Microsoft buys Nokia’s hardware division, kills Nokia’s brand on smartphones

Jordan O'Brien
September 3, 2013

It’s finally official, Nokia is joining Microsoft — well at least part of it — with today’s announcement that Microsoft plans on spending $7.1 billion in cash on the Finnish firm’s Devices and Services division.

It had been long rumoured that the two companies had been in talks about a potential takeover by Microsoft, but speculation has been quiet as of late.

In the deal Microsoft will get a lot more than a dedicated phone hardware business, it will also license Nokia’s patent portfolio, receive 32,000 Nokia employees and gain former Microsoftie and Nokia CEO Stephen Elop.

Rumours have it that Elop is the top candidate for the person to replace Steve Ballmer when he steps down as CEO, although Microsoft hasn’t confirmed those rumours — refusing to comment on whether the Nokia acquisition had anything to do with poaching Elop.

One thing Microsoft won’t receive in the purchase will be the Nokia brand, which will be licensed for ten years for feature phones only, meaning the Lumia line of smartphones will have to drop the Nokia brand in the future.

Nokia and Microsoft have been close ever since Nokia announced plans to drop Symbian in favour of Windows Phone.

Since that deal Nokia has pumped out an impressive line of smartphones, including the Nokia Lumia 925 and the Lumia 1020.

Steve Ballmer solidifying Microsoft’s position as devices & services

This deal is likely to be the last major decision of Microsoft’s current CEO Steve Ballmer, who plans on stepping down within the next 12 months — but he is refusing to go quietly.

Despite being a controversial CEO, Ballmer has completely changed Microsoft from an almost exclusive software company into a fully fledged devices and services company — with the purchase of Nokia solidifying Microsoft this change.

During his tenure as CEO, Ballmer has overseen many acquisitions, including the pricey $8.5 billion purchase of Skype in 2011.

Current state of Windows Phone

Microsoft and Nokia may become one, but it still has an upward battle to fight, with Windows Phone’s marketshare still just 3.7 percent worldwide in the second quarter of 2013.

The change in Nokia branding on its smartphone lineup may help Windows Phone’s efforts in the US, where Nokia has traditionally done poorly, but in Europe the company still has a strong brand presence.

Windows Phone has also done rather successfully in Europe thanks to Nokia, with market penetration in Europe at 8.2 percent, accounting for one in 10 smartphone sales in the UK, France and Germany according to Kantar Worldpanel.

Whether or not a Microsoft branded Lumia line can continue Nokia’s success, we’ll have to wait and see.

Nokia has been the catalyst for Windows Phone growth, with other OEMs accounting for just 13.1% of total Windows Phone sales according to AdDuplex.

Despite that, Microsoft has reassured other OEMs that it’s business as usual and that it remains committed to them — although OEMs weren’t best pleased when Microsoft said the same thing after announcing the Surface.

Microsoft’s future

Microsoft is clearly going the biggest change the company has ever seen, but whether Nokia’s ethos fits into that remains to be seen.

Whilst the Surface is beautifully designed and well built, next to a Nokia Lumia it’s rather out of place, with Microsoft using metallic angular design compared to Nokia’s curved polycarbonate.

Whether or not that means that the Lumia line will get a redesign is unknown, especially since Microsoft is gaining a plethora of new designers from Nokia.

Elop will also be put in charge of the Devices team at Microsoft, with Julie Larson-Green (who briefly led the Windows division after Steven Sinofsky stepped down) joining him at the top.

According to Nokia’s Chairman Risto Siilasmaa, the talks between Microsoft and Nokia have been taking place since Mobile World Congress in February, with over 50 meetings having taken place.

It’s clear that this deal is a way of Microsoft replicating the success of Apple, who controls all aspects of software and hardware, and as of recently Google, who bought Motorola to give itself the ability to make hardware.

So far Microsoft appears to be the Google way of operating, continuing to license out the Windows Phone OS to other OEMs whilst still maintaining its own hardware division.

It will be interesting to see if Microsoft takes it to the extent that Google has though, with Google keeping Motorola at arms length since purchasing the company — with an ex employee revealing that Motorola has a harder time dealing with the Android team as a Google company, than it did before.

Nokia and Microsoft have already been close, which is clear from the phones that have come of that partnership.

A Nokia united under Microsoft may be able to squash criticisms from Nokia’s executive team, who feel that the app situation is in desperate need of being addressed and blaming Microsoft for the failure.

Whether this deal puts a stop to Nokia exclusive apps is up for debate still, although if Microsoft wants to maintain OEM partners, it can’t be seen as having favourites.

Nokia’s future

Nokia is a company that’s not going away, although its brand will work a lot more behind the scenes now — with just the feature phone lineup continuing to use the Nokia name.

It is highly unusual that Microsoft would only want to maintain the Nokia brand for feature phones, given its concentration on Windows Phone smartphones, but it is speculated that it could have been stipulated by Nokia’s board — giving for the spun off company to possibly still make a smartphone in the future, although it’s unlikely.

Nokia has maintained ownership of HERE Maps, although Microsoft continues to be permitted to use it — possibly spelling an end to Bing Maps.

It will also still control its patent portfolio, meaning that company will still be a big player in the market — despite not making hardware.

Nokia will also retain Nokia Solutions and Networks, which the company has only just acquired from its former partner Siemens. The division had been struggling as recently as 2011, the year it decided to refocus itself on building mobile broadband infrastructure.

Of course Nokia is going to be a much smaller company than it currently is, but the deal made sense for both Microsoft and Nokia — with Nokia getting rid of the division that cost it the most money, whilst Microsoft gaining a hardware presence in the phone business.

Nokia & Microsoft

Microsoft reportedly made just $10 from every Lumia that was sold, evidently a low number and one that Microsoft was desperate to increase.

This could strengthen Microsoft’s position if it makes all the right moves, but Microsoft had previously bought a phone manufacturer before, with the company being responsible for the fateful end of Danger — who was famously brought on to help build the Kin.

The Nokia brand may never be carried on a smartphone again, a daunting prospect given the company helped invent the smartphone.

One can only hope that the Nokia ringtone lives on. You can also stop hoping for an Android-based Lumia.

About the Author

Jordan O'Brien

Technology Journalist with an unhealthy obsession with trains and American TV. Attempts satire far too often. (+44) 020 7324 3502

Share this article