worries about its shrinking cash position and market share. Nokia said it expected that senior executives Jo Harlow, Juha Putkiranta, Timo Toikkanen, and Chris Weber would transfer to Microsoft when the deal is concluded, probably in the first quarter of 2014. Goldman Sachs acted as financial advisor to Microsoft, while JP Morgan advised Nokia, according to people close to the deal. Law firm Simpson Thacher represented Microsoft, while Skadden, Arps, Slate, Meagher & Flom represented Nokia, they said.

($1 = 0.7582 euros) (Additional reporting by Terhi Kinnunen, Jussi Rosendahl and Niklas Pollard; Editing by Peter Graff, Will Waterman and Tim Dobbyn) ADVERTISEMENT 1/9 A Nokia Lumia 820 smartphone with Microsoft logo on the screen is shown in a photo illustration taken in the central Bosnian town of Zenica, September 3, 2013. Reuters/Dado Ruvic + 2/9 A woman poses with a Nokia Lumia smartphone in the central Bosnian town of Zenica, in this May 6, 2013 file illustration photograph. Reuters/Dado Ruvic + Microsoft to Buy Nokia Units and Acquire Executive - The New York Times The New York Times Technology |Microsoft to Buy Nokia Units and Acquire Executive Search Continue reading the main story Photo Stephen Elop, the chief executive of Nokia, will rejoin Microsoft, setting him up as a potential successor for Steven A. Ballmer.

Credit Ritsuko Ando/Reuters SEATTLE — Microsoft said it had reached an agreement to acquire the handset and services business of Nokia for about $7.2 billion, in an audacious effort to transform Microsoft’s business for a mobile era that has largely passed it by. Late Monday, Microsoft and Nokia said 32,000 Nokia employees would join Microsoft as a result of the all-cash deal, which is meant to turn the Finnish mobile phone pioneer into the engine for Microsoft’s mobile efforts. Stephen Elop, the former Microsoft executive who was running Nokia until the deal was signed, will rejoin Microsoft after the transaction closes, setting him up as a potential successor to Steven A. Ballmer, Microsoft’s chief executive. Mr. Ballmer has said he will retire from the company within 12 months. “This agreement is really a bold step into the future for Microsoft,” Mr. Ballmer said in a telephone interview from Finland. “We’re excited about the talent capabilities it will bring to Microsoft.” Continue reading the main story The deal, which was first broached between Microsoft and Nokia executives in February, is the latest transformation of the 150-year-old Finnish company.

Nokia began life as a conglomerate making products like rubber boots and car tires before reinventing itself in the 1980s as the world’s largest manufacturers of cellphones. Advertisement Continue reading the main story Nokia’s once mighty position in the mobile phone business has been lost, as the industry shifted to the era of the smartphone. Samsung and Apple divide nearly all of the profits in the global smartphone business now. Nokia’s fall has been most spectacular in Asia, a region that its phones once dominated. As recently as 2010, the company had a 64 percent share of the smartphone market in China, according to Canalys, a research firm. By the first half of this year, that had plunged to 1 percent. While Nokia phones used to be prized in Asia and other developing economies for their durability and value, the company was late to introduce innovations like touch screens. That left the high end of the market to brands like Apple and Samsung. In the lower price ranges, smartphone makers from China have been more responsive to consumer demands, offering phones with features resembling those of their more expensive rivals at a fraction of the cost.

Risto Siilasmaa, Nokia’s interim chief executive, said on Tuesday that the sale of the handset business was the logical step in the company’s evolution but still pulled on his heartstrings. “Selling a business is sometimes the right cause of action, but it’s emotionally complicated,” Mr. Siilasmaa said. Consumers may be less concerned. At a cellphone store in central London on Tuesday, Geoffrey Widdows, a 33-year-old engineer, said he had once been a devoted Nokia fan but now preferred Android phones because of the greater choice of apps available on phones from companies like Samsung and HTC. “Everyone had a Nokia when I was growing up,” he said. “You just don’t see them around a lot anymore.” Advertisement Continue reading the main story A megadeal between Nokia and Microsoft is something that pundits and analysts have speculated about for years, after Mr. Elop joined Nokia and signed a pact with Microsoft in February 2011 to standardize the software company’s Windows Phone operating system. The cellphone fortunes of the two companies have become closely intertwined since that agreement, but the relationship has done little to turn either company into a leader in the mobile business.

