Nokia Rises After Report of Microsoft Interest in Phone Unit (1)

Nokia Oyj (NOK1V) gained after a report that it held talks to sell its mobile-phone business to Microsoft Corp. (MSFT), signaling the Finnish handset manufacturer may be open to asset disposals as part of its turnaround effort.

Nokia Oyj rose as much as 4.1 percent in Helsinki trading after the Wall Street Journal reported on the talks. According to the newspaper, the two sides made “significant progress” on a plan to combine Microsoft with Nokia’s phone business, though the discussions have since faltered.
Nokia, once the dominant company in the mobile-phone industry, is struggling to win back market share from Apple Inc. (AAPL) and Samsung Electronics Co. (005930) with its Lumia smartphones. With Nokia working to revive its profitability and Microsoft seeking to bolster its wireless business, the deal would be mutually beneficial, said Mikko Ervasti, an analyst at Evli Bank Oyj.
“It does makes sense,” said Ervasti, who is based in Helsinki and recommends buying Nokia shares. “All options have to be on the table, but at the moment it’s of utmost importance that operations are not distracted. This summer is Nokia’s chance to show Lumia is here to stay.”
Nokia rose as high as 2.97 euros and traded at 2.95 euros at 10:52 a.m. in Helsinki, giving the company a market value of 11 billion euros ($14.6 billion). It had lost 2.5 percent this year through yesterday, after five straight annual declines.
Frank Shaw, a spokesman for Microsoft, and James Etheridge, a spokesman at Nokia, declined to comment.
Earlier this week, Nokia’s shares jumped after a report that Chinese telecommunications business Huawei Technologies Co. may be interested in acquiring the entire company.

Close Partnership

Nokia and Microsoft already have a close partnership, with the Espoo, Finland-based company relying on the U.S. software maker for operating-system technology. Nokia introduced the Lumia 925 last month, which runs on Microsoft’s Windows 8.
Still, Microsoft wouldn’t need to buy Nokia to enter the mobile-device business, said Hannu Rauhala, an analyst at Pohjola Bank Oyj in Helsinki with an accumulate rating on Nokia.
“I don’t understand the reasons behind the deal,” Rauhala said. “If Microsoft desires to make its own phones, there would be plenty of manufacturing capacity available on the market. Microsoft itself has expertise on operating systems and hardware expertise could be obtained from the market.”

Elop’s Turnaround

As part of his turnaround effort, Nokia Chief Executive Officer Stephen Elop has cut more than 20,000 jobs and closed production and research sites since taking over in 2010. The CEO, who joined from Redmond, Washington-based Microsoft, started betting on his former employer’s operating system after Nokia’s homegrown Symbian software fell out of favor among consumers.
Once the world’s largest smartphone maker, Nokia had more than 50 percent of the market before Apple’s iPhone and Google Inc.’s Android smartphone operating system were introduced about six years ago. Nokia has lost about 90 percent of its market value since then and fallen outside the top-five smartphone makers.
While Lumia sales are rising and the company is striking new deals for the phone, investments to recover market share will keep weighing on profitability. Analysts project the company will post losses or profit of less than 200 million euros for at least the next seven quarters.

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