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Microsoft Corp. is staking its claim in the global competition for smartphones with its planned purchase of Nokia Corp.'s devices and services business, including manufacturing and design operations.
The acquisition, announced Sept. 3, is expected to close in 2014, with Microsoft paying 5.4 billion euros ($7.2 billion) for Nokia's cell phone business. It will position Microsoft, based in Redmond, Wash., alongside both Apple Corp. and Google Inc. as companies producing both mobile software and hardware.
"Clearly, greater success with phones will strengthen the overall opportunity for us and our partners to deliver on our strategy to create a family of devices and services for individuals and businesses," said Microsoft CEO Steve Ballmer in a letter to employees about the deal.
Microsoft will add 32,000 Nokia employees to its roster, including 4,700 in Finland. Finland will be the hub of research and development for the Microsoft mobile operations. It will also take advantage of Nokia's expertise in supply chain management for global production.
Nokia, based in Espoo, Finland, will retain its network infrastructure business, its advanced technologies group and its mapping and location service, "Here." Microsoft will license the mapping software for use on its phones.
Nokia has smartphone production operations in China, Brazil, Mexico, South Korea and India.
"In many hardware companies, manufacturing labor is primarily outsourced," Ballmer said during a conference call. "But in Nokia, there is more in-sourced manufacturing. Nokia has had a strategy about that, obviously, that they've executed very well."
About 18,000 of Nokia's 32,000 employees moving to Microsoft are in manufacturing, said Amy Hood, executive vice president and chief financial officer.
The two companies have had a development agreement since 2011, with Nokia producing its first Microsoft smartphone in November 2011.
"Windows phone has grown 78 percent in the last year and is now the No. 3 offering in the marketplace," Ballmer said during a news conference. "Nokia Microsoft phones has gone from zero two years ago to 7.4 million units."
Microsoft's move is similar to Google's 2012 acquisition of Motorola Inc.'s cell phone business. Google first Motorola phone, the Moto X, went on sale in August.
Microsoft currently produces software for its own branded platform, with the hardware made by a variety of companies, including Nokia. In a presentation to the press and investors, the company said its success in cell phones — with 300 million devices sold per year — should allow it to move more solidly into tablet devices. Microsoft introduced its first tablet, the Surface, earlier this year.
"Tablets is an area where we absolutely have our own first-priority hardware, and see opportunities to build and strengthen," Ballmer said.
Nokia was once a mobile telephone powerhouse, but has struggled since smartphones hit the market. As part of Microsoft, it will have better footing to compete there, however Ballmer noted that Nokia remains a leader in non-smart with phones sold in developing regions.
"[They are] the first connection with technology that people in many places in the world have with any kind of communications or information technology device," he said. "We look at that as an excellent feeder system into the smartphone world, and a way to touch people with our services even on much lower end devices in many parts of the world."