Handsets running Windows Phone accounted for only 3.7 percent of smartphone shipments in the second quarter, according to the technology research firm IDC. Nokia remains the second-largest shipper of mobile phones in the world, after Samsung, but that is largely because of lower-end feature phones, from which consumers are moving away. Nokia is no longer among the top five makers of smartphones. A big question is whether Microsoft and Nokia will succeed as one company where they have not as close partners. Mr. Ballmer said Microsoft and Nokia had not been as agile separately as they would be jointly, citing how development could be slowed down when intellectual property rights were held by two different companies. Video Ballmer on Microsoft’s Nokia Deal Steven A. Ballmer, Microsoft’s chief executive, told CNBC that the Nokia deal was incremental to the company’s transformation to focus on the Windows phone ecosystem. Publish Date September 3, 2013. by Markku Ulander/Lehtikuva, via Reuters... Watch in Times Video » embed “There’s friction,” he said. Carolina Milanesi, an analyst at Gartner, said she believed the deal could help the companies respond more quickly to the dynamism of the mobile market.

“They need to move faster,” she said. By offloading its handset business, Nokia is attempting to reboot itself around its telecommunications equipment unit, NSN, its mapping and location business and an extensive patent portfolio. Please verify you're not a robot by clicking the box. Invalid email address. Please re-enter. You must select a newsletter to subscribe to. Sign Up Privacy Policy In June, Nokia acquired the 50 percent stake in NSN, which provides services for both fixed-line and mobile networks, that it did not already own from its partner Siemens for $2.2 billion. Analysts said Nokia’s remaining operations were likely to benefit from increased spending from the world’s largest telecommunications companies like China Mobile and Vodafone on so-called fourth-generation high-speed mobile networks. “Nokia can get rid of the uncertainty of its handset business at a great price,” said Janardan Menon, a telecommunications analyst at Liberum Capital in London. “It’s a good deal for both Microsoft and Nokia." Advertisement Continue reading the main story Shares in Nokia rose 37 percent in trading in Helsinki on Tuesday. Large acquisitions are fraught with peril, especially in the technology business, where there are challenges to integrating employees from different backgrounds into a coherent whole.

The Nokia deal echoes Google’s $12.5 billion deal to acquire Motorola Mobility, which gave Google control of a trove of mobile patents and a handset business that has yet to shine under Google’s ownership. While Microsoft still has enormous stockpiles of cash from its lucrative software business, there has been widespread speculation about how long Nokia could make it as an independent company, given how the spoils of the industry have gravitated elsewhere. For Microsoft, there was a risk that Nokia could have ended up as an acquisition target for another company, creating uncertainty about the future of their earlier business partnership. Microsoft will pay about $5 billion for Nokia’s devices and services business and $2.18 billion to license Nokia’s patents. The Finnish company will continue to do business as Nokia, licensing the Nokia name to Microsoft for use on its mobile phones for 10 years. “For Nokia today, it’s a moment of reinvention,” Mr. Siilasmaa of Nokia said in an interview. Since Mr. Elop plans to join Microsoft after the deal is closed, which is expected to happen in the first quarter of 2014, he resigned as chief executive and relinquished his Nokia board seat to avoid conflicts of interest.

He has become a Nokia executive vice president, reporting to Mr. Siilasmaa. Mr. Ballmer declined to say whether Mr. Elop, considered a leading contender to be his successor because of his familiarity with Microsoft and the importance of mobile to Microsoft’s future, will be considered for the job. “Our board is running an open succession process, considering internal and external candidates,” he said. “I think it strengthens his potential for C.E.O.,” said Ms. Milanesi, the Gartner analyst. “It makes perfect sense.” Mr. Elop, a native of Canada whose family still lives in the Seattle area, said in an interview that he believed the industry was at a “tipping point” where a third mobile phone ecosystem, based on Windows Phone, will emerge as a more vibrant alternative to the iPhone and devices running Google’s Android operating system. Advertisement Continue reading the main story In a sign of how vital Nokia’s partnership has become to Microsoft, Mr. Ballmer said the first calls he made outside Microsoft to discuss his retirement and succession planning at the company were to Mr. Elop and Mr. Siilasmaa. Mr.

