Summary: Microsoft's acquisition of Nokia is aimed at building a devices and services strategy, but the joint company won't take the same form as Apple. 
 
 Microsoft has been working on its evolution into a devices and services company, away from the services business it has traditionally been, for several years now with limited success. 
 
 Its acquisition of most of Nokia is the latest acceleration of that strategy — to move further away from the moribund world of the beige desktop and towards the sunlit world of smartphones and tablets. 
 
 Owning the desktop (via Windows) and building additional services on top, like Office or search, has been vital for Microsoft's strategy until now, so as our interest shifts from the desktop to the tablet or smartphone it's essential to Microsoft's broader business (even Azure) that it can retain that connection in some form. To be a winner in the business market it also has to be a winner in the consumer market, something that wasn't the case a decade ago. 
 
 As Microsoft's own presentation about the deal, announced on Monday, notes: "With the consumerisation of IT user matter at both home and work... We cannot risk having Apple or Google foreclose app innovation, integration, distribution or economics." 
 
 Nokia lashed itself to Microsoft's mast after losing out to iOS and Android in the smartphone market share stakes and with the limited success of the Lumia range so far enough to keep interest in Windows Phone alive, most analysts are seeing a certain amount of inevitability to the acquisition, even if they are split on what its biggest implications are. 
 
 Forrester mobile analyst Charles Golvin said the steadily diminishing investments by other Windows Phone licensees has left Microsoft with just Nokia as its standard bearer and added Microsoft now appears "poised to adopt a vertically integrated strategy more akin to Apple's". 
 
 But he said Microsoft's challenge remains how to unite the myriad services and brands — Windows, Nokia, Live, Surface, Xbox, Bing and more — into a cohesive experience that will command and cement customer loyalty. 
 
 "That's a tall order and one that should weigh strongly on the board's choice of a new CEO," he said. 
 
 Richard Holway, chairman of analyst TechMarketView, said given that Microsoft paid $8.5bn for Skype in 2011, the price it is paying for Nokia "seems extremely reasonable". 
 
 However, he added: "Our only 'surprise' now is the timing of the announcement. For such a big deal to come just days after Ballmer stood down seems mighty strange." 
 
 For Holway, there is also an opportunity for the enlarged Microsoft to step up its business mobility efforts: "There is undoubtedly a market opportunity for the creation of a provider of mobile solutions for the enterprise. Taking Office onto various mobile platforms. Providing secure emailing in a sector once occupied by BlackBerry." 
 
 But such a move carries its own risks — Microsoft's success has been build on being hardware agnostic and persuading device manufacturers to support it. Already its move into the tablet market with Surface will have unsettled its manufacturers which have struggled to come up with convincing form factors to tackle the decline of the PC. If Nokia's rumoured tablet appears too, this will further complicate Microsoft's relations with these partners who are essential for the success of Windows 8 (as well as Office and other products). 
 
 But, as Holway points out, "on balance, Microsoft needed to make a bold move into mobile. Not doing so would mean certain terminal decline. This way at least holds out some chance of survival." 
 
 Carolina Milanesi, research vice president at analyst Gartner, said by buying rather than just partnering with Nokia, Microsoft gets deeper integration, the benefit of its patents and removes any risk of Nokia either going Android or being acquired by someone else. 
 
 But success against iOS and Android will depend on how the companies integrate. 
 
 "Nokia benefits from higher R&D spend as well as more marketing budget. Microsoft benefits from a good relationship with carriers, good direct channel presence in emerging markets, the potential of going after more aggressively to the business market," she told ZDNet. 
 
 But for Milanesi, business is a secondary concern, even if it is an attractive target where Microsoft, and to a less extent Nokia, have experience: "First and foremost it needs to be about consumers. Enterprise are certainly a target especially considering the state BlackBerry is in but consumers make or break a phone vendor today." 
 
 From Milanesi's point of view, emerging markets need to be a longer term target for Microsoft — but the battle needs to be won in the mature markets first. 
 
 For Forrester principal analyst Thomas Husson, Nokia adds to Microsoft's developing market strategy. It's looking increasingly likely that the US and western European smartphone market is reaching saturation, so that most growth will come from emerging markets. Here Nokia's Asha devices could play a neat role as an 'on-ramp' for consumers buying their first smartphone. Tied in with a revamped tablet strategy this could open up a new front against Android in particular. 
 
 But Husson cautioned: "This is going to be a long journey. In some countries, Windows Phone 8 market share is now above five percent and close to 10 percent. It thus still offers a limited reach for developers and marketers. 
 
