Microsoft buys Nokia in what would have been a merger of strength years ago

Microsoft will pay EUR 3.79 billion to purchase substantially all of Nokia’s Devices & Services business, and EUR 1.65 billion to license Nokia’s patents, for a total transaction price of EUR 5.44 billion in cash. Microsoft will draw upon its overseas cash resources to fund the transaction. The transaction is expected to close in the first quarter of 2014, subject to approval by Nokia’s shareholders, regulatory approvals and other closing conditions.

Microsoft is acquiring Nokia’s Smart Devices business unit, including the Lumia brand and products. Lumia handsets have won numerous awards and have grown in sales in each of the last three quarters, with sales reaching 7.4 million units in the second quarter of 2013.

Microsoft could move into third place in smartphones with Nokia smartphones and other windows phones.

Windows Phone’s growth isn’t coming from stealing Apple or Android consumers. Only 27% of Apple and Android users change their OS when they replace their handset, and those that do switch tend to move between the two big operating systems.

Windows Phone’s success has been in convincing first time smartphone buyers to choose one of its devices with 42% of sales over the past year coming from existing featurephone owners. This is a much higher proportion than Android and iOS. The Lumia 520 is hitting a sweet spot, offering the price and quality that new smartphone buyers are looking for.

NBF – most of the Windows phones have been sold by Nokia. So Nokia has been able to convince 42% of its featurephone users to switch to a Lumia. If Microsoft/Nokia could maintain that conversion rate then they would be able to keep about 25 million smartphone customers by keeping 42% of the remaining 53 million featurephone users.

Gartner statistics show that Nokia is still number 2 in overall mobile phone sales.

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