Ballmer said his conversations with Nokia about an acquisition had “heated up in the last several months,” but started during a mobile industry conference in Barcelona in late February. For Microsoft, there is also an attractive financial dimension to the deal. Because Nokia is based in Finland, Microsoft can use a portion of its foreign-held cash to pay for the acquisition, allowing it to avoid hefty taxes it would otherwise pay to take the cash back to the United States. Microsoft took a similar approach to its $8.5 billion deal to acquire Skype, the largest deal in its history. The plan to buy Nokia is likely to upset the other companies that use Microsoft’s Windows Phone operating system on their devices, notably HTC and, to a lesser extent, Samsung. But there is little business there for Microsoft to lose. Mr. Ballmer said that Nokia’s phones currently counts for more than 80 percent of the Windows Phones sold. Mark Scott contributed reporting from London and Eric Pfanner contributed from Tokyo.

Microsoft to acquire Nokia's devices business for $7.17 billion | PCWorld Microsoft to acquire Nokia's devices business for $7.17 billion Senior Editor, PCWorld | Sep 2, 2013 9:42 PM PT Email a friend Use commas to separate multiple email addresses From Your message has been sent. Sorry There was an error emailing this page. More like this Build 2015: Windows 10 in 3 minutes Microsoft announced Monday night that it will purchase Nokia’s devices business in a deal that will bring the Lumia smartphone line—along with Nokia CEO Stephen Elop—under the Microsoft umbrella. The deal has been valued at 5.44 billion euros ($7.17 billion), wth 1.65 billion euros of that going to license Nokia’s patents. Microsoft will also provide Nokia an additional 1.5 billion euros ($1.98 billion) in convertible notes that Nokia can exercise. Microsoft isn’t buying Nokia as a whole, as the Nokia Siemens Networks enterprise business, Nokia’s HERE brand, the office of the CTO, and Nokia’s patent portfolio are not direct components of the deal.

”One brand, united voice,” Microsoft said in a presentation packet explaining the deal. The synergies of the aquisition are obvious. Elop led the Microsoft Business Division until 2010, at which point he became Nokia’s chief executive, forging deep ties with Microsoft, and almost totally committing his company to the Windows Phone platform. Elop will lead “an expanded Devices business” at Microsoft, the company said, and will report directly to soon-to-be-departing CEO Steve Ballmer. Julie Larson-Green, who currently leads the Devices and Studios business (which includes the Xbox One and Surface tablets) will report to Elop after the deal is expected to close in the first quarter of 2014. The most important piece of the puzzle is Nokia’s phone business, including the Lumia brand. Nokia sold 7.4 million Lumia phones in the second quarter of 2013, and 53.7 million units overall. For now, Microsoft said that it would license the Nokia brand and use it with current Nokia phone products. Lumia, presumably, will fall under the Microsoft brand name. ”One brand, united voice,” Microsoft said in a presentation packet explaining the deal.

image: michael homnick The Lumia 1020 and its stablemates are destined for Microsoft ownership. Of course, the deal is a slap in the face to HTC (among other handset makers), which must now assume it will play permanent second fiddle to Nokia in the Windows Phone smartphone game. Indeed, the HTC 8X was a key hardware element of Microsoft’s Windows Phone 8 launch, but overall the Lumia name has become synonymous with Windows Phone, and Windows Phone ranks third among smartphone platforms , with a tiny 3.2 percent in May. Nevertheless, Microsoft’s Steve Ballmer, who roiled the waters when he unexpectedly said he would step down within a year’s time , painted the deal as a positive for the company. “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.

