Microsoft Attempts to Breathe Life into its Mobile Business with $ 7 Billion Acquisition of Nokia’s Mobile Unit

Microsoft Attempts to Breathe Life into its Mobile BusinessREDMOND, WA – Early Tuesday, Microsoft (NASDAQ:MSFT) announced they had reached an agreement to acquire the handset and services business of Nokia (NYSE:NOK) for more than $ 7 billion.  The agreement marks a significant step in Microsoft’s efforts to catch up on mobile leaders Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) who together control more than 90 percent of the mobile market, compared to nearly four percent for Microsoft.

As part of the all-cash deal, more than 32,000 Nokia employees will join Microsoft – though it is not clear how many will remain after restructuring.  One of the employees joining Microsoft is Stephen Elop, the former Microsoft executive who left the company to run Nokia.  The move could position Elop as the successor to Steve Ballmer who announced that he would retire as Microsoft’s CEO last month.

According to Ballmer, ‘this agreement is really a bold step into the future for Microsoft and we are excited about the talent capabilities it will bring to Microsoft.

Nokia was once the largest maker of mobile phones in the world; however, they have ceded market share in recent years as the industry shifted to smartphones – today Apple and Samsung (KS.005930) control almost of the profits in the global smartphone industry.

Industry analysts have suspected for years that Microsoft might buy Nokia as both companies have been closely associated since a licensing agreement in 2011 to use Microsoft’s mobile operating system on all Nokia smartphones.

However, it is unclear how this deal will help either Microsoft of Nokia win back mobile market share.  While Carolina Milanesi, an analyst at Gartner, believes the deal could help the companies respond more quickly to the market.  Large acquisitions are dangerous, especially in the technology business where it is often difficult to integrate competing cultures.

The deal does bring to mind Google’s $12.5 billion acquisition of Motorola Mobility.  That deal gave Google control of numerous mobile patents as well as Motorola’s mobile business – like Nokia, a business that was past its prime.  The announcement is also a setback for troubled smartphone maker Blackberry (NASDAQ:BBRY).  Microsoft was considered one of the potential buyers for the firm after they announced last month they were considering selling the company.

Ultimately, the deal could provide the tipping point for the global smartphone business where handset only providers such as Samsung and HTC (Taiwan:2498) are on the outside looking in as Google, and now Microsoft will most likely favor their in-house manufacturing to third-party manufacturers.

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About the author

Drew is a regular contributor covering trending topics.