 "Nokia is indeed still massivley popular in some emerging countries but competition is very high with Far East manufacturers and low-cost Android devices. I think it will depend on Microsoft's new strategy for emerging markets beyond just mobile phones." 
 
 All of this shows the number of competing — and occasionally contradictory — demands upon Microsoft's management. 
 
 As the incumbent player in a fading market, Microsoft has a take into account those differing requirements as it tries to build for the future. For example, balancing Microsoft's business customers against the need to get into consumer tech, the need to build its own hardware business against the need to keep manufacturers onside, and building up a mobile business while protecting its PC heritage. 
 
 It's easy to look at Apple's integrated hardware and software model and the rich ecosystem that sits around it, but it's much harder to emulate. 
 
 Global coverage: Nokia Interim CEO: Microsoft deal makes us stronger | Even with Nokia devices, Microsoft wants to license Windows Phone to other makers | Does its Nokia buy thwart or fuel a possible Microsoft break-up? | Microsoft shows how to flush decades of Nokia goodwill away | Microsoft gets less than $10 per Windows Phone unit | Microsoft-Nokia deal: Reaction from the Twitter trenches | Elop drops Nokia CEO role to lead devices team under Microsoft deal 
 
 Further reading ||||| Microsoft is buying Nokia's cell phone business and licensing its patent portfolio, according to both companies. 
 
 In 2003, Nokia's cell phone market share exceeded 35%. That same year, its phone business alone posted an operating profit of 5.48 billion euros. Today's sale price, which includes 1.65 billion euros in patents, is just 5.44 billion euros. It's been a rough decade. 
 
 Nokia's cell phone collapse has been a spectacular one. The Finnish giant dominated the dumbphone era after Motorola, another faded star that recently fell into the hands of a comparative upstart. But it was blindsided by Apple, then deprived of a chance to regain its footing by an even more aggressive Google, which followed close behind. 
 
 The story, in hindsight, is simple: Nokia did not have a truly compelling smartphone ready when a large segment of the developed world was first compelled by smartphones. Whether this was the result of complacency — Nokia was, in the mid-2000s, the leader of the niche smartphone category — doesn't matter now. 
 
 Nokia's miscalculations became impossible to ignore in 2008, the same year Microsoft decided, internally at least, to scrap its ancient and inadequate Windows Mobile platform in favor of something entirely new. Under these circumstances, it's easy to imagine how a sort of camaraderie might have emerged at the time, or at least a mutual sympathy. Certainly a shared interest: to break back into the market from which they had been unceremoniously expelled. 
 
 During the next two years, while Microsoft readied Windows Phone 7 and Nokia floundered on, the seeds of Sunday's deal were sewn. A chastened Nokia was a natural partner for the tardy but determined Microsoft; it needed a software solution and Microsoft needed help with hardware. The 2009 vision of 2013 renders clearly: Two giants, united after some missteps, regain their rightful place. By 2010, when the head of Microsoft's Business division left to take the helm at Nokia, the gears were moving. Many at the time wondered if Stephen Elop's time at Nokia would be spent grooming the company for purchase — a foreigner in all possible ways, he began his time at the company with a memo rightly but offensively declaring Nokia's proud platform a failure, and quickly pledged the company's commitment to the still-tiny Windows Phone. It felt like a radical about-face, but no matter: Nokia and Microsoft were going to save each other. 
 
 Now, with Elop returning to Microsoft after a job well done — well, a job, done —that plan has come to fruition. The only problem is that there's little left to save. Windows Phone has barely dented the now much larger smartphone market. Nokia hasn't had a Windows Phone hit. This incongruity — between a successfully executed, slyly strategic long-term merger plan and a much grander, more general sense of failure — might explain Microsoft's deeply strange and somewhat sad stated goals for its Nokia acquisition. 
 
 Microsoft' s "Strategic Rationale," titled "Accelerating Growth," is a disjointed and bizarre document. It manages to sound both insane and uninspiring, outlining modest goals that still sound unrealistic. 
 
