Microsoft acquires Nokia's phone division, patents for $7.2 billion: will it target the Middle East for sales?

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Today, Microsoft has agreed to buy Nokia’s devices and services unit for 5.44 billion euros (US $7.2 billion), its first foray into handset manufacturing.

In an all-cash deal, Microsoft will pay Nokia 3.79 billion euros for its devices division, acquiring its Lumia line, which already runs Windows 8. It will also pay 1.65 billion euros to license Nokia’s patents, including those for its lower-end feature phones, for 10 years.

The move will see Nokia CEO Stephen Elop return to Microsoft, where he previously served as head of business, bringing with him the 32,000 Nokia employees who work in the devices division (They won’t physically relocate, however; Finland will remain the hub for Microsoft’s phone R&D). 

After Google’s purchase of Motorola’s handset division last year, this deal is the largest for a wireless device maker worldwide. It also makes Nokia the last of the early handset manufacturers to be acquired, after the Google-Motorola deal and Sony’s purchase of Ericsson’s manufacturing division, and it means that Microsoft will finally join Google and Apple in manufacturing its own handsets.

For Nokia, the deal is one of its few remaining options; while it dominated the global market in 2007, accounting for 40% of mobile phones sales and 49% of the smartphone market, in 2013, it had plummeted 14.8% of global market share, and less than 3.8% of the global smartphone market, according to Gartner.

As low cost cellphones in Asia challenged its feature phone sales and Apple and Google took over the smartphone market, Nokia slowly choked.

Now, Microsoft’s hope will be to accelerate sales of Nokia’s Lumia line, which debuted the Windows 8 Mobile OS in 2011 and hit a record 7.4 million units sold in Q2 this year, beating out Blackberry sales.

While reports note that Nokia’s stock surged 40% following the news, most analysts don’t expect the deal to necessarily rescue the ailing company.  

Should Microsoft tailor new phones for an Arabic audience?

In the Middle East, Nokia still dominates market share, and might be a target as Microsoft looks to boost sales.

“[The] Middle East plays [a] really important role because the Middle East and Africa is that area where we have, relative to other regions, a stronger position market share wise,” Elop told The National in early 2012.

Last year, Nokia Symbian devices led the region in smartphone sales, according to Gartner, yet this year, after Nokia dumped Symbian, its share of the smartphone market in the region plummeted to 3.7%.

In the regional smartphone market, Android still leads, with 40% market share, while Nokia Windows Phones, at 10%, lag behind both Apple (35%) and Blackberry (15%).

With Blackberry up for sale, Windows Phone might be able to surge into third this year; perhaps the acquisition will see Microsoft focus a bit more on the Middle East as a prime market.

After all, it will have to sell 50 million smartphones a year to break even on an operating basis, while Nokia currently has a run-rate of around 30 million units. Those extra 20 million units will have to come from somewhere; perhaps an Arabic interface would help. 

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