Microsoft Corp struck a $7 billion bargain with Nokia corp. to bolster a mobile future for the software giant. Microsoft is wagering a purchase of Nokia's phone business will help the companies crack a problem they couldn't as partners attain the dominant smartphone positions of Apple Inc. After nearly three years of working with Nokia, Microsoft is a distant No.3 in smartphones world-wide, with its mobile software accounting for about 4% of the market compared with a combined 90% share for Apple and Google software. Nokia's smartphones make up a negligible share after commanding nearly half of the market before Apple's iPhone arrived. The popular game is available for iPhone and Android smartphones, and for Microsoft's Xbox. Microsoft has scant experience in making gadgets beyond its Xbox Game console. Mr. Ballmer's successor must branch beyond sales of high-margin software that generates all of Microsoft's profit, while finding footing in the fiercely competitive and low-margin hardware business. Microsoft's first stab at a homegrown computer, the Surface tablet, failed to spark a sales rush after it launched last year. Microsoft took a $900 million charge last quarter for unsold Surface inventory.
Microsoft is betting on a company whose own mobile fortunes weren't bright. Nokia was a pioneer in smartphones but it rapidly lost ground to rivals like Apple and Samsung. Nokia had a 35% share of all smartphones in 2007, when the iPhone was just getting off the ground and the business was dominated by Blackberry and Microsoft, according to Euromonitor International. By 2012, Nokia was responsible for less than 6% of all smartphones sold. At least one Microsoft investor said Tuesday that he was angry at Microsoft for making the acquisition on the heels of the Value Act board arrangement. "I have an enormous amount of confidence in ValueAct's ability to help Microsoft chart a new course which starts with finding a CEO from outside the company, not Elop, and one can only hope that the Board will act in good faith to serve the interests of the company's owners. ValueAct CEO Jeff Ubben didn't respond to an email seeking comment. A Microsoft spokeswoman declined to comment.