 For example, it lays out a plan to pull in over $45 billion dollars in smartphone revenue by 2018. But it plans on doing this by securing just 15% of the projected global smartphone market — not exactly a world-beating plan, keeping in mind the time frame. Consider: 2018 is five years away. Five years ago was the year the App Store first opened. ||||| Microsoft CEO Steve Ballmer holds a Nokia Lumia 920 smartphone during a Windows Phone 8 launch event in October 2012. (Photo: Stephen Lam Getty Images) Story Highlights Microsoft gets aggressive in mobile device space by buying partner, Nokia 
 
 $7.2 billion deal includes $5 billion for Nokia's handset business and $2.2 billion for licenses 
 
 Nokia buyout is the second largest in Microsoft's history after Skype 
 
 Microsoft late Monday announced it is buying Nokia's smartphone and cellular handset business in a deal worth $7.2 billion. 
 
 The deal sent Finnish firm Nokia's Helsinki-listed shares zooming 31% in afternoon trading Tuesday and earlier were up close to 50%, a move reported by Bloomberg as a record advance. Microsoft shares were down about 5%. 
 
 As part of the deal, Microsoft will own the company which has been a leader in creating the Lumia line of smartphones that run Microsoft's Windows Phone operating system. Microsoft is paying $5 billion to buy Nokia's Devices & Services unit and an additional $2.2 billion to license Nokia's patents. 
 
 INVESTORS: Will Ballmer's latest billion dollar bet pay off? 
 
 ANALYSIS: Can Nokia's sleek handsets power up Windows 8? 
 
 Skip in Skip x Embed x Share CLOSE Microsoft announces it's buying Nokia's mobile phone business, Vodafone sells its shares of Verizon Wireless back to Verizon Communications and CBS reaches a deal to end the blackout on Time Warner Cable. VPC 
 
 The deal formally puts the two companies together after collaborating closely since Feb. 2011 to create handsets that compete with those from Apple and Samsung. The companies have made in-roads in many parts of the world, including Europe, but are still facing headwinds in the U.S. Windows Phone has already surpassed BlackBerry as the third largest smartphone platform according to some analysts. 
 
 PRESS RELEASE: Text of Microsoft's news release about the deal 
 
 LETTER FROM BALLMER, ELOP: Text of blog post from execs 
 
 The move is one of the boldest yet by CEO Steve Ballmer, who stated last month he plans to retire in 12 months. By buying Nokia's handset business, Microsoft is showing it's committed to turning itself into more of a devices company than a software company. The deal's total value makes it the second largest ever done by Microsoft, just behind the $9.3 billion buy of Internet phone service Skype in May 2011, says S&P Capital IQ. 
 
 "Nokia and Microsoft have always dreamed big," said Ballmer and Nokia chief Stephen Elop in an "open letter" blog post. 
 
 "We dreamed of putting a computer on every desk, and a mobile phone in every pocket, and we've come a long way toward realizing those dreams. Today marks a moment of reinvention." 
 
 Elop, a former Microsoft executive who took the helm of Nokia, will become Nokia Executive Vice President of Devices & Services. 
 
 The deal is expected to close in the first quarter of 2014 subject to shareholder and regulatory approval. 
 
 Read or Share this story: http://usat.ly/19dOtAk ||||| Microsoft Corp. (MSFT) said it will eliminate as many as 18,000 jobs, the largest round of cuts in its history, as Chief Executive Officer Satya Nadella integrates Nokia Oyj’s handset unit and slims down the software maker. 
 
 The restructuring, amounting to about 14 percent of its workforce, includes 12,500 Nokia factory and professional positions -- half the number of employees added in the acquisition. At Microsoft, cuts will be in sales, marketing and engineering. The reductions are expected to be completed by June 30, 2015, and will result in a pretax charge of $1.1 billion to $1.6 billion, Microsoft said in a statement today. 
 
 Nadella, who took over from Steve Ballmer in February, is retooling the company’s structure as it seeks to compete with nimbler rivals offering mobile and Internet-based software and services. He’s also working to wring a promised $600 million in annual savings from Microsoft’s Nokia deal, which added 25,000 workers in April, bringing the total to about 127,100. 
 
 Related: 
 
 “Microsoft needs to be a leaner tech giant over the coming years in order to strike the right balance of growth and profitability around its cloud and mobile endeavors,” said Daniel Ives, an analyst at FBR Capital Markets & Co. who rates Microsoft stock the equivalent of a buy. The cuts are roughly twice as big as Wall Street expected, Ives said in a note today. 
 
 Photographer: Andrew Harrer/Bloomberg An attendee tries on a Microsoft Corp. branded shirt during the Microsoft Worldwide Partner Conference in Washington, D.C., U.S., on Wednesday, July 16, 2014. Close An attendee tries on a Microsoft Corp. branded shirt during the Microsoft Worldwide... Read More Close Open Photographer: Andrew Harrer/Bloomberg An attendee tries on a Microsoft Corp. branded shirt during the Microsoft Worldwide Partner Conference in Washington, D.C., U.S., on Wednesday, July 16, 2014. 
 
