Microsoft to pay £4.6bn for Nokia’s mobile arm

Microsoft today bought Nokia’s struggling handset division for €5.44 billion (£4.6 billion) in cash as the American software giant makes urgent efforts to make up lost ground in mobile.

Nokia chief executive Stephen Elop, a former Microsoft executive, will continue to run the division and he is now rated hot favourite to succeed Microsoft chief executive Steve Ballmer.

Ballmer announced last month he would step down after pressure from Microsoft shareholders who have been unhappy about the software giant has failed to keep up with rival Apple in phones and tablets.

Shares in Nokia, which still has a successful telecom networks and equipment business, surged 36% on news that it was off-loading the handsets division after years of dire results.

Microsoft is paying €3.79 billion for the business and €1.65 billion for Nokia’s valuable patents. Around 32,000 Nokia employees will join Microsoft.

The decision by Finnish firm, once the market leader in mobile phones, to sell illustrates the dramatically changing fortunes of the industry that Samsung and Apple now dominate.

As recently as 2008, Nokia used to have a near-40% worldwide market share in mobile phone sales but now that has slumped to just 14%, according to research firm Gartner. Sales of smartphones have been worse as Nokia has a derisory 3.1% of the market, meaning it has sunk to ninth in the world.

Lee Simpson, telecoms analyst at Jefferies Bank, said Nokia’s recent troubled history meant Microsoft was “the only possible buyer of this division, although it never appeared clear to us that this was a deal that had to happen”.

Simpson said it looked like a case of “double or quits” for Microsoft as it lags behind in mobile and sales of traditional desktop personal computers have been sliding.

Sales of the Microsoft Surface tablet, a belated rival to the iPad, have been weak and the Windows system has only 3% market share in phones, compared to Google’s Android with 79% and Apple’s iOS with 14%.

However, in one sign of optimism, Windows’ market share overtook another troubled mobile rival, BlackBerry, earlier this year — helped in part by Nokia using Windows on its phones.

Microsoft, with a stock market capitalisation of $278 billion (£178 billion), can easily afford to buy Nokia’s handset business.

Despite Nokia’s woes, it still remains a major presence in more basic, so-called “feature” phones — particularly in emerging markets such as Africa.

Last year, it sold 334 million phones, down from 422 million a year earlier and a peak of 472 million in 2008.

The Nokia acquisition comes a day after Vodafone sold its 45% stake in America’s Verizon Wireless for £84 billion amid a frenzy of takeover activity in the growing global mobile industry.

Gideon Spanier, Media Editor

Stephen Elop sounded as if he still worked at Microsoft even when he was running Nokia for the last three years.

At the Mobile World Congress in Barcelona last year, I watched as Elop paced the stage and talked up the supposedly wondrous benefits of the new Lumia smartphones, with his Canadian-European accent and nerdy manner.

But with the over-eager whoops of Nokia staff ringing in my ears, I couldn’t help thinking instead of Steve Jobs’ memorable dig at Microsoft. “The only problem,” said the Apple founder, “is they just have no taste.”

That has been Nokia’s problem with handsets. Poor design, uninspiring phones and a clunky operating system have conspired to send sales into freefall.

Elop recognised the problem, describing Nokia as a “burning platform” soon after he took over. He improved the telecoms and equipment business but the handset division has remained seriously challenged. A partnership with Microsoft’s Window platform has not set sales alight.

So selling the handset business to Microsoft, with its deeper resources, is a logical step for Nokia — and Elop. Little wonder he looks the heir apparent to departing chief executive Steve Ballmer — with, perhaps, founder Bill Gates being a more hands-on chairman.

Just don’t expect Microsoft-Nokia to have much taste.