Why Microsoft acquired Nokia (and then sold it)

Nokia is a Finnish multinational corporation that goes all the way back to the nineteenth century and started with wood mills that produced mainly paper. Yes, the same Nokia that a hundred years later created cultural icons like the 1110 phone model a lot of you probably rocked at some point, back in the early 2000s. It became a mainstay in mobile phones for some years, and it was interesting enough for Microsoft, who bought Nokia. The story, however, is much more complicated than that.

Nokia was an icon in mobile phones

If you’re older than 20, you most definitely know Nokia for leading the telecommunications market back in the early years of cellular phones, producing some of the first commercially successful handsets that sold hundreds of millions of devices and lead the industry for more than ten years straight, paving the way for the rise of companies like BlackBerry or Motorola. 

But all that was only the beginning of the mobile phone era and a few years into the 21st century came smartphones. Surprisingly, after the first decade of this new millennium, Nokia found itself fighting to keep up with the web 2.0 environment, the deadly competition of the iPhone and the swift development of Android. 

Unbelievable as it seemed then, Nokia sales started plummeting after mainly going only up. So, after having been making business for a few years with them, in 2014 Microsoft stepped in and acquired all Nokia mobile phone operations for no less than €3.79B, plus another €1.65 billion to license its portfolio of patents. It was kind of a lifesaver for Nokia but it was also Microsoft’s big bet on entering the feature phone game, to deliver both software and hardware. 

The challenge was a huge puzzle for Microsoft and it needed to be figured out quickly, as the competition of iOS and Android became ruthless.

Yeah, the glory of Nokia and the roaring success from old times had just vanished and things continued going south to the point where Microsoft ended up re-selling Nokia’s phone operations to HMD, again a Finnish subsidiary of the giant Foxconn Technology Group, in 2016.

So, despite still being alive, Nokia as a phone brand is not even the shadow of what it once was and the kingdom they built when they put cell phones in everyone’s hands, is just gone for good. 

How Nokia started

Let’s get nostalgic now. Nokia was born in Finland, in 1865, so it has lived over the transition of two centuries. Yes, it was during the final years of the industrial revolution when Nokia was created by Frederik Idestam and Leo Mechelin, two owners of wood mills in the Finnish towns of Tampere first and later in Nokia, a town named after the Nokianvirta river. 

The two businessmen decided to partner up and created a shared good, named the Nokia Company. By the end of the nineteenth century, they decided to step into the electricity generation business but just then came the first World War. By the end of it in 1918, Nokia was struggling to survive. No surprise there... But then it formed a partnership with the Finnish Rubber Works and the Cable Factory, all companies based in these Finnish lands.

Later in 1967, the three companies merged into what we know as the Nokia Corporation, after having been manufacturing electronics from cables to radio communicators, computers, and many other products like rubber boots or respirators. It was in the early 70s that they started getting into the network and telephone industry. 

The spirit of merging was in Nokia’s DNA and in the following years they acquired a series of companies, including several of the main television manufacturers from Finland, Sweden, and Germany, turning into the third-largest TV maker company. Similar story with radio communicators, that they even manufactured for the army along with other products.

These acquisitions and mergers were considered a significant shift in Nokia’s business and were mostly orchestrated by Kari Kairamo, the Finnish CEO that arrived in 1977 and that sadly committed suicide ten years later, by the time the company’s revenue base was hitting 3B. Under his administration, Kairamo executed several acquisitions that increased the company’s portfolio in the modern market. One of the companies they acquired was Mobira, an early cellular phone manufacturer that ended up being the foundation of Nokia’s future business in telephony. 

In 1981, Mobira launched the Nordic Mobile Telephone or NMT, as a solution to the increasing demand and saturation of the old manual phone networks, and it was the first one to allow international roaming. The network was opened in 1981 in Sweden and Norway, and soon in more countries like Denmark, Finland, and Iceland.  

But it was the Mobira Cityman 900 that really started Nokia’s race for fully mobile phones, being way smaller and lighter than the Senator, although it had a very high price tag at the beginning. Nokia had been winning from Finland’s open trade with Russia, and the Cityman 900 phone model became iconic after the Soviet Union president Mikhail Gorbachev used it to make a call from Helsinki to Moscow during a press conference in October 1987. Yes, with the Cold War at its peak, Nokia is reported to have managed successful business with both Russians and Americans. That’s how big it was. 

Nokia created a wide catalog of devices

Let’s keep the nostalgic vibe and remember some of the most popular Nokia phones that have a rightful place in the history books and in the memory of those in their mid-late twenties or more. But before that, we need to say that the amount of phone models in Nokia’s catalog over the years is ridiculous and there are many series and models that were successful. 

Sure, most of them are discontinued today, but still going through the full list can be stunning. Let’s remember some of the most iconic ones.

They also experimented with all-in-one type models that may have very well been the first approach to smart devices. The Nokia 900 Communicator from 1996 was a mini-laptop looking device that could do fax, email, spreadsheets and some other stuff. It wasn’t necessarily a commercial success, but it’s worth mentioning as one of their first attempts to have phones do more than calls and messaging. 

That first Communicator seems to have been the one that brought Microsoft’s attention in. Nokia executives at that time tell that a Microsoft recon team brought Bill Gates himself to see the device and have a demo of it, in a big tech conference in Las Vegas. Microsoft reportedly bought a good amount of them and this started a business relationship that would end up being critical.

Later in 1998, came yet another commercial hit and the first to successfully introduce the idea of gaming on a phone. Yes, the first one to feature the Snake game in it: the Nokia 6100. It’s very likely that you or someone you know had one of these in the early 2000s. In a way, Nokia can be remembered as the phone of the people, as they always delivered great durability and value for accessible bucks; whereas brands like Blackberry pursued a more sophisticated, executive audience. 

