Microsoft's move to acquire Nokia's devices and services business is a gamble that the company had to take to boost its flagging mobile business. For Nokia, it's an admission that it lacks the resources to compete with Samsung and Apple, say analysts.
The deal calls for Microsoft to pay $7.2 billion to buy Nokia's devices and services operations and to license the phone maker's patents for 10 years. It's expected to get regulatory approval in various countries by early 2014.
Nokia CEO Stephen Elop, who was president of Microsoft's business software group before moving into the top spot at the Finnish phone maker in 2010, will return to Microsoft and lead an expanded devices team, Microsoft CEO Steve Ballmer said in an email to employees.
Once the deal closes, Nokia will focus on its network infrastructure and services business, its HERE mapping and location services, and technology development and licensing.
"Microsoft had to make this purchase to improve its poor market share," said Darren Hayes, chairman of the computer information systems program at Pace University. "Their failure to impress consumers with Windows 8 means that a swift, dramatic shift in strategy and management is essential."
Gartner analyst Carolina Milanesi agreed, saying "time is running out for Microsoft" in the mobile market. She noted that while the deal will allow for better hardware-software integration and will likely lead to Microsoft devoting more research and marketing resources to mobile, "it also potentially gives Microsoft a bigger chance to get it wrong."
The deal is one of a string of developments in the increasingly volatile mobile market. Verizon Communications last week agreed to pay Vodafone $130 billion to acquire the 45% of Verizon Wireless that it doesn't own, and BlackBerry has formed a committee to explore new strategies, which may include putting itself up for sale.
This version of this story was originally published in Computerworld's print edition. It was adapted from two stories that appeared earlier on Computerworld.com: "Microsoft's Nokia Acquisition Is 'a Necessary Gamble,' Analysts Say" and "With Microsoft-Nokia Deal, Stephen Elop Is Sitting Pretty."