SAN FRANCISCO — Microsoft Corp. CEO Steve Ballmer on Tuesday touted the company’s $7.2 billion acquisition of Nokia Corp.’s wireless device business, saying the deal ensures future access to Windows Phone hardware.
Analysts see the deal as the software giant doubling down on its bet on devices, following initial forays into phones and tablets that have yet to meet with success.
The deal would be the company’s second-largest acquisition on record, following its $8.5 billion buyout of Skype in 2011.
In a conference call Tuesday, Ballmer touted the acquisition of Nokia’s device business. The deal will give Microsoft ownership of its own line of smartphones and other mobile devices. The company hopes that will extend the reach of its core Windows franchise.
It also brings Microsoft more than 30,000 new employees, along with some of Nokia’s manufacturing facilities and access to a broad array of patents under a licensing deal. Nokia has been building smartphones for Microsoft’s Windows Phone operating system for the past two years — though Windows Phone still ranks as a distant third to the popular iPhone and Android platforms.
“We think we have made excellent, excellent progress with the partnership, and yet we also know we have a long way go and felt in balance that, together, this is the best approach for both companies’ shareholders,” Ballmer said on the call.
The move comes as Microsoft is undergoing a major realignment, both in its top management ranks as well as the organization of the entire company. Ballmer surprised investors less than two weeks ago by announcing his own plan to retire from the company within a year — once a replacement is found.
Some analysts noted that the Nokia deal essentially locks Microsoft into pursuing the device strategy — even if the new CEO would prefer another approach. The company also just reached an agreement with ValueAct Capital, an activist fund, last week. Microsoft said Tuesday that ValueAct was not informed of the talks with Nokia.
“Increasing the cost structure and commitment to a strategic direction in devices that new management may not wish to pursue creates lots of issues,” Rick Sherlund of Nomura wrote in a report to clients, adding that the “decision to push forward with the Nokia acquisition despite the search for a new CEO is likely a source of frustration to many shareholders and to ValueAct.”
Analysts took a mixed view on the deal, with many noting Microsoft’s challenges in driving growth of its platforms over mobile devices.
“We believe shares of Microsoft are driven by the growth prospects of its Windows franchise and its ability to stay relevant in the post-PC era,” Yun Kim of Janney Capital wrote in a note to clients, adding that “we do not believe the planned acquisition ... changes its strategic positioning in the smartphone market.”