Nokia entered the 21st century still as the undisputed king of cell phones, having surpassed the 100th million manufactured phones in 1998. In that year alone, they had a sales revenue of $20 billion making $2.6 billion profit. By 2000 it employed over 55,000 people around 140 countries and had a market share of 30% in the mobile phone market, almost twice as large as its nearest competitor, Motorola. 

Before Microsoft acquired Nokia, the giant was already struggling

But just then, the first decade of the new millennium brought a real game-changer: in 2007, the iPhone was released to the world, quickly setting a new industry standard. Just switching from keyboards to an all-touchscreen the way Apple did it back then, was revolutionary, and with the implementation of iPhone OS, there was no doubt that Apple had defined a new era. 

The iPhone almost instantly dethroned Nokia and any other runner-ups. The director of user experience management at Nokia during that time has reported himself to have been explicitly tasked with creating an “iPhone killer” for the next year. Yeah, imagine being charged with that… So, shipments of iPhones were received and analyzed in Nokia’s headquarters, but something was just off now. The iPhone may have been the drop that spilled the glass.

Several former Nokia executives have shared their thoughts on the overwhelming transformation that the company went through with the overflowing success of their phones. Cause let’s remember the Nokia foundations from those wood mills and rubber factories and how its culture pretty much came from those humble days. Former employees have testified how all the crazy success and the tons of money that came through the years impacted on Nokia’s cultural foundations and principles. 

There are many testimonials of this and even one curious story to illustrate it, told by the former head of development and senior vice president from the 90s themselves. Yeah, whenever they had a problem or needed to solve a complex issue, management would climb up the top of their building to meet, just not in your regular meeting room but in saunas, surrounded by a spectacular rooftop view that helped ideas flow, according to them. It sounds extravagant, but if you think about it, it’s a very personal approach to problem-solving, maybe a little too personal, but ultimately an expression of trust.

With the outrageous growth came a new lineage of executives and managers that didn’t have time for any of that, as the company seemed to have become a monster hungry for more success and more money at all costs. The internal competition within the teams and divisions became ferocious and different management styles were confronted in what former employees have called a madhouse. 

Also, the killer competition didn’t stop with the iPhone. In 2008, the Google recently acquired Android mobile OS, was featured for the first time commercially in the HTC Dream phone.  

We all pretty much know how the story went from there: Android became the main mobile operating system on virtually every phone that is not an iPhone. Big manufacturers like Samsung or even Huawei raised through Android and claimed their rightful place in the Market too. 

Who Bought Nokia?

Cut to - the end of 2013, Microsoft announces the acquisition of all Nokia phone operations for more than 5B euros. It was Microsoft’s move to take part in the mobile market after having underestimated it and focused mainly only on its PC business. It was an ambitious bet and a bigger challenge for Microsoft. 

The dimension and complexity of the acquisition were such, that the deal was several months overdue after its announcement, due to legal and administrative challenges that involved manufacturing facilities in Asia, along with a mix of licenses and operating systems. By the time the deal was closed, some financials had of course changed and Nokia ended up receiving something around the 7B euros.

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Nokia also had to remain in charge of operations in Korea and India, due to tax-related legal constraints, but they would manufacture for Microsoft and all phones would now be Microsoft branded. 

It was just the beginning of the massive puzzle that Microsoft had got itself into. For a reference, by 2013, Nokia sold nearly 251 million handsets, a mixture of feature phones and smartphones.

The Lumia lineup of Windows Phones only accounted for 30 million and Microsoft had to plan how to handle the other 220 million other devices that Nokia produced not on Windows Phone. It was a big worldwide business in which Nokia was in second place behind Samsung, as the top mobile phone manufacturers. Microsoft was now the world's second-largest phone manufacturer by sales.

With the hardware muscle now, some argue that Microsoft’s right move should have been to make the Windows OS free in all their smartphones. Of course, that’s easier said than done and ultimately, Microsoft wasn’t successful in figuring out the licensing puzzle or inserting itself as a phone brand. But just thinking about it, free adoption of Windows Phone would’ve definitely placed more direct competition on Android. It would’ve given them the chance to control their own app store, push its own cloud-based services, and many other possibilities. 

But instead, the firm’s efforts to elbow into first-party hardware received a massive setback. Long story short, in 2015 Microsoft writes off $7.6 billion as a consequence of the Nokia acquisition and lays off 7,800 employees and a roughly $800 million restructuring charge, writing down the vast majority of the phone business purchase price.

In 2016, Microsoft Mobile announced the sale of its feature phone business to the Finnish HMD Global and FIH Mobile. The sale included design rights and its rights to use the Nokia brand on all types of mobile phones and tablets worldwide until 2024. The total sale to both HMD Global and FIH Mobile amounted to US$350 million.

After Microsoft acquired Nokia, what happened to it? 

In this new stage, back again in Finnish hands, Nokia seems to have been recovering some of its roots and it now produces straight forward devices for the mid-lower end of the market. However, it’s been diminished to almost being unknown for the new generations. 

So, that’s how a company that once was reigned over the mobile phone industry became a runner-up and ended up maneuvering just to keep its head up. Now, if we learned something today, is that when a company reaches the global magnitude that Nokia reached, it’s virtually impossible for it to go down to the point of disappearing. Just think of something equivalent nowadays, like Samsung or Apple going out of business… it’s just hard to imagine, it would probably require a global calamity. 

But remember, we also learned that success can sometimes hit hard and shake a company’s foundations just as much as a failure. Having a solid base and principles to stick to can end up being critical for a company’s endurance over time, regardless of its size.