In addition to their innovation and strength in phones at all price points, Nokia brings proven capability and talent in critical areas such as hardware design and engineering, supply chain and manufacturing management, and hardware sales, marketing and distribution.” All told, approximately 32,000 Nokia employees are expected to transfer to Microsoft, including 4,700 people in Finland and 18,300 employees directly involved in manufacturing, assembly, and packaging of products worldwide, Nokia said. “For Nokia, this is an important moment of reinvention and from a position of financial strength, we can build our next chapter,” said Risto Siilasmaa, Chairman of the Nokia Board of Directors and, following today’s announcement, Nokia Interim CEO. “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.” Microsoft has not been the only OS company to buy its way into the hardware market— Google bought Motorola in 2011 for about $40.5 billion, a deal suspected to be as much for Motorola’s enormous patent portfolio as for its hardware business.

That much, at least, seems to be true: Motorola hadn’t released a phone until its update to the Droid line this summer, as well as the Moto X . But with Nokia, Microsoft also gains a long-term patent licensing agreement with Qualcomm, as well as other licensing agreements. Nokia will retain its patent portfolio and will grant Microsoft a 10-year license to its patents at the time of the deal closing. Microsoft will grant Nokia reciprocal rights to use Microsoft patents in its HERE services. In addition, Nokia will grant Microsoft an option to extend this mutual patent agreement in perpetuity, the company said. Microsoft will become a strategic licensee of the HERE platform, and will separately pay Nokia for a four-year license. Microsoft said that it will continue to support the iPhone and Android platforms, but that it “cannot risk having Google or Apple foreclose app innovation, integration, distribution, or economics”. “This is a smart acquisition for Microsoft, and a good deal for both companies,” Ballmer wrote in a note to employees. “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.” Microsoft plans to hold a conference call Tuesday morning to explain the deal to Wall Street analysts. To comment on this article and other PCWorld content, visit our Facebook page or our Twitter feed. Related: Microsoft to buy Nokia's phone business for $7.2 billion - Sep. 3, 2013 Microsoft to buy Nokia's phone business for $7.2 billion by David Goldman @DavidGoldmanCNN September 3, 2013: 10:40 AM ET Ballmer on his successor and Nokia Microsoft announced late Monday night that it will buy Nokia's mobile phone business -- a momentous deal that pits Microsoft squarely against Apple and Google in the hotly contested smartphone arena. The €5.4 billion ($7.2 billion) acquisition gives Microsoft control of the second-largest mobile phone manufacturer in the world, according to IDC. The Finnish Nokia ( NOK ) is well behind Samsung in cell phone sales but far ahead of third-place Apple ( AAPL ), according to IDC. Yet Nokia is a deeply troubled company and is rapidly losing relevance.

That's particularly true in the smartphone market that Microsoft ( MSFT ) covets. Nokia, once dominant in the sector, no longer cracks the top five manufacturers in the world. Sales of Nokia's top-of-the-line Lumia smartphones are growing fast , but they're coming off such a low baseline that the phones still remain largely irrelevant compared to iPhone, Samsung Galaxy S4 and even Google's new Moto X, which have all captured more buzz. Apple and Google ( GOOG ) control 86% of the smartphone market, while Microsoft's Windows Phone operating system has just a 3.7% share. In its strategic rationale for the deal , Microsoft said it cannot cede complete control of the smartphone phone market to Google and Apple, allowing its rivals to "foreclose app innovation, integration, distribution or economics." "We are very excited to bring the best mobile device efforts of Microsoft and Nokia together," Steve Ballmer, Microsoft's outgoing CEO, said at a press conference in Finland. Ballmer characterized the deal as a "win-win" for both companies. Nokia shares spiked more than 45% in Helsinki trading. Related story: Microsoft CEO Steve Ballmer to retire Nokia is something of a natural fit for Microsoft.

