Microsoft to Acquire Nokia with $7.2 billion

Microsoft has announced that it will acquire Nokia’s mobile phone business and a “broad intellectual property license” for Nokia’s patent portfolio, for 5.44 billion Euros (~$7.2 billion).

This deal will see Stephen Elop
return to Microsoft as the vice president of the newly minted Nokia division, along with some 32,000 other Nokia execs and employees. (And yes, Elop could become the next CEO when Ballmer leaves.) Microsoft’s rationale for the acquisition, which is due to complete in early 2014, is that it will allow the software giant to finally, seriously, definitely compete against Apple, Google, and Samsung in the smartphone and tablet markets.

This deal will benefit both parties but Microsoft the most. As Nokia is looking to startup a new line of business and probably preparing for the switch to making Android devices. Microsoft on the other hand, will gain a deeper store of research knowledge to draw from. Nokia spent lavishly on research and development—including more than $5 billion last year alone—and had 27,551 research and development employees at the end of 2012.

It’s true that the value of their collective output is dubious: Nokia research and development failed to produce technologies that could dent the dominance of Apple and Samsung in the smartphone business.

Over the last two decades or so, Nokia spent more than $55 billion on research and development and made acquisitions that gave it a war chest of 30,000 patents. Many of these cover fundamental operations and ones for wireless standards like GSM.

One of Nokia’s most valuable patents is one describing a “method for mapping, translating, and dynamically reconciling data.” This is now fundamental to syncing calendars on different devices.

And now that it is free of its handset business, Nokia can focus more on monetizing this fundamental IP—in court, if necessary. Nokia will no longer have to worry about countersuits alleging infringements by technologies in its phones, since it will no longer be making or selling any.

Oskar Sodergren, a Nokia spokesman, says that while the Nokia Research Center stays with Nokia, all Research and Development staff related to mobile products and smartphones will all transfer to Microsoft. Presumably, these are the people who gave us things like “Morph Concept” technologies—in which a phone or watch can be made flexible and transparent, with built-in solar-power recharging and integrated sensors.

A Microsoft research spokeswoman, Chrissy Vaughn, says the company was not elaborating on how the research units might merge. But Steve Ballmer, Microsoft’s outgoing CEO, said in a press call yesterday that “Finland will become the hub and the center for our phone Research and Development.” The two companies have said that all of Nokia’s 4,700 Finnish employees who now work in devices and services will become Microsoft employees.

Microsoft’s acquisition of Nokia is outwardly a very sound move. In one fell swoop it has become a viable device maker that, if the design, engineering, and marketing stars align, could compete with Apple. It will take a truly monumental effort to go from “making more money per Lumia device sold” to “competing with Apple and Samsung at the top of the smartphone market,” though.

Acquiring Nokia is just the first step — a tentative perambulation that doesn’t automatically imbue either company with the visionary foresight required to win significant market share or develop entirely new markets.