Microsoft and Nokia have an agreement under which Microsoft will buy the Finnish phone and services company, thereby actually transforming itself from a software company to a devices and services company – the mantra its executives have been repeating relentlessly for the past year or so.
There are lots of subtleties to the transaction, and here is a set of questions and answers to help frame the key parts of the pending deal.
BACKGROUND: Microsoft CEO Ballmer to retire in 12 months
QUIZ: Steve Ballmer said what?
How much will Microsoft pay?
$7.17 billion total. That’s $4.99 billion for nearly all of Nokia’s devices and services business plus another $2.17 billion to license its patents and to use its mapping services. Microsoft is also putting up an additional $1.98 billion in securities.
When does the deal go through?
The first calendar quarter of 2014. Regulators and stockholders have to approve.
What does this say about what Microsoft is up to?
It reinforces with what Microsoft has been saying about being a devices and services company. Besides its wildly popular Xboxes and its not-so-popular Surface tablets, the company doesn’t have much to show for devices. Nokia already has a partnership with Microsoft to make Windows Phone 8 smartphones (Nokia Lumias) that are sold through AT&T, T-Mobile and Verizon.
Isn’t this kind of out of the blue?
Microsoft and Nokia have been close partners since 2011, and Nokia is by far the strongest supporter of Windows Phone 8 hardware.
What’s the upside of making phones?
By owning the phones outright Microsoft can better dictate the specs of the hardware and can implement innovations faster by removing the step of convincing another entity to carry them out. Lumias have received good reviews for the quality of hardware, including impressive cameras.
How about tablets?
Rumors abound that Nokia is making a Windows RT tablet named Sirius for release sometime this fall. Windows RT is the Windows 8 hardware-software bundle that runs on ARM processors and runs only Windows 8 Modern applications plus a special set of Microsoft Office apps – but not traditional Windows x86 apps. That’s right, no backward compatibility for apps.
It could be an alternative to Microsoft’s own Surface RT tablet or even be what has been referred to as Surface 2, a next-generation Surface RT tablet, also rumored.
Neither version of Microsoft’s Surface tablets – RT or Pro – has cellular support, something Nokia presumably could blend into a tablet without breaking a sweat considering its phone expertise. That would give Microsoft an edge with its carrier partners with another device they can sell in their stores.
What about the maps?
Last year Nokia bought Earthmine, a 3D mapping company whose technology rivals that of Google’s Street View and Microsoft’s Bing Maps. The Nokia Here service is said to have better resolution that captures more readable images of signs that can be machine read using text-recognition software and so enhance search results with the names of businesses. The deal could improve Microsoft’s current offering and put Google on the run.
(Fun fact: Nokia’s mobile mapping gear that is driven up and down streets in a custom car is controlled by a Microsoft Surface tablet running a custom Nokia app, according to a story by SlashGear.)
What about Nokia President and CEO Stephen Elop?
First of all, after today Elop is no longer president and CEO; he’s executive vice president of devices and services.
Devices and services - that rings a bell. It’s the kind of company into which Microsoft is transforming itself. This is sure to fan the already raging rumors that Elop is a top contender to replace Microsoft CEO Steve Ballmer when he steps down within a year.
Elop’s expertise in mobile devices and mapping suit him to oversee Microsoft’s expansion in these areas, especially since he’s already worked at Microsoft from 2008 to 2010 running the company’s business division, which includes Microsoft Office and Microsoft Dynamics.
He’s also had stints at Lotus, Adobe and Juniper Networks, all off which look pretty good on a resume for Microsoft CEO.
How well does Nokia do selling phones?
Nokia hasn’t done well since the advent of smartphones, not even falling in the top five vendors of the devices, and most of this happened during Elop’s watch.
In hard numbers, during the second quarter of 2013, smartphone vendors sold a total of 225 million smartphones; Nokia sold 7.4 million. The leader Samsung sold 71.3 million, according to Gartner.
How many employees does the deal bring to Microsoft?
The companies say about 32,000 - of them 4,700 work in Finland. Another 18,300 work in manufacturing, assembly and packaging.
In its last annual report, the Nokia claims to have 112,256 employees total, with 41,480 in devices and services and another 6,441 in location and commerce, its mapping division. So it looks like some layoffs are in the offing.
Will this be good for Microsoft’s bottom line?
Ballmer says the deal will be accretive – add earnings per share – starting in the company’s Fiscal Year 2015, which starts next summer.
Microsoft says the parts of Nokia that it is buying account for about half of Nokia’s net sales for 2012, an amount Nokia’s financial report for that year sets at $39.76 billion.
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