Microsoft Buys Nokia, Gets Serious about Smartphones and CEOs

Microsoft is buying Nokia's cell phone business for about US$5 billion and tossing in another $2.2 billion to license the company's patents. The deal throws together two big time companies that are struggling to compete with the likes of Apple and Samsung, brings Nokia CEO Stephen Elop -- a former Microsoft executive -- back into the fold, and shows Microsoft is serious about playing in the smartphone game. All this as current Microsoft CEO Steve Ballmer has announced he will step down within 12 months, although now it's looking like that may come much sooner than he thought.

Goodbye, Nokia. Hello, Microsoft.Goodbye, Nokia. Hello, Microsoft.

As part of the €5.44 billion (about $7.2 billion) deal, Mr. Elop will step down as Nokia's CEO and take on the roll of Microsoft's Executive Vice President of Devices and Services. Other Nokia executives joining Microsoft include Chris Weber, Jo Harlow, Timo Toikkanen, and Juha Putkiranta.

Microsoft has had limited success in the smartphone market taking on Apple's iPhone and Google Android-based devices from Samsung and other companies. Nokia threw its weight behind Microsoft's Windows Phone platform about two years ago, and has since been able to climb above BlackBerry's marketshare to become a very distant third to iOS and Android-based smartphones.

With Nokia's Windows-based Lumia smartphone now in Microsoft's hands, it's a safe bet that we'll see a strong push to boost sales. Exactly how Microsoft can go about convincing consumers to start buying the smartphone, however, maybe something of a trick since shoppers haven't been flocking to the device in droves. So far, consumers are still far more interested in buying iPhones and Samsung's Galaxy smartphones.

Stephen Elop (left) and Steve Ballmer (right) at a 2011 Nokia media eventStephen Elop (left) and Steve Ballmer (right) at a 2011 Nokia media event

In the short term, Microsoft might not be able to boost Nokia smartphone sales, but the buyout does setup the Redmond-based company for the next round, and the round after that. Microsoft may not make the big market changing products like Apple, but it's very good at the game it does play: slowly and methodically eating away at marketshare.

Microsoft can afford to play the slow game, and while competitors and analysts scoff at its chances, new phones will come out and some consumers will buy them. Ever so slowly, Microsoft will start eating into the smartphone market.

Whether or not Microsoft can really be successful at its slow-and-steady game this time isn't, however, a sure thing. Apple and Android smartphone makers hold nearly all of the marketshare today and aren't showing any signs of loosening their grips.

Apple is expected to unveil new iPhone models on September 10, and Samsung, HTC and Motorola are churning out new Android-based smartphones as fast as they can. Microsoft has maybe a year ahead of it during during which it will integrate Nokia into its business, plus it's on the hunt for a new CEO who will need time to settle into the job.

Mr. Ballmer said he plans to step down within 12 months, implying that it may be that long before his replacement is found. Finding a new CEO could take that long, although Microsoft is already on the hunt, and it's very possible the company just bought their new boss and picked up their own smartphone business as a side bonus.

Mr. Elop's name was bouncing as a possibility to replace Mr. Ballmer, and even came in with 5-to-1 odds in the betting market to be Microsoft's next CEO. His odds of landing the job have probably just improved.

Assuming Microsoft does go with Mr. Elop, we'll probably see an announcement soon -- think weeks instead of months -- especially since the Microsoft's board has been dealing with internal turmoil thanks to the threat of a proxy battle from the ValueAct that ultimately led to offering the investment firm's president, Mason Morfit, a seat on the board.

ValueAct had bought up almost 1 percent of Microsoft's shares, making it one of the single largest shareholders in the company, which was clearly enough to get the board's attention. Insider sources, according to AllThingsD, said that ValueAct was instrumental in forcing Mr. Ballmer to step down as CEO, too.

With Mr. Ballmer on the way out, ValueAct flexing its muscles, and Nokia becoming part of Microsoft, there's a good chance we'll see the transition to Mr. Elop as CEO very soon. Assuming that's the case, Microsoft may have just proven that for its slow and lumbering style, it can on occasion act nimbly. Unfortunately for Mr. Ballmer, it happened to be with his job and not the company's products.