With Microsoft's (MSFT -1.84%) purchase of "substantially all" of Nokia's (NOK 3.60%) devices and services business, the Finnish company is ending its long mobile roller-coaster ride -- while Microsoft's may be restarting.
Looking back on Nokia
Nokia had several diverse identities in its early years -- including beginning as a paper mill -- but in 1982 it dove head-first into the mobile industry with its first car phone. Five years later, the company launched the Mobira Cityman, its first handheld phone, for about $6,000.
Nokia Mobira Cityman. Source: Nokia.
In 1999, the company introduced the Nokia 7110, which had email capability and basic Internet functions. A year later, Nokia's stock was worth $300 billion, more than any other company in Europe. A 2002 New York Times article said that in 2001 about 37 out of every 100 cell phones bore the Nokia name. By 2005, the company had sold more than 1 billion phones worldwide.
At the peak of its mobile reign in 2008, Nokia held 40% of the global handset market share -- the highest percentage the company would ever have. Part of its decline can be attributed to Apple's introduction of the iPhone back in 2007. It wasn't that Nokia wasn't offering smartphones -- it's just that Apple's were better.
By the third quarter of 2010, Nokia's worldwide handset market had fallen to 28.2%, and Apple's share was at just 3.2%. But as Apple starting creeping into Nokia's space another competitor emerged: Google. The Android operating system -- given away for free to mobile manufacturers -- was too strong of an opponent for Nokia's Symbian operating system.
As its market share declined and consumers shifted their attention to the iPhone and Android phones, Nokia looked to Microsoft to fight off the competition. In 2011, the two companies officially teamed up, with Nokia committed to creating smartphones that would run on Microsoft's Windows Phone OS. But despite making headway with Nokia's Lumia line, the Windows Phone OS currently only holds about 3.7% of the worldwide operating system market share (as of the second quarter this year). Meanwhile, Apple currently holds the No. 2 spot for both device sales and smartphone operating system market share, according to Gartner .
Nokia Lumia 920. Source: Nokia.
Just two years after the initial partnership with Nokia, Microsoft has purchased most of the company for about $7.2 billion. Nokia's solutions and networks business will remain, but the company we've known as Nokia will be largely swallowed up into Microsoft.
Microsoft's new future
While it's far too early to tell how all of this will play out for the Redmond company, acquiring Nokia's devices and services will bring Microsoft squarely into the business of creating both smartphone hardware and software, a position that's proven advantageous for Apple.
The big question is whether or not Microsoft can tackle its competition better as a single entity than it did when it was teamed up with Nokia. Jumping into the hardware business puts the company up against Samsung, which shipped more than 75 million phones worldwide in the second quarter of this year. For perspective, Apple came in second, with just 31 million.
On top of that, Microsoft will continue to face operating system competition from Apple and Google, which are likely to hold the top spots for years. But Nokia's mobile end could be a new beginning for Microsoft if the company can take the Lumia brand and do what Nokia ultimately couldn't do: gain a foothold in the smartphone market. With Microsoft in the middle of an upcoming leadership transition, investors should be happy to see company focusing on making its own devices, even if it hasn't historically been an bright spot.
