Microsoft announced on Monday that it will acquire Nokia's devices and services unit in a bid to boost the tech giant's Windows ecosystem.
The Redmond giant said in a statement that the deal will close in 2014 pending regulatory approval. CEO of Microsoft Steve Ballmer, who announced his retirement in August, called the deal a "win-win" for employees, shareholders, and consumers.
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Microsoft is spending roughly $5 billion on Nokia's devices and services unit, using offshore cash reserves to prevent impacting shareholders. Microsoft will make available to Nokia about $1.97bn in financing in form of three payments of $659m from oversees resources.
Nokia chief executive Stephen Elop will lead the Nokia division under the leadership of CEO Steve Ballmer, who is due to retire next year.
In order for Microsoft to press ahead with its plans to become a device and services company, the deal may make sense -- although critics believe that considering Nokia's plummeting share price over the past five years, it may be a move which has come too late. Microsoft says that buying Nokia's unit will "accelerate innovation" and "reduce friction going forward, boost the pace of innovation and improve marketing efficiency."
In addition, $2.17 billion is being spent on Nokia's patent portfolio, which includes 8,500 design and 30,000 utility patents.
Microsoft says that current licensing agreements with the Finnish firm result in a gross profit margin of less than $10 per Windows Phone shipped. Once the deal is finalized, the Redmond giant expects this margin to increase to at least $40 per smartphone.
Nokia accounted for 81.6 percent of Windows Phone shipments in Q2 2013. In addition, Microsoft says that the Windows Phone is outselling BlackBerry models in 34 markets, a year-on-year growth of 78 percent.
As part of the deal, 32,000 Nokia employees are expected to transfer to Microsoft, including 4,700 in Finland, where Nokia is based.
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