High stakes gamble by Microsoft to enter smartphone space

The once mighty Nokia mobile handsets and device business has fallen into the lap of American giant Microsoft at a price tag of $7.17 billion.

The announcement, made in the very early hours of Tuesday from Nokia’s headquarters in Helsinki, said that under the deal, Microsoft will pay “Euro 3.79 billion to purchase substantially all of Nokia’s device and service business and Euro 1.65 billion to license Nokia’s patents for a total transaction price of Euro 5.44 billion in cash.”

The release emphasised that Microsoft would also get a “long-term patent licensing agreement with Qualcomm, as well as other licensing agreements.”

Both Microsoft and Nokia were widely regarded as having missed the boat — Nokia was too late in the smartphone space and Microsoft did not have a device platform for its software business. This deal comes at a time when the mobile handset business is seeing a worldwide carnage.

Press releases from both companies clarified that the deal includes “the mobile phones and smart devices’ business units as well as an industry leading design team, operations including all Nokia devices & services-related production facilities, device & services-related sales and marketing activities, and related support functions.”

Nearly 32,000 Nokia employees, along with its now globally famous, relatively new Lumia range of smartphones, will go over to Microsoft. Nokia and Microsoft have had a strategic partnership since 2001, under which Nokia CEO and former Microsoft executive Stephen Elop had agreed to make Windows the exclusive operating system for Nokia smartphones.

Smartphone gamble

With 2.7 billion Internet users and nearly 7 billion mobile phones worldwide, Microsoft hopes to use the deal to leapfrog into the smartphone market by becoming a hardware vendor.

It is widely expected that a vast majority of the next four billion Internet users, including those in India, will access the web with smartphones and wireless devices.

According to Gartner, a research firm, Windows phones occupy a mere 2.9 per cent of the smartphone market, a share smaller than even BlackBerry’s.

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