Microsoft buys Nokia handset business for €5.4bn

Deal delivers Europe's last big handset maker into US ownership and moves Microsoft firmly into device-manufacturing business

Microsoft is to acquire Nokia's mobile phone arm in a swansong deal for the software giant's long-serving chief executive, Steve Ballmer, delivering Europe's last big handset maker into American ownership.

For €5.44bn (£4.6bn), Nokia is casting off the business that once represented Finland's most important export, in a deal that will result in 32,000 staff transferring to Microsoft.

Overtaken in the smartphone arena by Apple and Samsung, Nokia's board agreed to end the company's decades-long role as a pioneer and once-dominant player in one of the most revolutionary technologies in modern history.

Nokia's chief executive, Stephen Elop, has stepped down from the company's board, and will transfer with the handset business to Microsoft, where he will become head of the devices division after the transaction's expected completion in the first quarter of 2014.

"Today's announcement is a bold step into the future," said Ballmer. "For Microsoft it is a signature event in our transformation."

The acquisition marks the boldest step yet taken by Microsoft in its recently announced strategy of moving decisively into the device-manufacturing business, so that it can design for the software and hardware of its products. It is a move Ballmer hopes will bring the kind of success currently being enjoyed by Apple.

In a dramatic month for America's most successful consumer software group, Ballmer announced his retirement from the company within 12 months after 13 years at the helm. Elop, already tipped as a potential successor, is now seen as the most likely heir to the company still chaired by its founder, Bill Gates. "Elop becomes a really strong candidate for the CEO role," said Roberta Cozza, a research director at Gartner. "He is someone who has demonstrated that he can run a software unit at Microsoft and has his tenure as the CEO of a hardware company."

"I feel sadness because we are changing Nokia and what it stands for," said Elop, at an emotional press conference at Nokia headquarters in Espoo. "We are a challenger and as the news ripples around the world today we will be recognised as an even greater challenger to our competitors."

Nokia has staked a claim to a growing but small share of the smartphone market, with 7.4m of its Lumia handsets shipped in the most recent quarter. Samsung shipped 71m smartphones in the second quarter, according to Gartner, and Nokia is no longer among the global top five.

"I share the frustration that comes from being so far behind two very large competitors," said Elop. "We are going faster than Nokia has ever done before. Achieving our goal of becoming the third ecosystem is becoming very real."

Elop, who formerly headed Microsoft's business services unit, intertwined Nokia's fortunes with Microsoft two years ago when he announced he would abandon the Finnish company's attempts at creating its own smartphone software, opting instead for the Windows Phone operating system.

Microsoft heavily subsidised Nokia's strategy, providing hundreds of millions in marketing dollars per quarter to support the significant advertising spend needed to tempt customers unfamiliar with the Windows Phone interface.

As head of Microsoft's devices unit, Elop will oversee not only phones but its best selling Xbox games console and its Surface tablet computer, which has so far failed to register with consumers. Julie Larson-Green, who currently heads devices and studios at Microsoft and had been seen as a contender for the top job, will report to Elop.

Risto Siilasmaa, Nokia's chairman, will take over as chief executive of the company in the interim. "This transaction makes all the sense rationally but emotionally it is complicated," he admitted, saying the decision was made because Nokia needed more cash if it was to compete with larger smartphone rivals.

The market, he said, "is becoming a duopoly with the leaders building significant momentum with a scale not seen before, while many established players have disappeared or faced difficult choices".

Microsoft will retain its mobiles research and development facility in Finland, where 4,700 Nokia staff are currently employed, and Ballmer said: "We have no significant plans to shift around the world where work is done. We are deeply committed to Finland."

The US company said it would build a datacentre in Finland to serve customers in Europe.

Microsoft is also providing €1.5bn of "immediate financing" to Nokia, implying that the Finnish company has hit a cash crunch. Its debt has already been reduced to "junk" status. If used, the loan will be repayable when the deal closes.

The remaining part of Nokia will be dominated by Nokia Siemens Networks (NSN), which builds mobile phone infrastructure and a mapping platform called Here. Elop recently completed the acquisition of 50% of NSN that was owned by Siemens. These rump assets currently employ 56,000 people and have revenues of €15bn.

But even inside cash-rich Microsoft, Nokia's phone business faces serious challenges. Its handset business has slumped in size from a peak in the third quarter of 2010, with revenues of €7.2bn, to just €2.72bn in the second quarter of this year, its smallest size in more than a decade. It has also been loss-making for five of the past six quarters.

While it is strong in the "feature phone" business in the developing world, it has struggled in the all-important smartphone business. Apple's iPhone and handsets running Google's Android together make up over 95% of sales in the US and China, the world's two largest smartphone markets, according to Kantar Worldpanel's latest figures. Windows Phone only has shares above 10% in Mexico and France, according to the company's figures.

Under the deal, Microsoft is buying the Lumia and Asha brand names that Nokia has used for its smart and intermediate phones. It has licensed the use of the Nokia brand on handsets for 10 years, but the Finnish business will retain ownership of the brand. That will probably mean that the Nokia brand disappearing from handsets in the next decade, ending over 30 years' history in the business.

Having started in 1865 with a pulp mill in the Finnish town of Tampere, Nokia reinvented itself repeatedly, shifting to rubber boot production early in the 20th century, and then making its first telephone exchange in the 1970s. Its first mobile phone appeared in 1981.