The companies reached a strategic partnership in 2011 in which Nokia transitioned away from its homemade Symbian smartphone platform, replacing it with Microsoft's Windows Phone. Nokia made 82% of the Windows Phone devices sold last quarter -- a figure that continues to grow as Samsung, HTC and other Microsoft partners are barely dipping their toes in the Windows Phone waters. Nokia has been led for the past three years by Stephen Elop, a former Microsoft executive. Elop stepped down as Nokia's CEO on Monday to become the head of the company's devices and services business. He will continue on leading Nokia's phones business as the devices chief at Microsoft. Elop has been widely named as a potential replacement for Ballmer as Microsoft's next CEO. He replaces Julie Larson-Green, also believed to be a CEO candidate, as head of Microsoft's devices business. Larson-Green will now report to Elop. The devices business is crucial for Microsoft as it attempts to battle Apple, Samsung and a host of other popular gadget makers as consumers shift away from Windows PCs to iPads, Android tablets and smartphones. Microsoft is amid a large-scale transition to become a "devices and services company" and not just a software maker.

Watch Ballmer promote Windows 1.0 in 1985 In addition to Nokia's mobile phone business, the deal also gives Microsoft access to a treasure trove of patents as well as Nokia's widely used mapping services. Nokia's origins date back 150 years to a wood pulp mill in southwestern Finland. The company got into the telephone business in 1963 and became the world's largest mobile phone maker in 1998 -- a title it ceded to Samsung last year . CNNMoney (New York) First published September 3, 2013: 12:56 AM ET The Real Reason Microsoft Bought Nokia. Transaction Costs The Real Reason Microsoft Bought Nokia. Transaction Costs {{article.article.images.featured.caption}} Opinions expressed by Forbes Contributors are their own. Full Bio The author is a Forbes contributor. The opinions expressed are those of the writer. Loading ... Loading ... This story appears in the {{article.article.magazine.pretty_date}} issue of {{article.article.magazine.pubName}}. Subscribe As we all digest the news that is buying 's handset division there's increasing evidence of what actually drove the decision.

And remarkably it's all best described in the terms invented by the recently deceased Nobel Laureate in economics, Ronald Coase. It's all about transaction costs, you see? Here's something from one of the Microsoft managers : Nokia and Microsoft worked closely together on the company's Lumia 1020, and Microsoft made core changes to its Windows Phone operating system as a result. Sources familiar with Microsoft's Windows Phone work have revealed to The Verge that Nokia was left frustrated by some Windows Phone restrictions on its Lumia 1020 camera software. Specifically, the restrictions made it difficult to store the large image files and make them easily accessible to phone owners. These secrets secrets and frustrations will no longer occur, and the collaboration appears to have helped Microsoft realize its priorities elsewhere. A Bluetooth file sharing feature is particular popular in developing countries, but Microsoft wasn't aware as US consumers don't typically use it. "We didn't even have that feature, and we didn't even understand or appreciate the degree to which it was critical," says Belfiore. And here's a piece discussing Coase and those transaction costs : "I found the answer," Coase recalled in his 1991 Nobel lecture, "by the summer of 1932.

It was to realise that there were costs of using the pricing mechanism… There are negotiations to be undertaken, contracts have to be drawn up, inspections have to be made, arrangements have to be made to settle disputes and so on. These costs have come to be known as transaction costs. Their existence implies that methods of co-ordination alternative to the market, which are themselves costly and in various ways imperfect, may nonetheless be preferable to relying on the pricing mechanism, the only method of co-ordination normally analysed by economists." It sounds simple, but it was a groundbreaking insight because it explained why, for example, companies often became vertically integrated as they grew. Transaction costs are why a manufacturer of car tyres would come to own and operate rubber plantations in some fetid tropical country; not because its executives want to farm rubber, but because the transaction costs of not owning the supplier are higher than the costs of operating it themselves. While Microsoft and Nokia were working closely together on the hardware and software for their phones they weren't working together closely enough. Those pesky transaction costs getting in the way there. Thus the bet that by being owned by the same company those costs will be reduced and thus better phones will be made. Well, it could work but I do wonder myself.

For as another Nobel Laureate, Hayek, pointed out, all knowledge is local. So if the combined firm is managed from Redmond then there's going to be a certain loss of that knowledge as it does or does not get transmitted up the managerial pecking order. Those Coasean reasons for the merger could indeed work out but only if the management and design work stays sufficiently local to the knowledge base. Related on Forbes:

Question: Which corporation acquired Nokia in 2013?
Answer: Microsoft