Microsoft buys Nokia’s once-mighty phone biz

Microsoft will buy Nokia Oyj’s handset business for 5.44 billion euros ($7.2 billion) as the Finnish company exits a business it once dominated and the maker of Windows moves into hardware to boost growth.

The deal includes paying 3.79 billion euros for the devices unit and 1.65 billion euros for patents, the companies said in a statement yesterday. Nokia Chief Executive Officer Stephen Elop will step aside to return to Microsoft.

Microsoft has battled to stay relevant as consumers shift from using its core Windows software for personal computers toward mobile devices. Nokia is coping with cash-flow challenges stemming from weaker demand as its phones lose market share to handsets from Apple and manufacturers using Google’s Android operating system.

“Both Nokia and Microsoft really missed the boat in terms of smartphones, and it is extremely difficult to claw your way back from that,” said Paul Budde, a Sydney-based telecommunications consultant. “The question is whether combining two weak companies will get you a strong new competitor. It’s doubtful.”

Nokia reported in July a 27 percent drop in the number of handsets sold in the second quarter. It’s lost more than 5 billion euros in nine quarters.

Nokia had the largest share of the mobile phone handset market until it was overtaken by Samsung Electronics in 2012, according to data compiled by Bloomberg.

Elop cut more than 20,000 jobs and suspended the company’s dividend in January to improve its finances.

“Today marks a moment of reinvention,” Microsoft CEO Steve Ballmer and Elop said in joint blog post. “With the commitment and resources of Microsoft to take Nokia’s devices and services forward, we can now realize the full potential of the Windows ecosystem, providing the most compelling experiences for people at home, at work and everywhere in between.”

About 32,000 Nokia employees will transfer to Microsoft as a result of the deal, according to the statement. The devices and services business generated about 50 percent of Nokia’s net sales during 2012, worth an estimated 15 billion euros, the companies said.

“It’s a bold step into the future - a win-win for employees, shareholders, and consumers of both companies,” Ballmer said in a statement. The deal will “accelerate Microsoft’s share and profits in phones,” he said.

Facebook and Google have also pushed ahead in social networking and online advertising, areas where Microsoft remains weak.

“After a thorough assessment of how to maximize shareholder value, including consideration of a variety of alternatives, we believe this transaction is the best path forward for Nokia and its shareholders,” Chairman Risto Siilasmaa said in a statement. Siilasmaa will become interim CEO of Nokia. Bloomberg