Phone home

LEAVING Microsoft quietly was never on the cards for Steve Ballmer (pictured, right). Only a week after the surprise announcement that he would retire within a year from the post of chief executive he has held since January 2000, Mr Ballmer announced that the software giant will acquire the phone business of Nokia in a deal valued at $7.2 billion. Not only does this deal mean a doubling down on Microsoft’s mobile strategy, it also means the return of the man who has suddenly become hot favourite to succeed Mr Ballmer: Stephen Elop, the chief executive of Nokia (pictured, left). Nokia was already the largest producer of Windows smart phones, under a joint venture that started in 2011. (Nokia was not the only maker of these phones, however, and Microsoft intends to continue to license the software to other manufacturers.) Mr Ballmer believes that integrating the Nokia business into Microsoft will bring valuable synergies and faster growth in a market in which it currently lags behind Apple and Android, though is now ahead of BlackBerry. Microsoft will also acquire Nokia’s Asha feature phone range and ten years access to the Finnish conglomerate’s patent library. Some 32,000 Nokia staff will join Microsoft, including Mr Elop, who on the announcement of the deal stepped down as Nokia’s chief executive. Risto Siilasmaa, currently chairman, will become Nokia’s interim chief executive while the firm recruits a replacement. “For Nokia, this is an important moment of reinvention and from a position of financial strength, we can build our next chapter,” said Mr Siilasmaa, putting an optimistic spin on what represents almost a halving of the revenues of a firm that was once the hottest property in the global mobile phone business. It will now focus on offering cellular networking equipment, location-based services and some other advanced technologies. For Microsoft, the price will barely dent its $77 billion cash mountain—and it may well save on headhunter fees for finding its next chief executive. Mr Elop, a Canadian, will initially head an expanded Microsoft devices business, including its Surface PC, sourcing, customer logistics and supply chain. Before joining Nokia in 2010, he had run Microsoft’s lucrative Office business. He had also been chief operating officer at Juniper Networks and chief executive of Macromedia. Me Elop is not one to mince words. Soon after joining Nokia he issued a controversial internal memo saying that the firm had a “burning platform”, which he followed by axing the firm’s own operating systems in favour of Windows. This prompted rumours that his appointment to run Nokia was part of a Trojan Horse strategy by Microsoft, rumours which now might be seen as prescient. Yet whereas his time at Nokia was not an unqualified success, his parting move has at least bought the firm time and money to find a new direction. On his watch, Nokia’s shares dropped by 85%—a performance that might make Microsoft’s shareholders think twice before supporting his coronation. Mr Elop’s return, and rapid installation as favourite for the top job, makes it even less likely that Bill Gates will take charge of Microsoft again—a possibility that had been widely floated, though without much conviction. It represents a victory of sorts for ValueAct Capital, an activist shareholder firm which has been quietly critical of Mr Ballmer’s running of Microsoft. Last week, it won enough support from shareholders that Microsoft offered it the right to nominate a member of its board. ValueAct is a relatively small fund, but suddenly it is punching well above its weight. Even after this latest deal, Mr Elop—or whoever beats him to the top job—may find it a long time before anyone says the same about Microsoft. http://www.economist.com/blogs/schumpeter/2013/09/microsoft-and-nokia