Nokia stock surged by as much as 48 per cent yesterday after Microsoft said it would buy the Finnish company's mobile business in a US$7.2 billion deal.
Nokia shares surge on $7.2bn Microsoft deal
Under the terms of the deal, announced yesterday, Microsoft will also license Nokia's patents and the Nokia brand name for 10 years as it faces off against Apple.
"After a thorough assessment of how to maximise shareholder value, including consideration of a variety of alternatives, we believe this transaction is the best path forward for Nokia and its shareholders," said Risto Siilasmaa, the chairman of Nokia.
The deal marks the end of an era for the company, once the world's largest mobile handset manufacturer, which has struggled in recent years to compete against Apple and Samsung for a share in the lucrative smartphone market.
Nokia's mobile phone sales totalled 61 million units in the second quarter of this year, down from 83 million units a year ago, according to figures from Gartner.
Microsoft will be hoping that the acquisition of Nokia's handset division will prove a boost to its Windows Phone smartphone operating system.
"Bringing these great teams together will accelerate Microsoft's share and profits in phones, and strengthen the overall opportunities for both Microsoft and our partners across our entire family of devices and services," said the Microsoft chief executive Steve Ballmer.
Nokia has been Microsoft's main partner in the mobile sphere, following the signing of a partnership agreement between the two companies in February 2011.
"I think Microsoft have reached the stage where they feel that they need more vertical integration between the software and the hardware to be able to compete with Apple and Google," said Roberta Cozza, research director for Gartner.
"However the integration of the two teams will probably take at least a year, and the ultimate success of the venture depends on how it is executed by Microsoft," she said.
Windows Phone overtook BlackBerry in the second quarter of the year to become the world's third most popular smartphone operating system, according to Gartner. However, Windows Phone's global market smartphone share stands at just 3.3 per cent, compared with 79 per cent for Android and 14.2 per cent for Apple's iOS.
Although Nokia remains a popular brand in the emerging markets including the Middle East, consumers do not have the emotional connection to Windows Phone or Lumia as brands that they do with Apple and Samsung, said Ms Cozza.
Mr Elop will resign as Nokia's chief executive to head Microsoft's expanded Devices team, to be replaced by Risto Siilasmaa, who is expected to replace Mr Ballmer as Microsoft's chief when the latter retires by the end of August.