Microsoft bets on Nokia in $8b phone deal
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 for Microsoft chief executive Steve Ballmer, who plans to retire from the company within 12 months.
Nokia used to dominate the mobile market with its robust handsets. However, it was slow to develop smartphones and lost ground to Apple and other players such as Samsung.
When Mr Elop took the helm at a struggling Nokia in 2010, he gambled the future of the company on the alliance with his former employer Microsoft. At the time, he famously compared Nokia with a man on a burning oil platform who had no choice but to jump.
The alliance between Microsoft and Nokia was created with the grand ambition to create a third mobile phone platform in an ecosystem dominated by Apple and Google. The two tech giants control more than 80 per cent of the mobile operating system market, according to research consultancy Gartner.
The Windows operating system, which Nokia relies on exclusively, is a distant third, with barely 3 per cent of the world market.
Although Nokia is still the second-largest mobile handset maker in the world, it is largely making low-end mobile phones destined for developing markets.
In the crucial battleground for smartphone devices, Nokia's flagship Lumia brand has failed to dent the popularity of Apple and Google devices. The company only managed to post modest gain - less than 1 per cent - in the past three months.
Mr Elop's decision to enter into a monogamous relationship with Microsoft is a controversial one. Industry experts have questioned his choice of Windows over Android, Google's operating system.
"Nokia completely relies on Microsoft and its operating system for the recovery of its smart devices business, without a plan B in case of failure," a Gartner analyst said. "This radical shift makes the strategy effectively risky because it totally depends on an external software provider."
However, Mr Elop defended his decision during a recent visit to Australia. He said that in making the decision to adopt Windows, he was worried Nokia was entering Google's Android game too late relative to everyone else in the industry.
He said one vendor was well on the road to becoming the dominant Android vendor at the expense of everybody else. That is Samsung, which has emerged as the largest maker of mobile devices in the world.
Nokia's poor performance indicates Mr Elop's one-way bet is far from a success. The company's total dependence on Microsoft makes it a takeover target. The transaction may spell the end of a 150-year-old company that once dominated the mobile phone market.
Microsoft's move— Page 27
Frequently Asked Questions about this Article…
Microsoft announced it would buy Nokia’s handset and services business in a deal worth US$7.2 billion (about $8 billion). The move is expected to make Microsoft one of the world’s biggest mobile phone producers.
Microsoft acquired Nokia’s handset and services business. The article suggests the transaction could mark a major shift for Nokia — potentially the end of a 150‑year‑old company’s independence — since Nokia had become heavily dependent on Microsoft for its smartphone strategy.
Stephen Elop, the former Microsoft executive who led Nokia, will rejoin Microsoft after the transaction closes. The article notes this positions him as a potential successor to Microsoft CEO Steve Ballmer, who plans to retire within 12 months.
Nokia once dominated mobile handsets but was slow to develop smartphones. Its Lumia flagship failed to make a significant impact against Apple and Google devices, managing less than a 1% gain in the past three months. Nokia remained the world’s second‑largest handset maker but was largely focused on low‑end phones for developing markets.
Industry experts questioned Nokia’s exclusive reliance on Microsoft’s Windows Phone instead of adopting Android. A Gartner analyst warned the strategy was risky because Nokia had no ‘plan B’ and was totally dependent on an external software provider for its smartphone recovery.
According to research cited in the article (Gartner), Apple and Google together control more than 80% of the mobile operating system market, while Microsoft’s Windows operating system holds only about 3% of the global market.
The deal was intended to help create a third mobile platform to challenge Apple and Google, and it will make Microsoft a major phone producer. However, the article points out the mobile ecosystem is dominated by Apple and Google, and Windows’ small market share means Microsoft still faces a steep challenge.
For investors, the deal signals consolidation in the mobile market and a bold bet by Microsoft to become a major phone maker. It highlights risks tied to platform share (Windows is small compared with Apple and Android), the uncertain future of Nokia as an independent company, and potential leadership changes at Microsoft with Stephen Elop returning and Steve Ballmer planning to retire.
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