Left back in the smartphone race by the likes of Samsung & Apple, Nokia seems to be nearing a total collapse as they have sold their major handset business to software giants Microsoft for $7.2billion.
Reuters reports that Nokia, which will continue as a maker of networking equipment and holder of patents, was once the world’s dominant handset manufacturer but was long since overtaken by Apple and Samsung in the highly competitive market for more powerful smartphones.
Nokia’s Canadian boss Stephen Elop, who ran Microsoft’s business software division before jumping to Nokia in 2010, will now return to the U.S. firm as head of its mobile devices business.
He is being discussed as a possible replacement for Microsoft’s retiring CEO Steve Ballmer, who is trying to remake the U.S. firm into a gadget and services company like Apple before he departs, after disastrous attempts so far to compete in mobile devices.
In three years under Elop, Nokia saw its market share collapse and its share price shrivel as investors bet heavily that his strategy would fail.
In 2011, after writing a memo that said Nokia was falling behind and lacked the in-house technology to catch up, Elop made the controversial decision to use his former firm Microsoft’s Windows Phone for smartphones, rather than Nokia’s own software or Google’s ubiquitous Android operating system.
Nokia, which had a 40 percent share of the handset market in 2007, now has a mere 15 percent market share, with an even smaller 3 percent share in smartphones.
The sale of the handset business is not the first dramatic turn in the 148-year history of a company which has sold everything from television sets to rubber boots. But it was felt as a hard blow in its native Finland, even among hard-nosed investors who saw the sale as a final chance to salvage value.
“I have mixed feelings, because I’m a Finn. As a Finnish person, I cannot like this deal. It ends one chapter in this Nokia story,” said Juha Varis, Danske Capital’s senior portfolio manager whose fund owns Nokia shares. “On the other hand, it was maybe the last opportunity to sell it.”
Varis was one of many investors critical of Elop’s decision to bet Nokia’s future in smartphones on Microsoft’s Windows phone software, which was praised by tech reviewers but never caught on with consumers.
“So this is the outcome: the whole business for 5 billion euros. That’s peanuts compared to its history,” he said.
Finns lamented the decline of their former champion. Alexander Stubb, Finland’s minister for European Affairs and Foreign Trade, said on his Twitter account: “For a lot of us Finns, including myself, Nokia phones are part of what we grew up with. Many first reactions to the deal will be emotional.”
It is also a pivotal moment for Microsoft, which still has huge revenues from its Windows computer operating system, Office suite of business software and the X-Box game console, but never managed to set up a profitable mobile device business.
Microsoft’s own mobile gadget, the Surface tablet, has sold tepidly since it was launched last year.
“It’s a bold step into the future — a win-win for employees, shareholders and consumers of both companies,” Ballmer said in a statement. “Bringing these great teams together will accelerate Microsoft’s share and profits in phones and strengthen the overall opportunities for both Microsoft and our partners across our entire family of devices and services.”
The move leaves the Finnish company with Nokia Solutions and Networks, which competes with the likes of Ericson and Huawei in telecoms equipment, as well as a navigation business and a broad portfolio of patents, which will be licensed to Microsoft.