Nokia Soars On $7.2 Billion Microsoft Buyout

Michael Teague  |

On Tuesday, Microsoft Corp. (MSFT) announced they would be purchasing Nokia’s (NOK) devices and services unit for some $7.2 billion dollars, in what looks like a last-ditch attempt at securing itself a relevant spot in the mobile tech economy from which it has so far largely been excluded.

Nokia’s smartphone segment accounts for some half of the company’s revenue, but the acquisition may be more valuable to the struggling former tech giant in terms of its know-how, with 32,000 trained employees and CEO Stephen Elop, who has previously worked for Microsoft prior to a three-year stint with the Finnish phone maker.

Nokia benefits from the deal because despite the percentage of total company revenue it commands, its smartphone unit has been a money-losing business, as it has been trounced by the seemingly unshakeable share of the market that has been cordoned off by Apple (AAPL) and more recently Samsung and Google (GOOG) . The move would allow the company to cut its losses from failed attempts in recent years to break into mobile devices, and devote its energies more fully to the manufacture and sale of networking gear which carries with it much higher profit margins.

For its part, Microsoft will obtain not only the smartphone expertise of Nokia, but also a number of valuable patents that are currently owned by the company. The deal is the most expensive purchase of a mobile device maker since Google purchased Motorola’s handset unit last year, and will knock off about $0.12 per share in earnings until 2016, when profits from the acquisition are expected to show up on the income statement.

News of the deal sent shares for Microsoft down over 5 percent ahead of Tuesday’s close, to $31.60, while shares for Nokia soared 30 percent to $5.11 on the NASDAQ.

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