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 30
Frequently Asked Questions about this Article…
Microsoft agreed to acquire Nokia's handset and services business for about US$7.2 billion (roughly $8 billion), a deal that will make Microsoft one of the world's biggest mobile phone producers.
Stephen Elop is a former Microsoft executive who had been running Nokia; after the transaction closes he will rejoin Microsoft and is seen as a potential successor to Microsoft CEO Steve Ballmer, who plans to retire within 12 months.
Nokia's CEO Stephen Elop argued Nokia was too late to enter the Android ecosystem and chose Windows instead, but industry experts have criticised that one-way bet—Gartner said Nokia was totally reliant on Microsoft with no plan B, making the strategy risky.
According to the article citing Gartner, Apple and Google's operating systems control more than 80% of the mobile OS market, while the Windows operating system used by Nokia accounts for barely 3% of the world market.
Nokia's Lumia flagship phones have struggled to challenge Apple and Android devices, recording only a modest market gain of less than 1% in the past three months, according to the article.
The article notes Nokia remains the second-largest mobile handset maker globally, but it is largely focused on low-end phones for developing markets and has struggled in the crucial smartphone battleground.
The article suggests Nokia's heavy dependence on Microsoft and weak smartphone performance make it a takeover target, and the transaction may mark the end of the 150-year-old company as it once was known.
For investors, the deal means Microsoft will become a major phone producer and could shift leadership at Microsoft with Stephen Elop returning; it also highlights the dominance of Apple and Google in mobile OS share and the risks associated with Nokia's reliance on Windows Phone.
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