Microsoft buys Nokia phones to fight Apple, Google

Microsoft agreed Tuesday to buy the handset business of former market leader Nokia in an effort to catch up to rivals Apple and Google in the fierce smartphone market, AFP reports. The deal for 5.44 billion euros ($7.17 billion) puts Microsoft on track to cement its position as the number three smartphone platform with Windows Phone, and offers the US tech giant an opportunity to extend its growth in the mobile space where it has lagged. "Most importantly, we are trying to accelerate our phone market share," Microsoft chief executive Steve Ballmer told reporters on a conference call from Finland. "We know we need to accelerate, we are not confused about that." Nokia, the world's leading mobile phone maker until last year, will now focus on network infrastructure and mapping services, which it called "the best path forward for Nokia and its shareholders." Nokia pioneered the mobile phone and dominated the market for 14 years, until it was overtaken by South Korea's Samsung in 2012 as the top-selling brand. The company, long the pride of Finland, was blindsided by the shift to smartphones and struggled to fight off increasing competition from Apple's iPhone and Samsung's Galaxy. Rumours of a sale had swirled for months. Microsoft and Nokia have been partnered since 2011, co-creating Nokia's Lumia line of smartphones using Microsoft's Windows Phone software. After the announcement of the latest deal, Microsoft shares slipped 4.55 percent to close at $31.88, while Nokia jumped 31.3 percent to end at $5.12 in New York trade. -- Microsoft attempting 'to stem the decline in global product sales' -- With Tuesday's deal, Microsoft is following in the footsteps of rival Google, which created the Android smartphone operating system and then branched into hardware when it bought phone-maker Motorola. "The trigger behind this is without a doubt the current restructuring of business at Microsoft in which the tech giant attempts to stem the decline in global product sales," ETX Capital analyst Ishaq Siddiqi said. Microsoft "is still behind Apple and Android-based handset devices in the global mobile phones market share, but under this deal, Microsoft can start to take control of the operation and turn Nokia's declining handset business into a formidable competitor in a competitive market," he said. Stephen Elop, the Nokia chief executive who was hired from Microsoft in 2010, will transfer back to his original employer, becoming a rumoured replacement for Ballmer, whose retirement was announced this summer. Risto Siilasmaa, Nokia's chairman of the board, will be Elop's interim replacement. In 2011, Elop spearheaded dramatic change at Nokia as he warned the company was "standing on a burning platform" and needed to shift course. The shake-up involved discarding Nokia's Symbian platform in favour of the partnership with Microsoft, and the launch of the Lumia smartphones. Windows Phone had just 3.7 percent of the global smartphone market in the second quarter, well behind Apple and Android, according to research firm IDC, but it has been growing. The deal also gives Microsoft access to a range of Nokia patents and licenses, and a large number of non-smartphone mobile Asha handsets, which Ballmer called "an excellent feeder into the smartphone world and a way to touch people with our services even on much lower-end devices in many parts of the world." Ballmer said that by licensing Nokia's mapping service, called HERE, and integrating it with its own Bing service, it would create a "very effective alternative for mapping to Google." -- Sale provides 'solid basis' for Nokia's future -- Tuesday's announcement marks the end of Nokia's days as a phone manufacturer. "Nokia alone does not have the resources to fund the required acceleration ... especially as we have great opportunities in our other businesses as well," Siilasmaa told reporters. Some 32,000 Nokia employees are expected to be transferred to Microsoft, including some 4,700 people in Finland, the company said. The phone operations affected by the transfer generated approximately 14.9 billion euros in 2012, or almost 50 percent of Nokia's net sales. Nokia will book a gain on the sale of some 3.2 billion euros, which will "clearly strengthen our financial position and it will provide a solid basis for future investment in Nokia's continuing businesses," Siilasmaa said. Last month, Nokia finalised the purchase of German engineering giant Siemens's 50-percent stake in Nokia Siemens Networks (NSN) for 1.7 billion euros. NSN, which is specialised in high-speed mobile broadband, had posted stronger earnings than Nokia's mobile phone business, booking a net profit of 8.0 million euros in the second quarter of this year, compared to Nokia's net loss of 227 million euros. Going forward, Nokia's main rivals will be Sweden's Ericsson and Huawei of China, according to Danske Bank Markets analyst Ilkka Rauvola. Tuesday's announcement is likely to spark speculation about the future of another big, struggling phone maker, BlackBerry of Canada, which recently announced it was considering a sale of the company or other "strategic options." Microsoft's acquisition is expected to be completed in the first quarter of 2014.