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Microsoft offers reasons for blockbuster $7.2-billion Nokia deal

September 03, 2013|By Chris O'Brien

The announcement that Microsoft will pay $7.2 billion to buy Nokia's device business raises one question both simple and complex: 

Why?

The company will address that in a conference call scheduled for Wednesday morning at 8:45 a.m. But in the meantime, it also released several documents, in addition to the main news release, to provide some rationale for the deal. 

PHOTOS: Biggest tech flops of 2013 -- so far 

The first document was an email from Steve Ballmer to Microsoft employees.

"For Microsoft, this is a bold step into the future and the next big phase of the transformation we announced on July 11," Ballmer wrote, referring to the management reorganization this summer that was designed to shift the company's focus to "devices and services."

Two years ago, Nokia and Microsoft struck a broad partnership. Ballmer insists that deal is paying off.

"Nokia Windows Phones are the fastest-growing phones in the smartphone market," he wrote. 

The winner here seems to be Nokia Chief Executive Stephen Elop, who will leave Nokia to join Microsoft to run an "expanded Devices" team that includes "our current Devices and Studios work." 

The loser appears to be Julie Larson-Green, who was put in the charge of the Devices and Studios team in the recent shake-up. Ballmer says she'll "join Stephen's team" after the deal closes next year. 

It's unclear whether the Nokia brand will survive. 

"It is very important that we pursue a unified brand and advertising strategy as soon as possible," Ballmer said. 

Microsoft also released a strategic rationale in a slidedeck that apparently will be used as part of the conference call today. 

In the deck, called "Accelerating Growth," the first goal is to "accelerate phone share." The company notes that sales of Nokia Windows phones have grown from just under 3 million units in the second quarter of 2012 to almost 7.5 million in the most recent quarter.

It also says, "Clarity helps make the market for all Windows Phones."

Under a section called "Accelerating Innovation," the company points out that the next 1 billion people coming online will likely do so via mobile phones. And features such as photos, meetings and entertainment will be critical. 

"A family of devices with integrated services that best empowers people and businesses for the activities they value most," a slide reads. 

But then it touches on what may be the biggest challenge, and the most interesting aspect to watch. Microsoft says the deal will be good for its other Windows Mobile partners and OEMs. But of course, many of those partners were less than thrilled Microsoft decided to make its own tablets. Will this cause greater friction? Or is Microsoft betting it won't matter much if other companies make Windows phones?

Microsoft also seems to be promising greater integration of Office, Skype, Xbox Live, Bing and maps. That includes an "effective alternative to Google" when it comes to maps. 

"We will continue to support iPhone and Android/Galaxy phones with our services," one slide reads. "But we can not risk having Google or Apple foreclose app innovation, integration, distribution or economics."

Finally, the slides call it a "smart acquisition," in part because the company is using overseas cash to make the deal for the Finnish company's assets. Like many tech companies, Microsoft has been piling up huge sums of money overseas that it doesn't want to bring to the U.S. to avoid taxes. 

ALSO: 

Microsoft to acquire Nokia's device business for $7.2 billion

How Steve Jobs and Apple turned technology into a religion

With Ballmer leaving Microsoft, Bill Gates' reputation has a comeback

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