Microsoft buying Nokia’s handset division in $7.2 billion deal; Stephen Elop returning

Well, how’s this for late-break­ing Labor Day news: Microsoft has just announced that it’s struck a deal with Nokia to buy “sub­stan­tial­ly all” of the Finnish phone mak­er’s Devices & Ser­vices busi­ness, plus license Noki­a’s patent port­fo­lio for ten years, for $7.1 bil­lion in cash. As part of the deal, for­mer Microsoft exec­u­tive Stephen Elop will rejoin the com­pa­ny as an exec­u­tive vice president.

Mean­while, Nokia Chair­man Ris­to Siilas­maa will become Inter­im CEO of Nokia.

The trans­ac­tion, if approved, would make Microsoft a major play­er in the hand­set indus­try. For many years, Nokia was the world’s top mak­er of mobile phones, but it began los­ing mar­ket share as iOS and Android began tak­ing off. Though its for­tunes have declined, Nokia still makes and sells a lot of handsets.

In fact, its busi­ness as twice as big as Apple’s. It’s just not as profitable.

In late 2011, Nokia hired Stephen Elop to turn things around, and Elop, as many tech pun­dits pre­dict­ed, forged an alliance with Microsoft to pro­duce hand­sets run­ning Win­dows Phone 7, and lat­er, Win­dows Phone 8. The com­pa­ny’s Lumia line of smart­phones are the best known Win­dows Phone devices.

Nokia was nev­er Microsoft­’s exclu­sive part­ner on Win­dows Phone, but it end­ed up being an almost-exclu­sive part­ner any­way. Accord­ing to recent esti­mates, Nokia sells over eighty per­cent of Win­dows Phone handsets.

Microsoft exec­u­tives appar­ent­ly saw the writ­ing on the wall, and con­clud­ed that the time had come to start doing what Apple and Black­Ber­ry already do: Sell both the hard­ware and the soft­ware as one product.

Google, inci­den­tal­ly, is also in the hand­set busi­ness fol­low­ing its acqui­si­tion of Motoro­la Mobil­i­ty. How­ev­er, Android is (most­ly) open source, and oth­er com­pa­nies make smart­phones run­ning Android — most notably Sam­sung, but also LG and HTC. HTC used to sell most­ly hand­sets run­ning Win­dows Mobile once upon a time, but now pre­dom­i­nant­ly makes Android phones.

HTC is cur­rent­ly the sec­ond largest man­u­fac­tur­er of Win­dows Phone hand­sets, but whether it will remain com­mit­ted to the Win­dows Phone plat­form after today’s big news remains to be seen, since Microsoft has just gone from part­ner to competitor.

Nokia will be a very dif­fer­ent com­pa­ny after it hands over its best-known divi­sion (which employs some 32,000 peo­ple) to Microsoft. In a joint let­ter with Steve Ballmer, Stephen Elop called the deal the right move for both companies.

Today’s agree­ment will accel­er­ate the momen­tum of Nokia’s devices and ser­vices, bring­ing the world’s most inno­v­a­tive smart­phones to more peo­ple, while con­tin­u­ing to con­nect the next bil­lion peo­ple with Nokia’s mobile phone portfolio.

With the com­mit­ment and resources of Microsoft to take Nokia’s devices and ser­vices for­ward, we can now real­ize the full poten­tial of the Win­dows ecosys­tem, pro­vid­ing the most com­pelling expe­ri­ences for peo­ple at home, at work and every­where in between.

We will con­tin­ue to build the mobile phones you’ve come to love, while invest­ing in the future – new phones and ser­vices that com­bine the best of Microsoft and the best of Nokia.

Nokia and Microsoft are com­mit­ted to the next chapter.

Togeth­er, we will rede­fine the bound­aries of mobility.

This is cer­tain­ly a major move for Microsoft, and has sparked quite a bit of con­ver­sa­tion online. After the trans­ac­tion clos­es, they will own the Win­dows Phone expe­ri­ence, much like their com­peti­tors do with their plat­forms. Lumia will be a Microsoft brand, like Xbox and Skype.

Whether the move will help Win­dows Phone’s mar­ket share remains to be seen. Black­Ber­ry and Apple are the only com­pa­nies that sell hand­sets run­ning Black­Ber­ry 10 and iOS, respec­tive­ly, but they’ve each lost mar­ket share and mind share to Google’s Android plat­form (though Black­Ber­ry has lost much more).

Con­trary to what tech pun­dits like Matt Miller are sug­gest­ing, Microsoft­’s acqui­si­tion of Noki­a’s devices busi­ness does not con­sti­tute the final nail in the cof­fin for Black­Ber­ry. It does rule out Microsoft as a suit­or in a prospec­tive sale of the com­pa­ny, but Microsoft was nev­er a like­ly acquir­er of the Cana­di­an mobile pioneer.

While Black­Ber­ry has not been able to rebound in the North Amer­i­can mar­ket, it is far stronger over­seas (par­tic­u­lar­ly in Africa and Ocea­nia) and it seems more like­ly to me that the com­pa­ny’s board will pro­pose tak­ing it pri­vate, as opposed to find­ing a buy­er or break­ing the com­pa­ny into pieces. Black­Ber­ry 10 is by far the best mobile plat­form out there at the moment, and although it is rather young, it has a lot of poten­tial. The forth­com­ing 10.2 release is expect­ed to add a num­ber of small but use­ful fea­tures miss­ing from BB10 at launch, and add fur­ther pol­ish and sta­bil­i­ty to what is already an incred­i­bly secure and well-designed oper­at­ing system.

What Black­Ber­ry could real­ly use is some kind of shot in the arm. Microsoft has just used its cash hoard to give its Win­dows Phone plat­form a boost and become a more glob­al com­pa­ny. Time will tell if the acqui­si­tion was the right move to pro­pel Win­dows Phone for­ward. For now, we can cer­tain­ly call it a big move.