Ten Years Ago Microsoft Bought Nokia's Phone Unit, Then Killed It As a Tax Write-Off

The Register provides a retrospective look at how Microsoft 'absorbed the handset division of Nokia' ten years ago, only to kill the unit two years later and write it off as a tax loss. What went wrong? 'It was a fatal combination of bad management, a market evolving in ways hidebound people didn't predict, and some really (with a few superb exceptions) terrible products,' reports The Register. From the report: Like Nokia, Windows Mobile's popularity peaked in 2007, then started to drop away. The iPhone was the tech item of choice for fashionistas, Blackberry was seen as essential for serious business, and Android -- with Google as its new owner -- was gaining traction. Microsoft by that time had a new CEO in Steve Ballmer, who completely and famously failed to see the shifting sands in the mobile market. He dismissed the iPhone as a threat to what he thought was Windows Mobile's unassailable market position, and was roundly mocked for it. So the scene was set for a mobile standards war, and Steve Ballmer staked his professional pride on winning it. Microsoft recruited Nokia to help out.

Under [Executive VP of Microsoft Stephen Elop's] leadership, a closer working relationship with Microsoft was a given -- but in 2013 Redmond announced it was going the whole hog and buying Nokia's handset business outright for $7.2 billion. The deal was done in April 2014, a decade ago from today. Microsoft also got a ten-year license on Nokia's patents and the option to renew in perpetuity. It also got Elop back, as executive vice president of the Microsoft Devices Group. That meant stepping down as CEO of Nokia, for which he trousered an 18.8 million bonus package -- a payoff the Finnish prime minister at the time called 'outrageous.' Nokia retained its networking business in Finland. It purchased Siemens' half of the Nokia Siemens Networks joint venture and renamed in Nokia Networks. The Nokia board rolled the dice again on hiring another non-Suomi manager, Rajeev Suri, and this time hit a double D20 in D&D terms.

When Ballmer stepped down from the helm at Microsoft in 2014 -- shortly before the Nokia deal completion -- he left a hot mess to deal with. His plan had been to develop the mobile operating system in conjunction with Windows 10, and Windows Mobile 10 was supposed to be a part of a unified code environment. While Windows 10 on the desktop wasn't a bad operating system, Windows Mobile 10 really was. The promised synergy just didn't happen -- it was power-hungry, clunky, and about as popular as a rattlesnake in a pinata. It was this mess that Satya Nadella faced when he took over the reins. Nadella was never very keen on the phone platform and spent more time in press conferences talking about cricket or the cloud than Microsoft's mobile ambitions. It was clear to all that this really wasn't working. Elop was laid off by Redmond a year later.

It was clear that Windows Mobile wasn't going to work. Android and iOS were drinking Microsoft's milkshake, and Redmond realized the game was up. Microsoft started shedding mobile jobs -- both in Finland and Redmond. While mobile was still publicly touted as the way forward for Microsoft with Ballmer gone, the impetus wasn't there and support for the mobile OS shriveled. In 2015 Microsoft declared it was writing off $7.6 billion on the Phone Hardware division as 'goodwill and asset impairment charges' -- $400 million more than it had originally paid for the Finnish firm. Nokia bought European networking giant Alcatel-Lucent in a $16.7 billion deal in 2015. Around the same time, Suri announced a move into tablets, since it had a non-compete agreement with Microsoft on mobiles. Meanwhile a bunch of former Nokia execs who'd fled Elop and Microsoft had started a mobile biz of their own: HMD. It was Finnish, but outsourced production to Foxconn in China, and was planning to make cheapish Android devices. In 2016 Microsoft sold its mobile hardware arm to HMD for an undisclosed -- but probably not large -- sum. Nadella clearly wanted out of the whole business and the Finnish startup concentrated on selling good-enough Android smartphones to Nokia's traditional cheap markets.

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