 The shares rose 1 percent to $44.53 at the close in New York. They have advanced 19 percent this year. 
 
 Streamline Management 
 
 The company will start with 13,000 cuts today and the majority of eliminated workers will be notified in the next six months, Nadella said in an e-mail to employees. Microsoft will also have fewer layers of management and will make changes to its outside vendor staff, he said. 
 
 “The first step to building the right organization for our ambitions is to realign our workforce,” he wrote. 
 
 Last week, in his first mission statement, Nadella said the Redmond, Washington-based software maker needs to become more focused and efficient and requires changes to its engineering teams. He pledged updates on the new plans later this month, and said he would provide more details when the company reports earnings on July 22. 
 
 Microsoft investors are likely to view the cuts as a positive sign, illustrating that Nadella is trying to get costs and headcount under control and that he understands the challenges facing Microsoft, Ives said. 
 
 Photographer: Andrew Harrer/Bloomberg The Microsoft Worldwide Partner Conference in Washington, D.C., on July 16, 2014. Close The Microsoft Worldwide Partner Conference in Washington, D.C., on July 16, 2014. Close Open Photographer: Andrew Harrer/Bloomberg The Microsoft Worldwide Partner Conference in Washington, D.C., on July 16, 2014. 
 
 Earnings Growth 
 
 “We view this as another step in the right direction from the Street’s perspective,” he said in an interview. “Nadella is not wearing rose-colored glasses.” 
 
 The reductions may add 30 cents a share to Microsoft’s profit in fiscal 2016, estimated Kirk Materne, an analyst at Evercore Partners Inc., who rates Microsoft the equivalent of a buy. 
 
 The company has needed to cut costs. Analysts on average estimate that profit before certain items increased 1 percent in the fiscal year that ended last month, after a decline in fiscal 2013 and little growth the prior year. 
 
 Given the stock’s gains in recent months on optimism about Nadella’s plans, it’s time for the company to post earnings growth that validates that enthusiasm, said Brent Thill, an analyst at UBS AG, who recommends buying the stock. Microsoft spends far more on product development and research than rivals such as Apple Inc. (AAPL) and Google Inc. (GOOG) and gets a smaller return for that investment, he said. 
 
 “They have been spending on a lot of things that haven’t come to fruition,” he said. “The Nadella era will be about putting more money on bigger hits and not sprinkling a little everywhere.” 
 
 Mobile Focus 
 
 In appearances at company and technology events since he took the helm, Nadella has reiterated that the company’s priorities are mobile and cloud products, as he works to shift Microsoft away from its longtime core business of software for personal computers. Nadella has signaled a desire to produce software for rival operating systems, like Apple’s iOS and Google’s Android, and has shuffled management in areas like marketing, business development and the Xbox game console. 
 
 Photographer: Andrew Harrer/Bloomberg Satya Nadella, chief executive officer of Microsoft Corp., speaks during a keynote session at the Microsoft Worldwide Partner Conference in Washington, D.C. on July 16, 2014. Close Satya Nadella, chief executive officer of Microsoft Corp., speaks during a keynote... Read More Close Open Photographer: Andrew Harrer/Bloomberg Satya Nadella, chief executive officer of Microsoft Corp., speaks during a keynote session at the Microsoft Worldwide Partner Conference in Washington, D.C. on July 16, 2014. 
 
 While Microsoft has implemented smaller, intermittent job cuts in individual businesses -- for example, trimming a few hundred positions in advertising sales and marketing in 2012, and some marketing jobs across the company earlier that same year -- the 39-year-old company has only undertaken a companywide restructuring affecting thousands of workers once before, in 2009, at the start of the recession. Over the course of that year, the company cut 5,800 jobs, or about 5 percent of its workforce at the time. 
 
 Cost Savings 
 
 When Microsoft agreed to acquire Nokia’s device unit in September, the software maker pledged $600 million in yearly cost savings in the 18 months after the deal closed. While today’s layoffs are the company’s biggest ever, excluding the 12,500 positions being eliminated at Nokia, the 5,500 job cuts at Microsoft are smaller than those in 2009. 
 
