Microsoft Acquires Nokia’s Phone Division For $7.1 Billion

Microsoft and Nokia announced today that Nokia's Devices & Services business. The part of the company that builds all Nokia's phones (both smart and otherwise) is changing hands. Microsoft is paying

€5.44 billion ($7.17 billion) for the struggling Nokia division. The deal, subject to shareholder and regulatory approval, is expected to close in the first quarter of 2014.

Microsoft Corporation is an American multinational software corporation headquartered in Redmond, Washington that develops, manufactures, licenses, and supports a wide range of products and services related to computing. The company was founded by Bill Gates and Paul Allen on April 4, 1975. While Nokia is a Finnish multinational communication and information technology corporation (originally a paper production plant) its principal products are mobile telephones and portable IT devices.

The Transaction is expected to see all of Nokia's device business, design, manufacturing, sales, marketing, and support becomes a part of Microsoft. This includes 32,000 staff, of which 4,700 are in Finland.

Remaining behind is Nokia Solutions and Networks (formerly Nokia Siemens Networks), which builds telecommunications equipment, and mapping division HERE (Navteq). Nokia is also retaining its Advanced Technologies group, which develops and licenses intellectual property. These part together account for about half of Nokia's revenue, and approximately 24,000 staff.

Nokia CEO Stephen Elop formerly of Microsoft will be succeeded as Nokia CEO by Risto Siilasmaa. Elop will serve as Executive Vice President of Devices & Services, and Nokia expects that he will move to Microsoft once the deal is closed.

The headline €5.44 billion figure is split €3.79 billion ($4.99 billion) for Devices & Services, €1.65 billion ($2.17 billion) for a patent agreement. Under that agreement, Redmond is buying a ten year license to Nokia's patents, with an option to make the ten year agreement perpetual. Microsoft is also acquiring Nokia's various licenses to patents from Qualcomm, IBM, Motorola Mobility, and Motorola Solutions.

Additionally, and not as part of this transaction, Microsoft is licensing the HERE platform for four years. For HERE, this will substantially replace the internal cross-billing that currently occurs, and Microsoft will become one of HERE's top three customers.

Microsoft is also offering Nokia €1.5 billion ($1.97 billion) in financing.

Finally, Microsoft is obtaining a limited license to the Nokia's brand names. The Lumia (smartphone) and Asha (featurephone) brands move to Microsoft. Redmond can continue to use the Nokia brand on all current products, and can also use it for ten years on any products based on Nokia's Series 30 and Series 40 featurephone platforms. However, it appears that future smartphones will not be permitted to carry the Nokia brand. Microsoft says that it will continue to license Windows Phone to other OEMs.

Redmond says that with the purchase, its gross margin on each Nokia phone will grow from less than $10 per unit to more than $40 per unit, with "synergies" saving about $600 million in costs each year, and that the deal should start contributing positively to earnings per share by the 2016 financial year. The deal will be financed with offshore cash.