| HELSINKI/SEATTLE, Sept 3
HELSINKI/SEATTLE, Sept 3 In an era when shiny
new tech start-ups can be worth tens of billions of dollars,
Microsoft's deal to acquire Nokia's mobile handset business for
5.44 billion euros ($7.2 billion) is a modest one from a
strictly financial point of view.
Yet the deal is likely to go down as a major turning point
in the contemporary technology business, one that marks the end
of a Finnish company's unlikely run as world-beating tech icon
even as it shapes the future of Microsoft Corp - for
better or for worse.
In Finland, politicians and business leaders mourned the
fall of Nokia, while pensioners wondered what it all
meant for them. In Seattle, the chatter centered on what the
deal might say about the race to succeed Microsoft Chief
Executive Steve Ballmer, who announced 10 days ago that he would
step down within a year.
For the global telecom industry, meanwhile, the deal signals
further consolidation, coming just a day after Verizon
announced a $130 billion deal to buy Vodafone's stake in
its wireless unit. It could also help Microsoft achieve its
long-held ambition of becoming a major rival to Apple
and Samsung in the global smartphone business,
though it will also put even more pressure on the company to
show that its massive investments in consumer devices make
The Nokia deal "unequivocally suggests they aren't exiting
the business and in fact are doubling down on mobile," said Todd
Lowenstein, a portfolio manager at HighMark Capital Management,
which holds Microsoft shares.
"They can in all likelihood carve out a decent niche with
their scale as a fully integrated player, however investors are
questioning the merits," Lowenstein added. "The markets have
spoken volumes." Microsoft shares finished down 4.6 percent on
Nokia and Microsoft have been joined at the hip since early
2011, when the Finnish company agreed to adopt Microsoft's
Windows Phone software for its smartphones - a big gamble for
Nokia, but one that came at a time when the company's market
share was already in a freefall and it had few good options.
Since then Nokia has produced a series of Windows-powered
phones that were mostly well-reviewed by critics, though largely
shunned by customers.
There had been speculation from the start that Microsoft
might eventually buy Nokia, but many analysts thought Microsoft
had the best of both worlds - a committed hardware partner, but
none of the considerable downside risk that might go with owning
Behind the scenes, though, friction developed, according to
a source familiar with the situation, especially after Microsoft
launched its Surface tablets last fall.
"Each was trying to spend money on app developers, music
stores, all the parts critical to the ecosystem," said the
source. "It all came to a head at the end of last year,
beginning of this year - was this really the right way to work
or are we better as one entity?"
Discussions on an acquisition began in earnest in February,
after Ballmer approached Nokia for an "open dialogue." Ballmer
and Nokia board chairman Risto Siilasmaa met at the Mobile World
Congress in Barcelona. After a few hiccups the negotiations
kicked into high gear in July, with almost 50 board meetings on
the part of Nokia.
Another source close familiar with the negotiations said the
timing of the deal, which was called "Project Gold Medal" at
Microsoft, was influenced by Ballmer's announced departure, with
Nokia seeking to wrap it up before a new CEO was named. Nokia
officials were concerned that if it delayed it could end up with
facing a firesale down the road as its cash position worsened,
the source said.
For Microsoft, moving ahead with a major strategic
acquisition even as it seeks a new CEO reaffirms its commitment
to being a broad-based "devices and services" company - a
strategy crafted by Ballmer and one which was at the heart of a
major reorganization announced just weeks ago.
On Tuesday, Microsoft called the Nokia deal "a huge leap
forward on our journey of creating a family of devices and
services that delight people and empower businesses of all
People close to the situation rejected the idea that the
transaction meant that Nokia CEO Stephen Elop, a former
Microsoft executive who will rejoin the company as head of the
devices and services division, would automatically succeed
Ballmer. But analysts said the move could make it harder to
bring in an outsider CEO who might want to revisit all aspects
of the company's strategy.
FINLAND'S NATIONAL CHAMPION
Tuesday's deal marks the breakup of a company almost
embedded in Finnish DNA, a once-proud symbol of Nordic
entrepreneurial engineering prowess and design. At its peak it
accounted for 40 percent of the world's mobile phones, a fifth
of Finland's exports and four percent of its GDP, and had a
market value of close to $300 billion.
Barely a decade ago, consumers talked about Nokia with the
same bated breadth as they do about Apple today, marvelling at
its sleek but practical designs. But its abrupt fall symbolises
the breakneck speed and unforgiving competition in consumer
electronics, where nimble rivals can quickly upset established
Nokia itself has had plenty of experience in reinvention
over its 148-year history. From its beginning as a paper
manufacturer in 1865, it grew to make everything from rubber
boots to televisions, and eventually its brand name was even
emblazoned on lavatory tissue.
