Microsoft confirms that it will buy Nokia mobile division for US$7.2 billion

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In what may be a shocking news story breaking today, Nokia is getting out of the phones business with the company signing a deal with Microsoft to sell to Redmond its entire mobile devices division and licensing its patents and mapping technologies for US$7.2 billion. The deal will see the disconnect end between Microsoft Windows Phone 8 and Nokia‘s Lumia brands, and have them come together.

“It’s a bold step into the future – a win-win for employees, shareholders and consumers of both companies. Bringing these great teams together will accelerate Microsoft’s share and profits in phones, and strengthen the overall opportunities for both Microsoft and our partners across our entire family of devices and services,” Steve Ballmer, Microsoft CEO, said in a statement.

“We are excited and honored to be bringing Nokia’s incredible people, technologies and assets into our Microsoft family. Given our long partnership with Nokia and the many key Nokia leaders that are joining Microsoft, we anticipate a smooth transition and great execution.”

In an investors presentation, Microsoft acknowledged that the deal with Nokia was to accelerate market share growth with Windows Phone – the OS, according to Microsoft, has grown 78% year-on-year and has outsold BlackBerry in 34 markets.

According to the terms of the deal, Microsoft will basically take over production of the Lumia smartphones and its mobile phones such as Asha, and will take over licensing agreements that Nokia has with Qualcomm and others. According to Microsoft, the Asha brand will now become an “on ramp” to Windows Phone – and it does make sense for Microsoft to acquire the Asha brand given the large distribution in developing countries.

Nokia will license its brand and patents to Microsoft, with Microsoft in turn licence its mapping technology to Nokia for its HERE services. Nokia has the right to make that a ‘perpetual agreement’. In addition, Microsoft has agreed to pay for a four-year licence to Nokia in order to use its HERE maps technology. The brand agreement, however, only lasts for ten years, but Nokia will not be allowed to use the name Nokia for mobile phone sales for 30 months and won’t be able to get back in the game – if it so chooses – until 2016.

32,000 staff are expected to join Microsoft when the deal closes next year. Nokia’s Chief Executive Stephen Elop, who came over from Microsoft back in 2010, is expected to become a senior vice president within Microsoft. Rumours, however, are speculating that Elop could succeed Ballmer as CEO of Microsoft after he announced his retirement in late August.

Nokia will still keep its mapping technologies – branded as HERE, and its mobile equipments arm Nokia Solutions and Networks. It will also keep its Advanced Technologies division to “explore new business opportunities through advanced research, development and concept products in areas such as connectivity, sensing and material technologies, as well as web and cloud technologies” and licence its existing and new patent portfolio to other companies.

Developing