Nearly three years ago, ex-Microsoft exec Stephen Elop became CEO of Nokia. The Finnish mobile phone company had once dominated the global market for cellphones but never figured out a successful smartphone product, instead dithering over a series of endless open source efforts as Apple's iPhone, then Google's Android took over. But since Elop became CEO in 2011, Nokia has converted its product line to Windows Phone while also keeping its Series 40 OS-based Asha line of not-quite-smartphones for poorer countries. (Microsoft gets the Asha name and a Series 40 license in the deal.)
Analysts and reporters have long suspected that Elop's appointment was a way for Microsoft to test whether it wanted to own Nokia so that it would be able to make its own devices, as do Apple and, after its acquisition of Motorola Mobility, Google. Apple's devices in particular benefit from tight integration of the hardware and software design, a direction Microsoft has been moving toward in recent years -- tentatively with its Nokia collaboration and more directly with its poorly received Surface tablets.
As announced Monday evening, Microsoft is paying €5.4 billion (about $7.2 billion) for Nokia's devices business -- the Nokia Lumia devices will become Microsoft's flagship devices -- and licenses to its patents. Soon-to-retire CEO Steve Ballmer announced that Elop will run the mobile business at Microsoft, and the Xbox and Surface division will be folded into it with Julie Larson-Green still managing those pieces. The Windows Phone effort will continue to be independent, part of Terry Myerson's Operating Systems group, so Microsoft can license it to other manufacturers with some degree of separation from the interests of its mobile division. Google has a similar arm's-length relationship between Motorola Mobility and its Android effort.
If the deal is approved by regulators, Nokia will become primarily a provider of telecom gear in early 2014, transferring 32,000 of its roughly 100,000 employees to Microsoft and focusing on its networking infrastructure, mapping and location services, and patent licensing businesses. Nokia will not be allowed to use or license the Nokia name for mobile devices until 2016.
What does this deal do, beyond confirm Nokia's failure to remain in the mobile business it once dominated? Some wags have suggested that the Microsoft-Nokia pairing was an attempt to tie together two drunks in hopes they would walk straight. If so, one drunk would fall down and be cut loose as the other started feeling more sober. Certainly, Nokia's shift to Windows Phone has not helped it turn around mobile sales. Even as Windows Phone sales creep up to about 6 percent worldwide, it hasn't been enough to offset the lost sales of Nokia's discontinued Symbian-based devices, which had been losing share long before Nokia switched to Windows Phone.
Microsoft's Surface effort has been a failure, amassing a $900 million loss and hundreds of millions more spent on unsuccessful marketing to get people to buy the heavy, awkward-to-use Surface RT tablets as well as the more capable but equally unloved Surface Pro tablets.