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Microsoft Takes A Gamble On Nokia, And Its CEO

Sep 3, 2013
Originally published on September 10, 2013 3:22 pm
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Not too long ago, the communication company Nokia was on top of its game. It was the most valuable company in Europe, the largest mobile phone manufacturer in the world and one of the most valuable high-tech brands around. But in less than a decade, most of that is gone. Late last night, Microsoft announced it's buying Nokia's mobile phone business for about $7.2 billion.

The move represents the painful end of an era in Finland, where Nokia is based. It also marks the transformation of Microsoft from a software company to one that also makes and sells mobile devices on a massive scale. NPR's Steve Henn reports.

STEVE HENN, BYLINE: For decades, Nokia helped define Finland's economy. In 2000, the company generated 4 percent of the country's entire gross domestic product. But by 2012, it was actually a drag on GDP. Taxes paid by Nokia went to zero. Layoffs poisoned the love affair. And recently, Samsung began outselling Nokia phones even in Finland. Still the decision to sell off its mobile phone business was difficult.

RISTO SIILASMAA: This transaction makes all the sense rationally. But emotionally, it gets complicated.

HENN: That's Risto Siilasmaa, Nokia's acting CEO, explaining the deal at Nokia's headquarters today. In the end, he said Nokia simply didn't have the cash it needed to compete with Apple and Google.

SIILASMAA: The industry is becoming a duopoly with the leaders building significant financial momentum at a scale not seen before.

HENN: In 2011, Nokia became the only large phone maker in the world to commit to building and selling Microsoft's Windows phones. Today, the company accounts for well over 80 percent of all Microsoft smartphone sales. But together, these two firms have captured just a tiny sliver of the global smartphone market. And Nokia was running out of cash.

Ben Johnson has worked in this industry for years and writes the tech blog Stratechery. He believes Nokia was forced to sell or face bankruptcy.

BEN JOHNSON: If Nokia goes under then Windows phone does go under as well.

HENN: And Johnson says that means Microsoft had to buy or give up the dream of its own mobile phone platform. And giving up just wasn't an option for Microsoft's outgoing CEO, Steve Ballmer.

STEVE BALLMER: For Microsoft, it's also a signature event, a signature event in our transformation.

HENN: For decades, Microsoft has been a software company. Not anymore. Now, like it archrival Apple, Microsoft will make stuff.

HORACE DEDIU: Now this is a complete reversal.

HENN: Horace Dediu is a mobile industry analyst in Finland. He says by building hardware and software together, Microsoft hopes to capture more profit from each smartphone sale.

DEDIU: We can get $10 per phone if we make only the software. But if we make the hardware, we get $40 a phone.

HENN: Microsoft also will and add roughly 32,000 Nokia employees to the company payroll. One of those employees is Nokia's former CEO Stephen Elop. Elop addressed the company today. Elop came to Nokia just three years ago from Microsoft. And he acknowledges he was met with skepticism.

STEPHEN ELOP: The sentiment in this room was a mix of curiosity about this new non-Finnish leader of the company and hope that the fortunes of Nokia could be improved in the future.

HENN: Nokia's fortunes failed to improve. But as Elop returns to Microsoft, he has emerged as one of the top candidates to replace Steve Ballmer as CEO. Steve Henn, NPR News, Silicon Valley.

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