Microsoft's acquisition of Nokia came as a surprise to many who stayed up late yesterday or woke up this morning to read the news on their favorite tech blogs or news sites. It is hard to ignore, with nearly every website under the sun posting the exact same information about the deal.
In short: Microsoft pays 3.79 billion Euro to purchase Nokia's Devices & Services businesses, and another 1.65 billion Euro to license Nokia patents. This includes the Lumia and Asha brands, and the right to use the Nokia brand on feature phones.
The total of 5.44 billion Euro will be paid in cash by Microsoft, with the acquisition expected to close in the first quarter of 2014.
The deal makes sense for Microsoft as it can now compete on an eye-to-eye level with Google - which acquired Motorola some time ago - and Apple, who is producing it own line of phones. Microsoft released a "strategic rationale" pdf document in which company executives explain the rationalities behind the acquisition.
Benefits include a gross margin increase from less than $10 per unit in royalty to a smart device gross margin of over $40 per unit and the integration of hardware research & development and design. Because of the gross margin increase, Microsoft estimates that it has to sell more than 50 million phones for operating income breakeven.
Microsoft plans to capture 15% of the worldwide smartphone shipments market share in 2018 expecting to generate an annual revenue of 45 billion US Dollars from that.
What about Nokia?
What remains of Nokia after the acquisition? We have already established that Microsoft will take over the company's Devices & Services division. The two divisions that remain Nokia are HERE (formerly Location & Commerce) and Nokia Siemens Networks.
HERE develops location-based products and services for a broad range of devices and operating systems, including our Lumia smartphones. As of January 1, 2013, HERE is the new name of our former Location & Commerce business and reportable segment.
Nokia Siemens Networks, jointly owned by Nokia and Siemens and consolidated by Nokia, is a leading global provider of telecommunications infrastructure, with a focus on the mobile broadband market.
HERE is best known for its HERE maps platform, the mapping service that is an integral part of Nokia smartphones. The company plans to continue development of the platform to become the "leading independent location cloud platform company" that is offering "mapping and location services across different screens and operating systems".
Especially the operating systems bit is interesting, as it can very well mean that Nokia will make available HERE for other mobile operating systems.
NSN will continue operations in the telecommunications infrastructure world.
Commenting on the announcement, NSN CEO Rajeev Suri said that "Today marks an important step for our parent company Nokia, and they have our full support. For NSN, it is business as usual. We remain focused on executing our strategy, completing our restructuring and delivering industry-leading innovation to our customers every day."
It is likely that Microsoft will use the Nokia brand name for Windows Phone feature phones for some time to come as the deal includes the rights to do so. Eventually though, the company will likely drop the Nokia brand name completely.
You will be able to buy Nokia phones in the foreseeable future, maybe the next two or three years. Eventually though, those phones will become Microsoft Lumia and Microsoft Asha phones. Nokia's sole contribution after that period will be its HERE service in the consumer world, and NSN providing telecommunications infrastructure.