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Microsoft and Nokia: A gamble worth taking?

Does just over $7bn buy Microsoft a place at the mobile top table? Simon takes a look...

Wholesale shock was not the reaction when news broke earlier this week that Microsoft was snapping up Nokia's mobile phone business, at a price set to be just over $7 billion. Yet, considering the investment that Microsoft had put into Nokia previously, if the firm was to buy into the handset business, Nokia was always going to be the obvious target.

The deal, which may be the last to be ushered through by Microsoft's boss Steve Ballmer, will be completed early next year, assuming various obstacles are negotiated. Once the relevant hoops are jumped through, 32,000 Nokia employees will switch to Microsoft's payroll. Then, however, the hard work will really begin.

Cementing the union

Nokia and Microsoft have, after all, been working closely for some time, and both of them have something in common: they're struggling to gain much traction in the mobile sector. You wouldn't guess that from Ballmer's statement, of course. "It's a bold step into the future", he declared, "a win-win for employees, shareholders and consumers of both companies".

But is it? Or is it the latest throw of the dice for Microsoft as it continues to lag behind the Samsungs and Apples of the world?

For Microsoft, Windows Phone 8 was supposed to be some kind of turnaround. It's traditionally struggled in the sector, having fallen behind more aggressive and foresighted competitors. The irony is that the current generation of Windows Phone software is generally well liked, and through an established partnership (aided by Microsoft's chequebook), it's been Nokia that has backed the operating system the hardest. Furthermore, nice words have been aimed in the direction of Nokia's more recent Lumia releases.

And yet the numbers don't lie. Nokia, once one of the dominant forces in the mobile phone market, uncomfortably transitioned to smartphones, and watched its market share deplete. In 2012, the firm's market share stood at 19.7 per cent. Back in May 2013, it was down to 14.8 per cent, at a point where the market was still experiencing growth.

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