Microsoft Backs Out of Nokia Deal

Microsoft reportedly thought the purchase price was too high.

Microsoft won't be buying Nokia after all.

Citing "people familiar with the matter," the Wall Street Journal reported that the two companies were involved in "advanced discussions" in London about an acquisition as late as June. The companies were reportedly nearing an oral agreement before the discussions fell apart. They are not "likely to be revived," one source told the WSJ.

According to the report, Microsoft would have used its substantial reserves of offshore cash for the deal. It's estimated that Microsoft has about 89 percent of its cash parked abroad to avoid paying U.S. taxes, even though 85 percent of its research and development is done in the United States.

The WSJ article pointed to Microsoft as being the party that backed out of the deal, citing the acquisition costs, as well as Nokia's struggle to gain significant market share in the smartphone space.

Nokia, which entered into a deal with Microsoft in 2011 to base its smartphone devices on Microsoft's Windows Phone operating system platform, shipped more Windows Phone devices in the first quarter of 2013 than any other manufacturer, according to recent figures from Gartner. However, it is currently in 10th place among smartphone manufacturers worldwide, far behind market leader Samsung.

"Although Nokia's Windows Phone sales have sequentially improved reaching a volume of 5.1 million units, Nokia is yet to see high growth in the smartphone segment," Gartner said it its report.

With a worldwide market share consistently in the single digits, Windows Phone has also struggled to make a significant dent in the smartphone OS market. Microsoft's platform has historically trailed perennial smartphone OS leaders Google Android and Apple iOS by a very wide margin.

However, in Q1 2013, the platform's market share climbed to the No. 3 spot, solidly above the BlackBerry OS for the first time, according to IDC. Gartner's Q1 2013 report put Windows Phone and the BlackBerry OS at a virtual tie.

Neither Nokia nor Microsoft has confirmed whether they were in acquisition talks. In a statement to the WSJ, Nokia said, "We have a deep partnership with Microsoft and it is not uncommon for Nokia and Microsoft to meet on a regular basis."

A Microsoft spokesperson said in an e-mail, "We do not comment on rumors or speculation."

News of the quashed Microsoft-Nokia deal comes one day after the Financial Times reported that Chinese device manufacturer Huawei has expressed interest in buying Nokia.

"We are considering these sorts of acquisitions; maybe the combination has some synergies but depends on the willingness of Nokia. We are open-minded," FT quoted Huawei's Richard Yu, chairman of the company's consumer business group, as saying.

About the Author

Gladys Rama (@GladysRama3) is the editorial director of Converge360.

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