Insight: As Finland reels, Microsoft doubles down with Nokia phone deal

Tue Sep 3, 2013 8:02pm EDT
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By Ritsuko Ando and Bill Rigby

HELSINKI/SEATTLE (Reuters) - In an era when shiny new tech start-ups can be worth tens of billions of dollars, Microsoft's deal to acquire Nokia's mobile handset business for 5.44 billion euros ($7.2 billion) is a modest one from a strictly financial point of view.

Yet the deal is likely to go down as a major turning point in the contemporary technology business, one that marks the end of a Finnish company's unlikely run as world-beating tech icon even as it shapes the future of Microsoft Corp - for better or for worse.

In Finland, politicians and business leaders mourned the fall of Nokia, while pensioners wondered what it all meant for them. In Seattle, the chatter centered on what the deal might say about the race to succeed Microsoft Chief Executive Steve Ballmer, who announced 10 days ago that he would step down within a year.

For the global telecom industry, meanwhile, the deal signals further consolidation, coming just a day after Verizon announced a $130 billion deal to buy Vodafone's stake in its wireless unit. It could also help Microsoft achieve its long-held ambition of becoming a major rival to Apple and Samsung in the global smartphone business, though it will also put even more pressure on the company to show that its massive investments in consumer devices make sense.

The Nokia deal "unequivocally suggests they aren't exiting the business and in fact are doubling down on mobile," said Todd Lowenstein, a portfolio manager at HighMark Capital Management, which holds Microsoft shares.

"They can in all likelihood carve out a decent niche with their scale as a fully integrated player, however investors are questioning the merits," Lowenstein added. "The markets have spoken volumes." Microsoft shares finished down 4.6 percent on Tuesday.

Nokia and Microsoft have been joined at the hip since early 2011, when the Finnish company agreed to adopt Microsoft's Windows Phone software for its smartphones - a big gamble for Nokia, but one that came at a time when the company's market share was already in a freefall and it had few good options.

Since then Nokia has produced a series of Windows-powered phones that were mostly well-reviewed by critics, though largely shunned by customers.   Continued...

A man uses the camera of a Nokia Lumia 820 smartphone near a Microsoft logo as he poses in this photo illustration taken in the central Bosnian town of Zenica September 3, 2013. REUTERS/Dado Ruvic