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Updated: Microsoft To Buy Nokia’s Devices & Services Business, License Patents For A Total Of EUR 5.44 Billion

UntitledNobody’s surprised.

Microsoft has announced that it will acquire all of Nokia’s Devices & Services business, license Nokia’s patents, and license and use Nokia’s mapping services, paying EUR 3.79 billion for Nokia’s Devices & Services business and EUR 1.65 Billion to license Nokia’s patents, for a total transaction price of EUR 5.44 billion in cash. The Devices & Services business generated EUR 14.9 billion, or almost 50 percent of Nokia’s net sales for the full year 2012. Nokia’s Smart Devices business unit and the Lumia brand and products are also being acquired. Lumia handsets sold 7.4 million units in the second quarter of 2013. Nokia’s Mobile Phones business unit, which also being acquired, sold 53.7 million units in the second quarter of 2013.

The transaction is expected to close in the first quarter of 2014, however, it’s subject to approval by Nokia’s shareholders, regulatory approvals and other closing conditions. Update: The acquisition is also subject to approval in India, EU, US, China, Brazil, Russia, Canada and other countries. Microsoft and Nokia have agreed that Nokia will receive USD 750 million termination fee payable by Microsoft in the event that the transaction fails to receive necessary regulatory clearances.

Patents: As a  part of the transaction, Nokia will be assigning Microsoft with its long-term patent licensing agreement with Qualcomm and other agreements. Nokia will be retaining its patent portfolio and will grant Microsoft a 10 year license to its patents, in return Microsoft will be granting Nokia reciprocal right to use Microsoft patents for its HERE services. Microsoft will also become a strategic licensee of the HERE platform and will pay Nokia for a four year license.

People: Following the announcement, Stephen Elop, Chief Executive Officer at Nokia has stepped aside as Nokia President and CEO to become Nokia’s Executive Vice President of Devices & Services. Risto Siilasmaa, Chairman of the Nokia Board of Directors will assume as Nokia’s interim CEO until the company finds a replacement.

Elop, an ex-Microsoft employee, will be joining Microsoft along with other Nokia employees such as Jo Harlow, Juha Putkiranta, Timo Toikkanen, and Chris Weber. Note that Microsoft’s current CEO Steve Ballmer, recently announced that he’ll be retiring in 12 months after 13 years stint at the company. Elop is considered to be a top contender for the position.

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Update: Elop will lead an expanded Devices team, which includes all of Microsoft’s current Devices and Studios work and most of the teams coming over from Nokia. Elop will directly report to Ballmer. Julie Larson-Green, who runs the Devices and Studios team, will be joining Stephen’s team once the acquisition closes. Jo Harlow will continue to lead the Smart Devices team, Timo Toikkanen, will continue to lead the Mobile Phones team, Stefan Pannenbecker, will lead Design and Juha Putkiranta, will lead the integration effort on Nokia’s behalf. Tom Gibbons will lead the integration work for Microsoft.

Besides these, approximately 32,000 people are expected to transfer to Microsoft, including 4,700 people in Finland and 18,300 employees directly involved in manufacturing, assembly and packaging of products worldwide.

The Microsoft-Nokia Partnership: The purchase is hardly a surprise. In February 2011, Nokia had entered in a partnership with Microsoft to use its Windows Phone operating system on future Nokia smartphone handsets. Nokia’s Windows Phone handsets enjoyed applications by Nokia such as Nokia’s mapping service (Nokia had acquired Navteq in 2007).

What Happens To The Asha Series: While Microsoft’s purchase of Nokia’s Devices & Services business makes sense for controlling its Windows Phone based Lumia series, it should also be noted that this also includes the Linux based Asha platform. Microsoft will acquire the Asha brand and will license the Nokia brand for use with current Nokia mobile phone products. However, given the interest of the company, it needs to be seen how long the Asha platform survives. Make no mistake: Microsoft does not seem to have any incentive in keeping the Asha platform alive as it’s not in the handset business to make profit.

What Happens To Other OEMs? The deal begs the question as to what happens to other OEMs that develop Windows Phone based handsets? If you look at the recent smartphone handsets released based on the Windows Phone OS, majority of development was being done by Nokia. There’s hardly any development coming from Microsoft’s other partners (apart from Nokia) when it had announced the Windows Phone operating system. Microsoft’s only option appears to accelerate the Windows Phone growth, which the market has be reluctant to adapt.

Having said that, according to a slideshow by Microsoft via AllthingsD lists out the rationale behind the Nokia-Microsoft deal. It gives out reasons such as — to accelerate phone shares, smart acquisition, and executive plan. In all, Microsoft will be able to acquhire mobile industry leaders from the acquisition.

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