Microsoft ran into a wall of scepticism on Tuesday over its belated jump to compete against Apple and Samsung in the smartphone business with a €5.4bn deal to buy Nokia’s handset operations and license the Finnish company’s patents.
The deal also seals the eclipse of one of Europe’s leading technology champions, ending Nokia’s three decade-long attempt to build a consumer brand that saw it become the world’s biggest manufacturer of mobile handsets, but which also brought it to the edge of financial ruin.
Nokia said it would refocus around its telecoms infrastructure business, in the latest dramatic change in the company’s turbulent 148-year history.
Doubts about Microsoft’s chances of becoming a serious challenger in the booming smartphone business led to a drop of more than 4.5 per cent in its share price on Tuesday, wiping more than $11bn from its market value.
The US software company has become increasingly dependent on Nokia for sales of its Windows Phone software as other hardware makers have withdrawn, leaving its mobile software a distant third to Apple and Google.
Nokia’s shares, meanwhile, jumped 34 per cent amid investors’ relief that it had escaped the lossmaking handset market and found a solution to the increasing financial stresses it was facing.
Nokia had a market capitalisation of more than €200bn at its peak at the time of the dotcom bubble but the €3.2bn gain it says it will book from the sale to Microsoft will be vital in its fight to preserve cash.
The acquisition extends the upheaval of the global handset business in the six years since Apple’s first iPhone undermined the industry’s former powers. BlackBerry has said it is looking into strategic options including a sale, while Motorola was bought by Google and smartphone pioneer Palm was closed after being acquired by Hewlett-Packard.
Steve Ballmer, Microsoft chief executive, said the deal, which includes €1.65bn to license Nokia’s patents, was designed to help the company produce better products and accelerate attempts to raise its market share, which research firms put at 3 per cent. Negotiations began at the end of January, long before the recent news of Mr Ballmer’s own announcement that he would quit as soon as a successor was found, with the Finnish company’s board convening more than 50 times this year.
The Microsoft chief rejected claims that the US company was jumping into the smartphone business too late. “I believe there is enough opportunity in devices – unlike some of our investors – to provide growth,” he said.
In reminders of how much ground Microsoft has to make up, Apple on Tuesday issued invitations to an event next week that is expected to see the unveiling of its latest iPhone, while Google said it had activated 1bn devices since it created its Android mobile software.
Risto Siilasmaa, Nokia’s chairman and acting chief executive, said the Finnish company’s board came to the reluctant conclusion that Microsoft’s deeper pockets would allow it to better compete against the “financially dominant” Apple and Google.
The deal provoked a deep sense of loss in Nokia’s home country of Finland where the mobile group had long been the largest and most successful company. “It is a big blow. But we will still have a Nokia in Finland, it will be a more limited one, but it will be stronger than it was,” said Jan Vapaavuori, Finland’s minister of economic affairs.