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Microsoft Closes Nokia Phone Deal, Pays More Than Expected $7.2B
Microsoft Closes Nokia Phone Deal, Pays More Than Expected $7.2B

By Barry Levine
April 25, 2014 10:25AM

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Redmond is seeing positive momentum in Windows Phone sales off a small base, and needed to keep it going. Acquiring Nokia was a defensive action by Microsoft, since Nokia's phone line had become based on Windows Phone. Nokia wasn't making money in hardware and had to do something and Microsoft couldn't let Nokia stop making phones.
 



It's official. Microsoft is now the proud owner of Nokia's phone business, after confirming Friday that the acquisition is complete seven months after it was announced.

According to Nokia, the final price may be somewhat north of the $7.2 billion that was cited at the September announcement. Now that the deal is done, Redmond, Washington is most likely bracing for the influx of Nokia employees, as about 30,000 are being transferred to Microsoft's headquarters there. The deal also includes Nokia's design team, its manufacturing and assembly facilities and operations, and sales and marketing support.

The acquisition, which was delayed in part because of regulatory hurdles, immediately turns Microsoft into the owner of 14 percent of the world market for mobile phones, including both feature phones and smartphones. But when it comes to smartphones alone -- which are taking over the handset market -- those with Microsoft's Windows Phone operating system currently have only a three percent market share.

'Grow the Fastest'

But there could be some movement for Windows Phone. According to the February report on worldwide smartphone growth by industry research firm IDC, Windows Phone "stands to grow the fastest among the leading smartphone operating systems, with continued support from Nokia as well as the addition of nine new Windows Phone partners." IDC added that most of the new partners are vendors in the emerging markets, which could help sell Windows Phones in their countries.

Stephen Elop, the former Microsoft executive who became Nokia CEO and then resigned when the acquisition was made public, is now executive vice president of the Devices Group, which is responsible for the Lumia smartphones, Surface tablets and Xbox video game console. Nokia said it will use part of the cash from the sale to invest in R&D and possibly acquisitions, and will focus on network equipment, services for wireless carriers, and its digital maps.

Avi Greengart, an analyst for industry research firm Current Analysis, told us that Microsoft "is seeing positive momentum in Windows Phone sales off a very small base, and needs to make sure the momentum continues."

A 'Defensive' Action

He said his view is that the Nokia acquisition was a "defensive" action by Microsoft, since Nokia's phone line were based on Windows Phone. "Nokia was not making money in hardware and had to do something and Microsoft couldn't let them stop making phones," Greengart said.

The places where Windows Phone handsets are selling well, Greengart said, are "prepaid markets where Nokia's brand is strong, [including] emerging markets and parts of Europe." Almost all of its volume, he said, is at the "low end of the Lumia line," where it is not competing head-on with Android or Apple phones. For someone "new to the smartphone ecosystem" who is looking to spend a modest amount, a Windows Phone model can deliver "a good user experience," Greengart said.

He added that Windows Phone devices "can't even play at the low-low end," where Firefox OS and other platforms are targeted because that's where Nokia has set up its Asha and X phone lines.
 

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