Come in Agent Elop, your work is done

It’s finally happened. Microsoft today announced it is buying most of Nokia’s mobile phone business for a bargain €5.44bn (£4.62bn) in cash.

The deal will see Redmond snap up the Finnish giant’s Devices and Services business for €3.79bn (£3.2bn), license Nokia’s patents for €1.65bn (£1.4bn).

It’s a dramatic last roll of the dice for outgoing CEO Steve Ballmer and neatly brings back former Redmondite Stephen Elop into the fold.

He’ll be stepping aside as Nokia boss to become EVP of Devices and Services, but must be one of the favourites now to succeed Ballmer. If so, this will be one of the most expensive pieces of headhunting in corporate history.

Nokia’s chairman of the board Risto Siilasmaa will take the reins as interim CEO while the deal goes through the usual shareholder and regulatory approvals. Microsoft said it expects the transaction to close in Q1 2014, all being well.

For Microsoft the deal is proof if any were needed that it’s no longer a software company, that it sees success in the smartphone space as crucial to its future and that it can’t rely on a partner like Nokia to deal with the hardware side of things.

A few things occur to me:

• HTC and RIM will be pretty disappointed – who are they going to get to buy up their failing businesses now?
• Agent Elop has now been recalled after 2 years out in the field persuading Nokia’s board to sell to Microsoft. Job done – you may now progress to Microsoft CEO.
• China’s up and coming smartphone poster child Xiaomi was recently valued at $10bn, nearly $2bn more than Nokia at this sale. Surely over-inflated.
• This deal, while it could theoretically ensure phones get out faster to market, is not going to make life any easier for Microsoft or its new Nokia Devices and Services division. Especially in Asia. Its lack of apps will still hold it back.
• Is Nokia still Europe’s largest technology firm? Over 30,000 staff will now be Microsofties but it still has over 50,000 employees on its books working on the reasonably profitable NSN biz and location services. It should be in pretty good shape.

IDC analyst Bryan Ma told me that the deal would give Microsoft a shortcut or “jump start” into the hardware space, but could end up alienating OEM partners.

“It’s got device, manufacturing, economies of scale, and channels to sell into which would have all take it longer to grow organically, as well as valuable patents,” he argued.

“My concern is as much as this can help it doesn’t solve the biggest problem facing Windows Phone and Windows 8 on tablet and PC – it doesn’t have enough apps to make a compelling platform.”

Tellingly, Microsoft only devotes one bullet point on the app ecosystem in a mammoth 27-slide presentation explaining its strategic rationale, he pointed out.

Ma added that the deal could end up alienating more OEM partners.

“The whole debate Microsoft got into when it released Surface was that its hardware partners like Acer said it was stepping on their toes. This will raise questions over whether this is more salt in the wounds for them.”

As for smartphone OEMs well Windows Phone has very few of those beyond Nokia anyway so it will step on fewer toes, he said.

However, I’d agree with Canalys VP research Rachel Lashford that it’s not exactly going to attract any more into the fold either.

“It reminds me of a decade ago when Nokia owned Symbian and tried to license it out but it didn’t work out,” she told me. I can’t think of many OEM vendors would fancy going head-to-head with Microsoft on Windows Phone now.

As for Asia-specific repercussions, well I’ll be taking a look at those – and there should be some given Nokia’s legacy in India and Microsoft’s desire to crack China – in my next post.