Rumours that Microsoft intended to buy Nokia had been floated since Elop joined the company. Reaction to the deal was mixed.

"Microsoft buying Nokia looks like doubling down on the current failing strategy, without changing the dynamics that are preventing success," cautioned Benedict Evans at Enders Analysis.

Ben Wood at CCS Insight described the deal as a "bold, but entirely necessary gamble by Microsoft".

"Mobile needs to be a cornerstone of Microsoft's business for future success," said Wood.

"This is by no means a silver-bullet solution to Nokia and Microsoft's current difficulties. The massive restructuring that has taken place within Nokia over the last two years offers Microsoft a more stable foundation on which to focus its efforts in mobile, but Windows Phone remains a distant third place in the smartphone race."

Article Source : http://www.guardian.co.uk

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Tesco rapped for implying horsemeat scandal affected whole food industry

Supermarket's ad at height of crisis tarred all food retailers and suppliers when relatively few instances had been identified, says ASA

Tesco has been criticised by the advertising watchdog for claiming that the horsemeat scandal affected the entire food industry.

The Advertising Standards Agency (ASA) ruled that an ad run by Tesco in February, at the height of the food crisis, "implied that all retailers and suppliers were likely to have sold products contaminated with horsemeat" when "relatively few instances of contamination had been identified at the time".

The ad now banned by the ASA, entitled "What burgers have taught us", said: "The problem we've had with some of our meat lately is about more than burgers and bolognese. It's about some of the ways we get meat to your dinner table. It's about the whole food industry."

Two people, including an independent butcher, complained that the ad was misleading because it implied there were issues with meat standards across the whole food industry, unfairly denigrating suppliers who had not been involved in the supply of mislabelled products.

The news comes at a sensitive time for the UK's biggest supermarket as it attempts to rebuild its reputation and market share in the wake of the scandal and problems with customer service. It recently launched a high profile ad campaign called "Love Every Mouthful" in a bid to highlight the quality of its food after promising to source more meat from the UK and Ireland and step up testing to avoid future contamination.

Tesco's share price plummeted in January after tests carried out by Ireland's food watchdog identified traces of horsemeat in burgers sold in its stores, as well as Iceland, Aldi and Lidl.

Tesco launched an internal investigation and placed a series of national newspaper ads apologising for the incident and explaining how it planned to change.

In response to the ruling Tesco said it accepted that not all those involved in the food industry had been implicated in the sale of products containing horsemeat. Rival supermarkets including Sainsbury's, Marks & Spencer and Waitrose were never found to have sourced food contaminated with horsemeat.

However Tesco said it had not operated in a vaccuum and the meat contamination problem it and others had encountered was due to systemic failings in the food supply chain. It submitted opinion and evidence from an expert to back that view, which the supermarket said was supported by the actions of the European commission and planned legislation on the supply chain which would apply to the whole European food industry.

A spokesman said: "We are disappointed with this decision, but accept that the ASA has taken a very literal view of the wording in the advert. We think our customers understood that our aim with the advert was to set out the action we had taken in relation to the horsemeat crisis and to acknowledge the fact the issue had serious consequences not just for Tesco, but for the whole of the food industry."

The ASA said the ad made the "definitive statement" that the crisis was "about the whole food industry" and concluded that consumers would understand that it referred to all food suppliers rather than Tesco alone. However it said the ad did not denigrate other companies because it did not name any particular supplier.

Article Source : http://www.guardian.co.uk

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UK economy upgraded by OECD

Organisation for Economic Co-operation and Development gives vote of confidence, revising growth forecast from 0.8% to 1.5%\

Paris-based thinktank the Organisation for Economic Co-operation and Development has lifted its forecast for UK growth in 2013, in the latest vote of confidence for the fledgling recovery.

In May, when it last released projections for the world's major economies, the OECD was expecting 0.8% growth in the UK for 2013. On Tuesday, it said recent survey evidence suggested GDP would expand by 1.5%, grouping the UK with the US and Japan as economies where, "activity is expanding at encouraging rates".

The upgrade from the OECD comes after a string of positive indicators for the UK, including stronger-than-expected growth of 0.7% in the second quarter, falling unemployment, and survey evidence suggesting the strongest growth in manufacturing output for almost two decades.

Alongside revising up its forecast for the UK, the OECD used its interim economic assessment to warn that while a moderate recovery is underway in many major economies, global growth remains sluggish, and there are still risks to the upturn.

The OECD's economists single out the impact of the Federal Reserve's plans to phase out its massive programme of quantitative easing as creating particular problems for some economies.

"In many emerging economies, loss of domestic activity momentum together with the shift in expectations about the course of monetary policy in the United States and the ensuing rise in global bond yields have led to significant market instability, rising financing costs, capital outflows and currency depreciations," it said.

Countries including India, Indonesia, Brazil and Turkey have been battling to control a potentially destabilising decline in their currencies since the Fed chairman, Ben Bernanke, announced his plans to "taper" QE in May.

The OECD's experts warn that the slowdown in emerging economies – which have been major drivers of world growth in recent years – would offset the improvement in advanced economies, so that the global recovery would continue to be, "sluggish".

In the US, the OECD expects growth to be 1.7% in 2013, slightly down on its May estimate of 1.9%. It also warns that the crisis in the eurozone is far from over, saying: "The euro area remains vulnerable to renewed financial, banking and sovereign debt tensions. Many euro area banks are insufficiently capitalised and weighed down by bad loans."

Article Source : http://www.guardian.co.uk

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