By MATTI HUUHTANEN, Associated Press
HELSINKI (AP) — Microsoft Corp. is buying Nokia Corp.'s line-up of smartphones and a portfolio of patents and services in an attempt to strengthen its fight with Apple Inc. and Google Inc. to capture a slice of the lucrative mobile computing market.
The 5.44 billion euros ($7.2 billion) deal announced late Monday marks a major step in the company's push to transform itself from a software maker focused on making operating systems and applications for desktop and laptop computers into a more versatile and nimble company that delivers services on any kind of Internet-connected gadget.
"It's a bold step into the future — a win-win for employees, shareholders and consumers of both companies," Microsoft CEO Steven Ballmer told reporters at Nokia's headquarters in Finland Tuesday. "It's a signature event."
Microsoft hopes to complete the deal early next year. If that timetable pans out, about 32,000 Nokia employees will transfer to Microsoft, which currently has about 99,000 workers.
The proposed price consists of 3.79 billion euros ($5 billion) for the Nokia unit that makes mobile phones, including its line of Lumia smartphones that run Windows Phone software. Another 1.65 billion euros ($2.2 billion) will be paid for a 10-year license to use Nokia's patents, with the option to extend it indefinitely.
Investors in Nokia welcomed the deal, sending shares in the company up more than 40 percent to 4.15 euros in Helsinki.
Nokia CFO Timo Ihamuotila said the company's future will center on its mobile networks business, a former joint venture with German home consumer giant Siemens AG which Nokia bought out in July. This will be complemented by two smaller units — HERE mapping services and the advanced technologies unit including Nokia's licensing business, Ihamuotila said.
"Our aim is clearly to grow the networks business in a profitable way," he said in a call to investors. "It is a cash-generating business where we can invest into the future growth."
Nokia will continue to own the rights to its brand, but the deal between the two companies prevents it from venturing into a separate smartphone business until the end of 2015.
Microsoft, based in Redmond, Wash., has been racing to catch up with customers who are increasingly pursuing their digital lives on smartphones and tablet computers rather than the traditional PCs. The shift is weakening Microsoft, which has dominated the PC software market for the past 30 years, and empowering Apple, the maker of the trend-setting iPhone and iPad, and Google, which gives away the world's most popular mobile operating system, Android.
Nokia, based in Espoo, near the Finnish capital, and Microsoft have been trying to make inroads in the smartphone market as part of a partnership forged in 2011. Under the alliance, Nokia's Lumia smartphones have run on Microsoft's Windows software, but those devices haven't managed to compete with iPhone or an array of Android-powered devices spearheaded by Samsung Electronics' smartphones and tablets
Microsoft is betting it will have a better chance of narrowing the gap if it seizes complete control over how the mobile devices work with its Windows software.
Despite the dismal performance of Windows phones — 7.4 million units in the second quarter compared to Apple's 31 million and 187 million Android phones, according to research company IDC — Microsoft CEO Steven Ballmer was upbeat about the partnership with Nokia, saying he was encouraged by a growth of 78 percent in Lumia phone sales in a year.
"Now is the time to build on this momentum and accelerate it further," Ballmer said Tuesday. "Finland will become the hub and center for our phone R&D and we are counting very much on the incredible talent of Nokia employees to be a key part of driving and propelling Microsoft forward."
Ballmer said that Microsoft will invest more than $250 million in a new data center to serve European consumers.
Neil Mawston from Strategy Analytics said the move was good for Nokia's shareholders but did not change much for the ailing Finnish firm which has lost significant market share.