Microsoft to Buy Nokia's Devices Unit - Analyst Blog

By Zacks Equity Research,

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The world's largest software maker, Microsoft Corp. ( MSFT ) announced that it was buying Finnish company Nokia Corp 's ( NOK ) handset business for $7.2 billion (5.44 billion euros). The deal should close in the first quarter of 2014, subject to approval by Nokia's shareholders and regulators.

Microsoft is paying about $5 billion (EUR 3.79 billion) for Nokia's Devices & Services Business and about $2.18 billion (EUR 1.65 billion) to license Nokia's patents for 10 years and use Nokia's mapping services for 4 years.

Following the acquisition, Nokia's Chief Executive Officer (CEO), Stephen Elop, will step down and become the executive vice president of Nokia's Devices & Services division. He could also be a possible successor to Microsoft CEO, Steve Ballmer, who announced his retirement last month.

In order to help the company gain traction in the fast-growing mobile and cloud-computing markets, Ballmer recently announced a series of functional and executive changes. The Nokia deal clearly shows its commitment to turn itself into more of a devices company.

As part of the deal, Microsoft will own Nokia's devices division, which has been a leader in creating the Lumia line of smartphones that run on Microsoft's Windows Phone operating system. Nokia's flagship Lumia phones are most likely the best-selling Windows Phones today but significantly lag the competition in popularity. Microsoft's revamped mobile OS has been struggling in a competitive market dominated by Android and iOS.

According to a report from comScore, Microsoft's Windows operating system holds only 3.3% market share compared to 79.0% and 14.2% held by Google's ( GOOG ) Android and Apple's ( AAPL ) iOS mobile platforms, respectively.

This deal brings Windows Phone 8 and its most loyal hardware partner under the same roof, giving the company the integrated mobile offering it's been looking for with Surface and other devices. Its other hardware partners, including Samsung, HTC and Sony Corp ( SNE ) will not be much affected by the deal as they are making more money from their Android devices.

The deal will enable Microsoft to address opportunities in what is a fast-growing mobile segment. However, shareholders are unlikely to welcome the purchase, since Nokia's business was making losses and Microsoft's Windows Phone OS has been far from popular. Still, Microsoft is making the purchase dirt cheap and also using its offshore cash, so it may be worth the gamble.

Currently, Microsoft has a Zacks Rank #3 (Hold).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: AAPL , CEO , GOOG , MSFT , NOK

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