Microsoft bets on Nokia in $8b phone deal

Software company Microsoft will emerge as one of the world's biggest mobile phone producers following an audacious $US7.2 billion ($8 billion) deal on Monday to acquire the handset and services business of the one-time Finnish powerhouse Nokia.

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.

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