Microsoft buys out Nokia's smartphone business

Microsoft has dropped $7.2 billion to buy out Nokia's smartphone business.

As well as a near-complete acquisition of the Devices and Services business, the deal allows Microsoft to license all Nokia's patents and mapping services.

GamesIndustry reports the cash deal includes a €3.79 billion payment for "substantially all"and €1.65 billion for licenses, to be paid by Q1 2014.

Former Microsoft staffer and current Nokia CEO Stephen Elop will become head of the division, bringing 32,000 Nokia staff to Microsoft's fold. Julie Larson-Green will remain head of Microsoft's Devices and Studios team at Microsoft, which includes the Xbox 360 and Xbox One division.

Microsoft will acquire Nokia's Smart Devices division, uncluding the Lumia brand and products, which have sold 7.4 million units. It also acquires the Mobile Phones business from Nokia, which had sales of 53.7 million units in the second quarter of 2013.

Nokia and Microsoft have been working together for more than two years and partnered to produce a couple of Lumia-branded phones; Nokia has been Microsoft's largest hardware partner for Windows Phone 8. The purchase will not lock other hardware manufacturers out of the Windows Phone platform, however.

Microsoft boss Steve Ballmer issued a memo to employees advising them of the deal, congratulating the company on its acquisition of "incredible talent, technology and IP".

"Clearly, greater success with phones will strengthen the overall opportunity for us and our partners to deliver on our strategy to create a family of devices and services for individuals and businesses that empower people around the globe at home, at work and on the go, for the activities they value most," he said.

Ballmer's email is reproduced in full below:

From: Steve Ballmer

We announced some exciting news today: We have entered into an agreement to purchase Nokia's Devices & Services business, which includes their smartphone and mobile phone businesses, their award-winning design team, manufacturing and assembly facilities around the world, and teams devoted to operations, sales, marketing and support.

For Microsoft, this is a bold step into the future and the next big phase of the transformation we announced on July 11.

We are very excited about the proposal to bring the best mobile device efforts of Microsoft and Nokia together. Our Windows Phone partnership over the past two and half years has yielded incredible work - the stunning Lumia 1020 is a great example. Our partnership has also yielded incredible growth. In fact, Nokia Windows Phones are the fastest-growing phones in the smartphone market.

Now is the time to build on this momentum and accelerate our share and profits in phones. Clearly, greater success with phones will strengthen the overall opportunity for us and our partners to deliver on our strategy to create a family of devices and services for individuals and businesses that empower people around the globe at home, at work and on the go, for the activities they value most.

We have laid out Microsoft's strategic rationale for this transaction in a presentation that I encourage you to read.

This is a smart acquisition for Microsoft, and a good deal for both companies. We are receiving incredible talent, technology and IP. We've all seen the amazing work that Nokia and Microsoft have done together. Given our long partnership with Nokia and the many key Nokia leaders that are joining Microsoft, we expect a smooth transition and great execution.

As is always the case with an acquisition, the first priority is to keep driving through close, which we expect in the first quarter of 2014, following approval by Nokia's shareholders, regulatory approvals, and other closing conditions. But I also know people will have some questions about what happens post-close. While details aren't final, here is what we know, and how we're generally approaching integration:

1. Stephen Elop will be coming back to Microsoft, and he will lead an expanded Devices team, which includes all of our current Devices and Studios work and most of the teams coming over from Nokia, reporting to me.

2. Julie Larson-Green will continue to run the Devices and Studios team, and will be focused on the big launches this fall including Xbox One and our Surface enhancements. Julie will be joining Stephen's team once the acquisition closes, and will work with him to shape the new organization.

3. As part of the acquisition, a number of key engineering leaders will be joining Microsoft from Nokia, reporting to Stephen in his new capacity: Jo Harlow, who will continue to lead the Smart Devices team. Timo Toikkanen, who will continue to lead the Mobile Phones team. Stefan Pannenbecker, who will lead Design. Juha Putkiranta, who will lead the integration effort on Nokia's behalf

4. Regarding the sales team, we plan to keep the Nokia field team, led by Chris Weber, intact and as the nexus of the devices sales effort, so that we can continue to build sales momentum. After the deal closes, Chris and his team will be placed under Kevin Turner. We will develop a single integrated team that is selling to operators, and there may be other integration opportunities that we can pursue. Kevin will work with Chris Weber and Chris Capossela to make those plans.

5. Our operating system team under Terry Myerson will continue unchanged, with a mission of supporting both first-party and third-party hardware innovation. We are committed to working with partners, helping them build great products and great businesses on our platform, and we believe this deal will increase our partner value proposition over time. The established rhythms and ways of working between Terry and his team and the incoming Nokia team will serve us well to ensure that we do not disrupt our building momentum.

6. We are planning to integrate all global marketing under Tami Reller and Mark Penn. It is very important that we pursue a unified brand and advertising strategy as soon as possible.

7. Finance, Legal, HR, Communications, DX / Evangelism, Customer Care and Business Development will integrate functionally at Microsoft. Sourcing, customer logistics and supply chain will be part of Stephen's Devices organization. ICM / IT will also integrate functionally for traditional IT roles. We will need to work through the implications for factory systems given the differing manufacturing processes and systems at both Nokia and Microsoft.

8. We plan to pursue a single set of supporting services for our devices, and we will figure out how to combine the great Nokia efforts into our Microsoft services as we go through the integration process.

9. There are no significant plans to shift where work is done in the world as we integrate, so we expect the Nokia teams to stay largely in place, geographically.

10. Tom Gibbons will lead the integration work for Microsoft.

While today's announcement is big news, we have to stay heavily focused on running the current business. We have a huge fall and holiday season ahead of us, so we need to execute flawlessly and continue to drive our business forward. I have no doubt we will.

Steve

This news is of relevance to gamers as Microsoft has made an effort to unite its smartphone, PC and console gaming ecosystems, through Xbox Live profiles and second screen initiative SmartGlass, but as Nokia and Windows Phone are both quite low-profile mobile brands it's hard to get excited.

However, the addition of such a substantial, experienced division can only assist Microsoft's efforts to carve out a mobile space of its own against competitors Android, Blackberry and iOS. The patents it has acquired as part of the deal may have far-reaching consequences, as the device sector is notoriously quick to litigate on patent infringement.

The remainder of Nokia will continue operations as an independent company, focusing on Nokia's plan is to focus on network infrastructure, maps and location based services, and licensing and development.