Microsoft is buying the mobile phone division of Finland's Nokia, accelerating its transformation into a maker of hardware as well as the software on which it runs. Nokia in turn makes an ignoble exit from a market it dominated unchallenged until the mid 2000s.
Microsoft said on its website Tuesday that it will acquire the handset business for 5.4 billion euros. It promised to retain the Nokia brand for the next 10 years as well as the 32,000 workers in the division.
The acquisition process is scheduled for completion by the first quarter of 2014. Microsoft CEO Steve Ballmer in an e-mail to all staff said the acquisition is "a bold step into the future and the next big phase of the transformation."
The company is seeking to boost its standing in the global mobile phone OS market, where it has been getting pounded by Apple and Google.
As of the second quarter of this year, Microsoft's Windows Phone accounted for a paltry 3.8 percent share of the global smartphone OS market, compared to Google's Android OS with 79.8 percent and Apple’s 13.4 percent.
Google also jumped into the smartphone market in 2011 by acquiring Motorola.
With the latest deal, Microsoft gets the mobile phone patents held by Nokia, which could cause some anxiety among Korean phone giants Samsung, LG and Pantech.
But they do not expect the deal to have a major impact on their mobile phone sales. Although Nokia ranks No. 2 in the global mobile phone market after Samsung, its mainstay products are low-priced feature phones, and it is no match for Korean makers of high-end handsets.
Nokia's global smartphone market share stood at a mere 3.2 percent in the second quarter this year, ranking a poor ninth.
Instead, Korean handset makers hope that the Microsoft/Nokia camp will keep Google in check. "Google's Android accounts for 80 percent of the global smartphone OS market," said an industry insider here. "If the market share of Microsoft's Windows Phone rises through the acquisition, this could keep Google in check."
What they are wary of is that Nokia's phone patents are now in the hands of Microsoft. The Finnish company has 10,000 patents from its 14-year reign as the world's No. 1 mobile company and has proven its prowess in protecting them. Last year, it won a patent-infringement lawsuit against Apple and received a massive fee.
Nokia has generally not used its patents as a weapon against rivals, allowing them to use them for reasonable fees. But Microsoft is more aggressive in collecting royalties. "Unlike Nokia, Microsoft is highly likely to demand patent usage fees or pressure customers to use Windows Phone," said Jeong Ok-hyun at Sogang University.