Microsoft shares tumble after €5.4bn Nokia takeover

US software giant buys Finnish group's mobile business as it attempts to catch up with Apple and Samsung

New York

Microsoft has agreed to buy Nokia's struggling handset division for €5.44bn (£4.6bn), a risky roll of the dice by the American software giant as it plays catch-up in the market for mobile devices that is dominated by arch rivals Apple and Samsung.

Along with the Finnish business, the US-based company will also re-acquire the services of Nokia's chief executive Stephen Elop, a former Microsoft employee who, since taking over Nokia in 2010, has struggled to revive the mobile-phone firm's fortunes. Among his key moves was forging a deal with Microsoft in 2011, under which Nokia adopted the American company's software as its primary platform, a strategy that did little to dent the advance of Apple, Samsung or Google and its Android mobile operating system.

Shares in Nokia, which still has a successful telecom networks and equipment business, surged by 34 per cent on news of the deal. But in a sign of the nervousness on Wall Street about Microsoft's ability to first, turn around the business, and second, use it to catch up in the mobile market, the software company's shares fell by as much as 6 per cent in the afternoon, wiping $15bn off its market value. The stock eventually closed down around 4.5 per cent.

The deal will see Microsoft pay €3.79bn for the business and €1.65bn to license Nokia's valuable patents for 10 years. Around 32,000 Nokia employees will join Microsoft.

The decision by the Finnish firm, once the market leader in mobile phones, to sell illustrates the dramatically changing fortunes of an industry now dominated by Samsung and Apple.

Nokia had just under 40 per cent of the worldwide market share in mobile phone sales as recently as 2008. That has now slumped to just 14 per cent, according to the research firm Gartner. Sales of smartphones have been worse, as Nokia has a derisory 3.1 per cent of the market, meaning it has sunk to ninth in the world.

Lee Simpson, a telecoms analyst at Jefferies, said Nokia's recent troubled history meant Microsoft was "the only possible buyer of this division, although it never appeared clear to us that this was a deal that had to happen".

Sales of the Microsoft Surface tablet, a belated rival to the iPad, have been weak and the Windows system has only 3 per cent market share in phones, compared with Google's Android with 79 per cent and Apple's iOS with 14 per cent.

But in one sign of optimism, Windows' market share overtook another troubled mobile rival, BlackBerry, earlier this year – something that was helped in part by Nokia using Windows on its phones. Moreover, despite Nokia's woes, it still remains a major presence in more basic, so-called "feature" phones – particularly in emerging markets such as Africa.

Emotions mixed in Finland as an era ends

Nokia was named after Nokianvirta, the Finnish river, where the business first began as a paper mill in the 1800s. And while it might have evolved since – switching from making paper to rubber boots and car tyres, generating electricity and even making TVs – it has always remained intertwined with its home nation.

Nokia once accounted for almost a quarter of the country's corporate tax revenues, and employed 24,600 people. So yesterday's Microsoft deal sparked a national debate.

"For a lot of us Finns including myself, Nokia phones are part of what we grew up with," Alex Stubb, Finland's EU and trade minister, said on Twitter. "Many first reactions to the deal will be emotional."

Columnists had condemned the fact that a former Microsoft boss had taken the reins at Nokia, axed tens of thousands of staff, and then delivered it into Microsoft's hands.

"I have mixed feelings, because I'm a Finn," said Juha Varis of fund manager Danske Capital, an investor in Nokia. "As a Finnish person, I cannot like this deal. The whole business for €5bn – that's peanuts compared to its history. On the other hand, it was maybe the last opportunity to sell it. "

Ilkka Paananen, of gaming firm Supercell, tweeted: "Finland needed this. Now let's all wake up and get to work."

Lucy Tobin

Start your day with The Independent, sign up for daily news emails
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Retirement Coordinator - Financial Services

Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...

Recruitment Genius: Annuities / Pensions Administrator

Negotiable: Recruitment Genius: You will be the first point of contact for all...

Ashdown Group: HR, Payroll & Benefits Officer - Altrincham - up to £24,000.

£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...

Ashdown Group: Learning and Development Programme Manager

£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...

Day In a Page

The saffron censorship that governs India: Why national pride and religious sentiment trump freedom of expression

The saffron censorship that governs India

Zareer Masani reveals why national pride and religious sentiment trump freedom of expression
Prince Charles' 'black spider' letters to be published 'within weeks'

Prince Charles' 'black spider' letters to be published 'within weeks'

Supreme Court rules Dominic Grieve's ministerial veto was invalid
Distressed Zayn Malik fans are cutting themselves - how did fandom get so dark?

How did fandom get so dark?

Grief over Zayn Malik's exit from One Direction seemed amusing until stories of mass 'cutting' emerged. Experts tell Gillian Orr the distress is real, and the girls need support
The galaxy collisions that shed light on unseen parallel Universe

The cosmic collisions that have shed light on unseen parallel Universe

Dark matter study gives scientists insight into mystery of space
The Swedes are adding a gender-neutral pronoun to their dictionary

Swedes introduce gender-neutral pronoun

Why, asks Simon Usborne, must English still struggle awkwardly with the likes of 's/he' and 'they'?
Disney's mega money-making formula: 'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan

Disney's mega money-making formula

'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan
Lobster has gone mainstream with supermarket bargains for £10 or less - but is it any good?

Lobster has gone mainstream

Anthea Gerrie, raised on meaty specimens from the waters around Maine, reveals how to cook up an affordable feast
Easter 2015: 14 best decorations

14 best Easter decorations

Get into the Easter spirit with our pick of accessories, ornaments and tableware
Paul Scholes column: Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season

Paul Scholes column

Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season
Inside the Kansas greenhouses where Monsanto is 'playing God' with the future of the planet

The future of GM

The greenhouses where Monsanto 'plays God' with the future of the planet
Britain's mild winters could be numbered: why global warming is leaving UK chillier

Britain's mild winters could be numbered

Gulf Stream is slowing down faster than ever, scientists say
Government gives £250,000 to Independent appeal

Government gives £250,000 to Independent appeal

Donation brings total raised by Homeless Veterans campaign to at least £1.25m
Oh dear, the most borrowed book at Bank of England library doesn't inspire confidence

The most borrowed book at Bank of England library? Oh dear

The book's fifth edition is used for Edexcel exams
Cowslips vs honeysuckle: The hunt for the UK’s favourite wildflower

Cowslips vs honeysuckle

It's the hunt for UK’s favourite wildflower
Child abuse scandal: Did a botched blackmail attempt by South African intelligence help Cyril Smith escape justice?

Did a botched blackmail attempt help Cyril Smith escape justice?

A fresh twist reveals the Liberal MP was targeted by the notorious South African intelligence agency Boss