 Microsoft’s engineering teams have traditionally been split between program managers, developers and testers. Now, with new cloud-based methods of building software, it often makes sense to have the developers test and fix bugs instead of a separate team of testers, Nadella said in an interview last week after releasing his memo. 
 
 Nokia Shift 
 
 The Nokia business, now part of Microsoft’s devices group, will also undergo some product changes as Microsoft ends output of phones running Google’s Android operating system and targets the “more affordable smartphone segments,” wrote devices group chief Stephen Elop, formerly the CEO of Nokia, in an e-mail posted on Microsoft’s site. 
 
 Microsoft will switch the Nokia X, which uses Android, to the Windows Phone operating system to broaden its products in the cheaper smartphone category. It will also align future high-end smartphone releases with major products from Windows and Microsoft’s applications team, Elop said. 
 
 The company will also combine what had been two units at Nokia -- Smart Devices and Mobile Phones -- into one under executive Jo Harlow. Phone engineering will be based in Salo, Finland, for high-end devices, and Tampere, Finland, for cheaper ones. Engineering work in Oulu, Finland, will be scaled down. 
 
 Engineering in Beijing and San Diego will see cuts, and phone production will be focused mainly in Hanoi. Nokia will shift repair and manufacturing operations from Hungary. The cuts may affect 1,100 employees in Finland and about 1,800 in Hungary, Microsoft said. 
 
 Elop’s memo was derided by publications from New York magazine to the Guardian, which titled a blog “How not to cut 12,500 jobs,” for starting with the greeting “Hello There,” and failing to get to the job cuts until the 11th paragraph of 14. 
 
 TV Programming 
 
 In the Xbox business, the company will shut down an ambitious effort to create original television programming, just one month after the debut of its first show. The Xbox Entertainment Studio will close in coming months, Xbox chief Phil Spencer said in an e-mail to employees. 
 
 Nancy Tellem, the ex-CBS executive brought in to lead the effort two years ago, will stay on with some of her team to complete shows in production, such as a “Halo” series, the company said. Tellem was hired by former CEO Ballmer to draw more entertainment consumers to Xbox by getting into original programming, like Amazon.com Inc. and Netflix Inc. 
 
 As the technology industry increasingly shifts toward mobile computing and cloud-based services, other technology companies have also sought to keep up by streamlining and firing workers. Hewlett-Packard Co. in May disclosed 16,000 more job cuts after reporting an 11th straight quarter of declining sales, on top of 34,000 in staff reductions already announced. International Business Machines Corp. also started dismissing workers earlier this year as part of a $1 billion restructuring to help it adapt to the industry’s changes. 
 
 To contact the reporter on this story: Dina Bass in Seattle at dbass2@bloomberg.net 
 
 To contact the editors responsible for this story: Reed Stevenson at rstevenson15@bloomberg.net Jillian Ward, James Callan
– Why did Microsoft buy Nokia's phone business? We now know Microsoft's answer: The computing giant released a 30-slide presentation today arguing that the move will improve Microsoft's margins on Windows phones, which will allow it to invest more in the platform, which will accelerate sales and market share growth, the Washington Post reports. But John Herrman at Buzzfeed has another explanation: "Fear of dying alone." Here's what he and other pundits are saying: The presentation "manages to sound both insane and uninspiring, outlining modest goals that still sound unrealistic," Herman argues—like capturing a whole 15% of the smartphone market. "It's a fitting end for the close of Microsoft's Ballmer era, during which the company … missed out on the most important change in consumer electronics in decades" while remaining profitable in unglamorous ways. Like everyone, Microsoft is trying to ape the Apple model, MobileOpportunity observes. But it's not so sure that's a good idea. "There already is an apple," the blog points out, and other software/hardware hybrid companies, like Palm and BlackBerry, have been crushed under its heel. Maybe Microsoft should have tried to patch up its tried-and-true strategy of licensing its OS. The move risks complicating Microsoft's crucial relationships with other PC and device manufacturers, one analyst tells ZDNet. But he adds that "Microsoft needed to make a bold move" or face "certain terminal decline," and that the price it paid for Nokia "seems extremely reasonable." Meanwhile, Matthew Yglesias at Slate digs up a fairly interesting memo from Nokia CEO (and, perhaps, Microsoft heir apparent) Stephen Elop, in which he uses the story of a Deepwater Horizon worker leaping from the burning oil platform—a seemingly desperate, yet necessary move—to explain the company's shift from its own failed OS to Windows Phone. Of course, Yglesias notes, that move "was basically a total failure." To read the full parable, click here.