Its modern incarnation began under Jorma Ollila, who headed
the cellphone unit beginning in 1990 and then, as chief
executive, transformed the Finnish conglomerate into a global
handset leader. Its brand name was often mistaken as Japanese,
something that at the time delighted a company whose home
country was harder to sell globally.
"It was something Finland hadn't had, this major consumer
brand," said Mikko Makipaa, an entrepreneur, recalling his days
at the company from 1996 to 2009.
But Ollila was blamed for being late to recognise the threat
of Apple's iPhone and the smartphone revolution. A report by the
Research Institute of the Finnish Economy said Nokia developed
touch-screen phones three years before the iPhone and a tablet
as early as 2005, but they never reached the market.
Elop's appointment in 2010 was hailed for bringing Silicon
valley zip into the struggling company as rivals led by Apple
were gaining market share in high-end smartphones even as Asian
competitors were eating away at the cheaper, simpler end of the
A Canadian with five children and an amateur pilot who had
previously headed Microsoft's business division, Elop was the
first non-Finn to head Nokia. At his first press conference -
broadcast live on Finnish TV - he played up his love for ice
hockey, a passion many Canadians share with Finns.
His enthusiasm quickly endeared him to staff, but he was
also blunt. In a now-famous 2011 email to staff, he compared
Symbian - Nokia's then operating software - with a "burning
platform" that needed to be abandoned. It was dropped in favour
of a largely untested alternative from Microsoft.
One in three jobs were cut, and one source who was there at
the time said the memo was ill-advised because it destroyed
sales of Symbian before the Windows phones were ready. Still, it
was mostly seen as the sort of bold stroke needed to rescue the
Now Elop is viewed in a different light. "A Trojan horse,"
the widely-read tabloid Ilta-Sanomat declared in a column on
"It sounds like a betrayal to me," said Finnish pensioner
In fact, many in Finland saw the deal as a sign of deeper
malaise within the Finnish economy and its celebrated Nordic
"For Finland, Nokia is emotional and symbolic. My generation
grew up with a Nokia in their pocket. We view the deal in
Finland as the end of an era," said Alexander Stubb, Finland's
minister for European Affairs and Foreign Trade.
Nokia is not disappearing, and will now concentrate on its
networking equipment unit, navigation business and technology
Optimists say it is not the first time Nokia has taken a big
bet. In the early 1990s it sold off businesses that accounted
for around 70 percent of its sales to focus on telecoms. That
followed the collapse of the Soviet Union, which halted a highly
profitable cross-border trade.
Finland also remains one of the few countries in the euro
zone with a triple-A credit rating. But its reputation as an
egalitarian society with top-notch education and health services
belies worries about its once-mighty export manufacturers and
rapidly ageing population.
"This is a major challenge for Finland," said Tero
Kuittinen, an analyst at Alekstra. "Microsoft is unlikely to
keep any meaningful handset R&D or production in Finland.
"In 2007, Finland had 60 percent of the global smartphone
market. That will now plunge to zero percent - a massive blow
for a country that bet so much on mobile technology," Kuittinen
To a certain extent, Nokia's decline may have inoculated
Finland against a sudden shock. At its peak, Nokia accounted for
4 percent of Finnish GDP and supported myriad suppliers. Today
it contributes closer to 1 percent, according to analysts.
Many former Nokia employees have helped to spawn a growing
IT industry, symbolised by fast-growing Rovio, maker of the
popular Angry Birds game.
Kuittinen said that Rovio's Angry Birds empire has racked up
nearly 2 billion downloads while Supercell, another game
company, is getting close to $100 million in monthly revenue
from its two blockbusters, Hay Day and Clash of Clans.
"The problem is that these two companies combined only have
700 or so employees," Kuittinen said.
But for an upcoming generation, nostalgia about Nokia may
have been supplanted by straightforward realism.
"Their share price is all that I'm interested in," said a
28-year-old business student named Aleksi, who declined to give
his last name. "I don't understand this crying about national
treasure being sold. People seem to think it's the year 2000.
Business is business. Nokia is not defining Finland."
For the global tech business, the big question is to what
extent Nokia will define Microsoft. Activist shareholders, led
by ValueAct Capital, have urged the company to stop spending so
heavily on consumer products and instead return money to
Microsoft's track record in both consumer devices and major
acquisitions does little to inspire confidence. Yet it remains
among the very few firms with the muscle to challenge the market
leaders in smartphones.
"I continue to believe that there is enough innovation in
devices, unlike some of our investors, that it will be a growth
opportunity in terms of the financial reward to the bold, to the
innovative who pursue it," Ballmer said Tuesday in explaining
the deal to analysts.
He also called the phone business "the best opportunity for
pursuing users in very, very large numbers." As Nokia learned
though, translating opportunity into success is the hard part.